Document:

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                                                                    EXHIBIT 10.7

                                3,000,000 Shares

                         GOODRICH PETROLEUM CORPORATION

                                  COMMON STOCK
                          (PAR VALUE $0.20 PER SHARE)

                           PLACEMENT AGENCY AGREEMENT
                           --------------------------

                                                          ____________, 2001

To The Persons Listed on
 Schedule A Hereto

Ladies and Gentlemen:

        1. Introductory. Goodrich Petroleum Corporation, a Delaware corporation
("COMPANY"), proposes to issue and sell 3,000,000 shares ("OFFERED SECURITIES")
of its common stock, par value $0.20 per share ("SECURITIES"), on an all or none
basis, directly to certain investors (collectively, the "INVESTORS"). The
Company desires to engage Jefferies & Company, Inc. ("Jefferies") as the lead
placement agent (the "LEAD PLACEMENT AGENT") and each other person listed in
Schedule A hereto as a placement agent (each a "Placement Agent" and together
with the Lead Placement Agent, the "Placement Agents") in connection with such
issuance and sale. The Company wishes to confirm its agreements with you as the
Placement Agent as follows:

        2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Placement Agents that:

                (a) A registration statement (No. 333-47078) relating to the
        Offered Securities, including a form of prospectus, has been filed with
        the Securities and Exchange Commission ("COMMISSION") and either (i) has
        been declared effective under the Securities Act of 1933 ("ACT") and is
        not proposed to be amended or (ii) is proposed to be amended by post-
        effective amendment. If such registration statement ("INITIAL
        REGISTRATION STATEMENT") has been declared effective, either (i) an
        additional registration statement ("ADDITIONAL REGISTRATION STATEMENT")
        relating to the Offered Securities may have been filed with the
        Commission pursuant to Rule 462(b) ("RULE 462(B)") under the Act and, if
        so filed, has

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        become effective upon filing pursuant to such Rule and the Offered
        Securities all have been duly registered under the Act pursuant to the
        initial registration statement and, if applicable, the additional
        registration statement or (ii) such an additional registration statement
        is proposed to be filed with the Commission pursuant to Rule 462(b) and
        will become effective upon filing pursuant to such Rule and upon such
        filing the Offered Securities will all have been duly registered under
        the Act pursuant to the initial registration statement and such
        additional registration statement. If the Company does not propose to
        amend the initial registration statement or if an additional
        registration statement has been filed and the Company does not propose
        to amend it, and if any post-effective amendment to either such
        registration statement has been filed with the Commission prior to the
        execution and delivery of this Agreement, the most recent amendment (if
        any) to each such registration statement has been declared effective by
        the Commission or has become effective upon filing pursuant to Rule
        462(c) ("RULE 462(C)") under the Act or, in the case of the additional
        registration statement, Rule 462(b). For purposes of this Agreement,
        "EFFECTIVE TIME" with respect to the initial registration statement or,
        if filed prior to the execution and delivery of this Agreement, the
        additional registration statement means (i) if the Company has advised
        the Placement Agents that it does not propose to amend such registration
        statement, the date and time as of which such registration statement, or
        the most recent post-effective amendment thereto (if any) filed prior to
        the execution and delivery of this Agreement, was declared effective by
        the Commission or has become effective upon filing pursuant to Rule
        462(c), or (ii) if the Company has advised the Placement Agents that it
        proposes to file an amendment or post-effective amendment to such
        registration statement, the date and time as of which such registration
        statement, as amended by such amendment or post-effective amendment, as
        the case may be, is declared effective by the Commission. If an
        additional registration statement has not been filed prior to the
        execution and delivery of this Agreement but the Company has advised the
        Placement Agents that it proposes to file one, "EFFECTIVE TIME" with
        respect to such additional registration statement means the date and
        time as of which such registration statement is filed and becomes
        effective pursuant to Rule 462(b). "EFFECTIVE DATE" with respect to the
        initial registration statement or the additional registration statement
        (if any) means the date of the Effective Time thereof. The initial
        registration statement, as amended at its Effective Time, including all
        information contained in the additional registration statement (if any)
        and deemed to be a part of the initial registration statement as of the
        Effective Time of the additional registration statement pursuant to the
        General Instructions of the Form on which it is filed and including all
        information (if any) deemed to be a part of the initial registration
        statement as of its Effective Time pursuant to Rule 430A(b) ("RULE
        430A(B)") under the Act, is hereinafter referred to as the "INITIAL
        REGISTRATION STATEMENT". The additional registration statement, as
        amended at its Effective Time, including the contents of the initial
        registration statement incorporated by reference therein and including
        all information (if any) deemed to be a part of the additional
        registration statement as of its Effective Time pursuant to Rule
        430A(b), is hereinafter referred to as the "ADDITIONAL REGISTRATION
        STATEMENT". The Initial Registration Statement and the Additional
        Registration Statement are herein referred to collectively as the
        "REGISTRATION STATEMENTS" and individually as a "REGISTRATION
        STATEMENT". The form of prospectus relating to the Offered Securities,
        as first filed with the Commission pursuant to and in accordance with
        Rule 424(b) ("RULE 424(B)") under the Act or (if no such filing is
        required) as included in a Registration Statement, is hereinafter
        referred to as the

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        "PROSPECTUS". No document has been or will be prepared or distributed in
        reliance on Rule 434 under the Act.

                (b) If the Effective Time of the Initial Registration Statement
        is prior to the execution and delivery of this Agreement: (i) on the
        Effective Date of the Initial Registration Statement, the Initial
        Registration Statement conformed in all material respects to the
        requirements of the Act and the rules and regulations of the Commission
        ("RULES AND REGULATIONS") and did not include any untrue statement of a
        material fact or omit to state any material fact required to be stated
        therein or necessary to make the statements therein not misleading, (ii)
        on the Effective Date of the Additional Registration Statement (if any),
        each Registration Statement conformed, or will conform, in all material
        respects to the requirements of the Act and the Rules and Regulations
        and did not include, or will not include, any untrue statement of a
        material fact and did not omit, or will not omit, to state any material
        fact required to be stated therein or necessary to make the statements
        therein not misleading and (iii) on the date of this Agreement, the
        Initial Registration Statement and, if the Effective Time of the
        Additional Registration Statement is prior to the execution and delivery
        of this Agreement, the Additional Registration Statement each conforms,
        and at the time of filing of the Prospectus pursuant to Rule 424(b) or
        (if no such filing is required) at the Effective Date of the Additional
        Registration Statement in which the Prospectus is included, each
        Registration Statement and the Prospectus will conform, in all respects
        to the requirements of the Act and the Rules and Regulations, and
        neither of such documents includes, or will include, any untrue
        statement of a material fact or omits, or will omit, to state any
        material fact required to be stated therein or necessary to make the
        statements therein not misleading. If the Effective Time of the Initial
        Registration Statement is subsequent to the execution and delivery of
        this Agreement: on the Effective Date of the Initial Registration
        Statement, the Initial Registration Statement and the Prospectus will
        conform in all respects to the requirements of the Act and the Rules and
        Regulations, neither of such documents will include any untrue statement
        of a material fact or will omit to state any material fact required to
        be stated therein or necessary to make the statements therein not
        misleading, and no Additional Registration Statement has been or will be
        filed. The two preceding sentences do not apply to statements in or
        omissions from a Registration Statement or the Prospectus based upon
        written information furnished to the Company by the Lead Placement
        Agent, with respect to applicability of the two preceding sentences to
        the Lead Placement Agent, or any other Placement Agent, with respect to
        applicability of the two preceding sentences to such other Placement
        Agent, specifically for use therein, it being understood and agreed that
        the only such information is that described as such in Section 7(b)
        hereof.

                (c) The Company has been duly incorporated and is an existing
        corporation in good standing under the laws of the State of Delaware,
        with power and authority (corporate and other) to own its properties and
        conduct its business as described in the Prospectus; the Company is duly
        qualified to do business as a foreign corporation in good standing in
        the States of Louisiana and Texas; and the Company is duly qualified to
        do business as a foreign corporation in good standing in all other
        jurisdictions in which its ownership or lease of property or the conduct
        of its business requires such qualification except where the failure to
        be so qualified would not individually or in the aggregate have a
        material adverse effect on

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        the condition (financial or other), business, properties or results of
        operations of the Company and its subsidiaries taken as a whole
        ("MATERIAL ADVERSE EFFECT").

                (d) Each subsidiary of the Company (A) that is a corporation has
        been duly incorporated and is an existing corporation in good standing
        under the laws of the jurisdiction of its incorporation, and has
        corporate power and authority to own its property and to conduct its
        business as described in the Prospectus or (B) that is a limited
        partnership or limited liability company, as the case may be, has been
        duly formed and is validly existing as a limited partnership or limited
        liability company, as the case may be, in good standing under the laws
        of the jurisdiction of its formation, and has full power and authority
        to own its property and to conduct its business as described in the
        Prospectus; and, in either case, is duly qualified to transact business
        and is in good standing in each jurisdiction in which the conduct of its
        business or its ownership or lease of property or the conduct of its
        business requires such qualification except where the failure to be so
        qualified would not have a Material Adverse Effect; all of the issued
        and outstanding capital stock or other ownership interests of each
        subsidiary of the Company is owned by the Company and has been duly
        authorized and validly issued and is fully paid and nonassessable;
        except as disclosed in the prospectus, the capital stock or other
        ownership interests of each subsidiary owned by the Company, directly or
        through subsidiaries, is owned free from liens, encumbrances and
        defects; all the outstanding shares of capital stock or other ownership
        interests of each subsidiary of the Company have been duly and validly
        issued and are fully paid and nonassessable; and except for the
        Company's general partnership interest in BKWC Limited Partnership,
        neither the Company nor any of its subsidiaries are general partners in
        any partnership.

                (e) The Offered Securities and all other outstanding shares of
        capital stock of the Company have been duly authorized; all outstanding
        shares of capital stock of the Company are, and, when the Offered
        Securities have been delivered and paid for in accordance with this
        Agreement on each Closing Date (as defined below), such Offered
        Securities will have been, validly issued, fully paid and nonassessable
        and will conform to the description thereof contained in the Prospectus;
        and the stockholders of the Company have no preemptive rights with
        respect to the Securities.

                (f) Except as disclosed in the Prospectus, there are no
        contracts, agreements or understandings between the Company and any
        person that would give rise to a valid claim against the Company, the
        Lead Placement Agent or any other Placement Agent for a brokerage
        commission, finder's fee or other like payment in connection with the
        offering of Offered Securities.

                (g) There are no contracts, agreements or understandings between
        the Company and any person granting such person the right to require the
        Company to file a registration statement under the Act with respect to
        any securities of the Company owned or to be owned by such person or to
        require the Company to include such securities in the securities
        registered pursuant to a Registration Statement (except as to which
        valid notice has been given and valid waivers of such rights have been
        made, copies of which have been furnished to the Placement Agents) or,
        except as disclosed in the Prospectus and set forth on

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        Schedule B hereto, in any securities being registered pursuant to any
        other registration statement filed by the Company under the Act.

                (h) The Company has filed a complete application to list the
        Offered Securities on The New York Stock Exchange.

                (i) No consent, approval, authorization, or order of, or filing
        with, any governmental agency or body or any court is required for the
        consummation of the transactions contemplated by this Agreement in
        connection with the issuance and sale of the Offered Securities by the
        Company, except such as have been obtained and made under the Act and
        such as may be required under state securities laws.

                (j) The execution, delivery and performance of this Agreement,
        and the issuance and sale of the Offered Securities will not result in a
        breach or violation of any of the terms and provisions of, or constitute
        a default under, any statute, any rule, regulation or order of any
        governmental agency or body or any court, domestic or foreign, having
        jurisdiction over the Company or any subsidiary of the Company or any of
        their properties, or any indenture, loan agreement, mortgage, lease or
        other agreement or instrument that is material to the Company to which
        the Company or any such subsidiary is a party or by which the Company or
        any such subsidiary is bound or to which any of the properties of the
        Company or any such subsidiary is subject, or the charter or by-laws of
        the Company or any such subsidiary, except where such violation or
        default would not have a Material Adverse Effect, and the Company has
        full power and authority to authorize, issue and sell the Offered
        Securities as contemplated by this Agreement.

                (k) This Agreement and the Escrow Agreement have each been duly
        authorized, executed and delivered by the Company.

                (l) Except as disclosed in the Prospectus, the Company and its
        subsidiaries have good and marketable title to all real properties and
        all other properties and assets owned by them (excluding all oil and gas
        properties that are dealt with in clause (m) below), in each case free
        from liens, encumbrances and defects that would materially affect the
        value thereof or materially interfere with the use made or to be made
        thereof by them; and except as disclosed in the Prospectus, the Company
        and its subsidiaries hold any leased real or personal property under
        valid and enforceable leases with no exceptions that would materially
        interfere with the use made or to be made thereof by them.

                (m) The Company and its subsidiaries have sufficient title to
        its oil and gas properties, free and clear of all liens, encumbrances
        and defects except (i) as disclosed in the Prospectus, (ii) liens and
        encumbrances under gas sales contracts, operating agreements,
        unitization and pooling agreements and such other agreements as are
        customarily found in connection with comparable drilling and producing
        operations; and (iii) liens, encumbrances and defects that do not,
        individually and in the aggregate, materially affect the value of such
        properties or materially interfere with the ability of the Company to
        conduct its business as currently conducted or to utilize such
        properties for their intended purposes.

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                (n) Except as described in the Prospectus, all royalties,
        rentals, deposits and other amounts due on the oil and gas properties of
        the Company and its subsidiaries have properly and timely paid in all
        material respects, and no material amounts of proceeds from the sale or
        production attributable to the oil and gas properties of the Company and
        its subsidiaries are currently being held, or are being threatened to be
        held, in suspense by any purchaser or purchasers thereof.

                (o) The Company and its subsidiaries possess certificates,
        authorities or permits issued by appropriate governmental agencies or
        bodies necessary to conduct the business now operated by them, except
        for those certificates, authorities or permits, the failure of which to
        be possessed by the Company, would not, individually or in the aggregate
        have a Material Adverse Effect, and have not received any notice of
        proceedings relating to the revocation or modification of any such
        certificate(s), authority(ies) or permit(s) that, if determined
        adversely to the Company or any of its subsidiaries, would individually
        or in the aggregate have a Material Adverse Effect.

                (p) No labor dispute with the employees of the Company or any
        subsidiary exists or, to the knowledge of the Company, is imminent that
        might have a Material Adverse Effect.

                (q) The Company and its subsidiaries own, possess or can acquire
        on reasonable terms, adequate trademarks, trade names and other rights
        to inventions, know-how, patents, copyrights, confidential information
        and other intellectual property (collectively, "INTELLECTUAL PROPERTY
        RIGHTS") necessary to conduct the business now operated by them, or
        presently employed by them, and have not received any notice of
        infringement of or conflict with asserted rights of others with respect
        to any intellectual property rights that, if determined adversely to the
        Company or any of its subsidiaries, would individually or in the
        aggregate have a Material Adverse Effect.

                (r) Except as disclosed in the Prospectus, neither the Company
        nor any of its subsidiaries is in violation of any statute, any rule,
        regulation, decision or order of any governmental agency or body or any
        court, domestic or foreign, relating to the use, disposal or release of
        hazardous or toxic substances or relating to the protection or
        restoration of the environment or human exposure to hazardous or toxic
        substances (collectively, "ENVIRONMENTAL LAWS"), owns or operates any
        real property contaminated with any substance that is subject to any
        environmental laws, is liable for any off-site disposal or contamination
        pursuant to any environmental laws, or is subject to any claim relating
        to any environmental laws, which violation, contamination, liability or
        claim would individually or in the aggregate have a Material Adverse
        Effect; and the Company is not aware of any pending investigation which
        might lead to such a claim.

                (s) Except as disclosed in the Prospectus, there are no pending
        actions, suits or proceedings against or affecting the Company, any of
        its subsidiaries or any of their respective properties that, if
        determined adversely to the Company or any of its subsidiaries, would
        individually or in the aggregate have a Material Adverse Effect, or
        would materially and adversely affect the ability of the Company to
        perform its obligations under this

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        Agreement, and no such actions, suits or proceedings are threatened or,
        to the Company's knowledge, contemplated.

                (t) The financial statements included in each Registration
        Statement and the Prospectus present fairly the financial position of
        the Company and its consolidated subsidiaries as of the dates shown and
        their results of operations and cash flows for the periods shown, and
        such financial statements have been prepared in conformity with the
        generally accepted accounting principles in the United States applied on
        a consistent basis; and the assumptions used in preparing the pro forma
        financial statements included in each Registration Statement and the
        Prospectus provide a reasonable basis for presenting the significant
        effects directly attributable to the transactions or events described
        therein, the related pro forma adjustments give appropriate effect to
        those assumptions, and the pro forma columns therein reflect the proper
        application of those adjustments to the corresponding historical
        financial statement amounts.

                (u) Except as disclosed in the Prospectus, since the date of the
        latest audited financial statements included in the Prospectus there has
        been no material adverse change, nor any development or event involving
        a prospective material adverse change, in the condition (financial or
        other), business, properties or results of operations of the Company and
        its subsidiaries taken as a whole, and, except as disclosed in or
        contemplated by the Prospectus, there has been no dividend or
        distribution of any kind declared, paid or made by the Company on any
        class of its capital stock.

                (v) The Company is not and, after giving effect to the offering
        and sale of the Offered Securities and the application of the proceeds
        thereof as described in the Prospectus, will not be an "investment
        company" as defined in the Investment Company Act of 1940.

                (w) Coutret & Associates, Inc. ("Coutret"), petroleum engineers
        from whose reserve report information is set forth in the Registration
        Statement and the Prospectus, were, as of the date of such respective
        report, and are, as of the date hereof, independent petroleum engineers
        with respect to the Company and its subsidiaries. The information
        underlying the estimates of the reserves of the Company and the
        subsidiaries, supplied by the Company to Coutret for purposes of
        preparing such reserve reports (including, without limitation,
        production, costs of operation and development, current prices for
        production, agreements relating to current and future operations and
        sales of production, working interest and net revenue information
        relating to the Company's ownership in such properties) was true and
        correct in all material respects on the dates such information was
        supplied and such reserve reports were prepared; the estimates of future
        capital expenditures and other future exploration and development costs
        supplied to Coutret by the Company were prepared in good faith and with
        a reasonable basis; the information provided by Coutret for purposes of
        preparing the reserve report was prepared in accordance with customary
        industry practices and conforms in all material respects to all
        guidelines promulgated by the Commission; and except as described in the
        Prospectus, other than normal production of the reserves and intervening
        product price fluctuations described in the Prospectus, there are no
        facts or circumstances that would, individually or in the aggregate have
        a material adverse effect on the Company's reserves or present value of
        future net cash flows therefrom, as described in

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        the Prospectus and described in the reserve report; and estimates of
        such reserves and the present value of future net cash flows therefrom
        as described in the Prospectus and reflected in the reserve report
        comply in all material respects to the applicable requirements of the
        Commission and the Act, including Regulation S-X and Industry Guide 2
        under the Act.

        3. Purchase, Sale and Delivery of Offered Securities.  On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Lead Placement Agent and the
Placement Agents, acting as lead placement agent and placement agents,
respectively, for the Company in connection with the issuance and sale of the
Offered Securities, agrees to use their respective reasonable best efforts to
solicit offers to purchase Offered Securities from the Company.  In acting under
this Agreement and in connection with the sale of any Offered Securities, the
Lead Placement Agent and each other Placement Agent each are acting solely as an
agent of the Company and do not assume any obligation towards, or relationship
of agency or trust with, any Investor.  Neither the Lead Placement Agent nor any
other Placement Agent shall have any liability to the Company if any Investor's
offer to purchase shares of Offered Securities solicited by the Lead Placement
Agent or any other Placement Agent and accepted by the Company is not
consummated for any reason.  For avoidance of doubt, the Company and the
Placement Agents agree that neither the Lead Placement Agent nor any other
Placement Agent shall have any obligation whatsoever to purchase any Offered
Securities and that neither the Lead Placement Agent nor any other Placement
Agent is acting as an underwriter of this offering of Offered Securities.  If
the Company shall default in its obligations to deliver Offered Securities to
any Investor whose offer it has accepted, the Company shall hold the Placement
Agents harmless against any loss, claim, damage or liability from or as a result
of such default and shall, in particular, pay to the Placement Agents the
commissions that they would have received had the sale to such Investor(s) been
consummated.

        Concurrently with the execution and delivery of this Agreement, the
Company, the Lead Placement Agent, each other Placement Agent and Wells Fargo
Bank Minnesota, National Association, as escrow agent (the "ESCROW AGENT"),
shall enter into an Escrow Agreement in substantially the form attached hereto
as Exhibit A (the "ESCROW AGREEMENT"), pursuant to which an escrow account will
be established at the Company's expense, for the benefit of the Investors (the
"ESCROW ACCOUNT").  Prior to the Closing Date, (i) each of the Investors will
deposit in the Escrow Account an amount equal to $[___] per Offered Security
multiplied by the number of Offered Securities that the Company has agreed to
sell to such Investor and (ii) the Escrow Agent will notify the Company and the
Placement Agent whether the Investors have deposited in the Escrow Account funds
in an aggregate amount equal to the proceeds of the sale of all of the Offered
Securities (the "REQUISITE FUNDS").

        At [____] a.m., New York time, on [____], 2001, or at such other time
not later than seven full business days thereafter as Jefferies and the Company
determine but in no event prior to the date on which the Escrow Agent shall have
received less than all of the Requisite Funds (such time being herein referred
to as the "CLOSING DATE"), the Escrow Agent shall release the Requisite Funds
from the Escrow Account for collection by the Company and the Placement Agents
as provided in the Escrow Agreement and the Company shall deliver the Offered
Securities to the accounts of the Investors, which delivery may be made through
the facilities of The Depositary Trust Company.  The closing shall take place at
the office of Skadden, Arps, Slate, Meager & Flom LLP, 1600 Smith, Suite

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4400, Houston, Texas 77002. For purposes of Rule 15c6-1 under the Securities
Exchange Act of 1934, the Closing Date (if later than the otherwise applicable
settlement date) shall be the settlement date for payment of funds and delivery
of securities for all the Offered Securities sold pursuant to the offering. The
certificates for the Offered Securities so to be delivered will be in definitive
form, in such denominations and registered in such names as the Investors
request and will be made available for checking and packaging at the above
office of Skadden, Arps, Slate, Meagher & Flom LLP at least 24 hours prior to
the Closing Date.

        As compensation for the Lead Placement Agent's and each other Placement
Agent's efforts and obligations hereunder, the Company will pay to the Lead
Placement Agent and each other Placement Agent commissions equal to:

                (a) with respect to commissions for the Lead Placement Agent,
        $[___]/1/ per Offered Security times the total number of Offered
        Securities for which offers to purchase have been made and adequate
        funds have been validly deposited in the Escrow Account by any Investor
        who was solicited by the Lead Placement Agent and is listed on a
        schedule provided by the Lead Placement Agent to the Escrow Agent
        pursuant to Section 4 of the Escrow Agreement, and which offers have
        been accepted by the Company, and

                (b) with respect to commissions for any other Placement Agent,
        $[___]/2/ per Offered Security times the total number of Offered
        Securities for which offers to purchase have been made and adequate
        funds have been validly deposited in the Escrow Account by any Investor
        who was solicited by such Placement Agent and who is listed on a
        schedule provided by such Placement Agent to the Escrow Agent pursuant
        to Section 4 of the Escrow Agreement, and which offers have been
        accepted by the Company.

        For avoidance of doubt, in the event that between the date of this
Agreement and the Closing Date, one or more Investors solicited by the Lead
Placement Agent or one or more Placement Agents fails to deposit funds in the
Escrow Account for the number of Offered Securities that such Investor had
offered to purchase, then the Lead Placement and each other Placement Agent
shall be entitled to solicit offers to purchase Offered Securities from
additional Investors and be compensated for such solicitation in accordance with
the foregoing subsection (a) or (b), as applicable.

        In addition to the foregoing and as additional compensation to the Lead
Placement Agent for its services and obligations hereunder as such, the Company
will pay to the Lead Placement Agent an additional commission in the amount of
$[____]/3/.

        Such payments will be made by the Company on the Closing Date or upon
such other date as set forth in the Escrow Agreement that the funds deposited in
the Escrow Account are returned to the Investors without a closing hereunder.
-------------
/1/ Will equal 5% of the per share price to Investor. Assuming a $5.00 per share
price, this amount will be $.25 per Offered Security.
/2/ Will equal 5% of the per share price to Investor. Assuming a $5.00 per share
price, this amount will be $.25 per Offered Security.
/3/ Will equal 2% of the gross proceeds to the Company of this offering.

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        4. Solicitation of Offers by the Placement Agents.  It is understood
that the Placement Agents will use their reasonable efforts to solicit from the
public offers to purchase the Offered Securities as set forth in the Prospectus.

        5. Certain Agreements of the Company. The Company agrees with the
Placement Agents that:

        (a) If the Effective Time of the Initial Registration Statement is prior
     to the execution and delivery of this Agreement, the Company will file the
     Prospectus with the Commission pursuant to and in accordance with
     subparagraph (1) (or, if applicable and if consented to by Jefferies,
     subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
     second business day following the execution and delivery of this Agreement
     or (B) the fifteenth business day after the Effective Date of the Initial
     Registration Statement.

                The Company will advise the Lead Placement Agent promptly of any
     such filing pursuant to Rule 424(b). If the Effective Time of the Initial
     Registration Statement is prior to the execution and delivery of this
     Agreement and an additional registration statement is necessary to register
     a portion of the Offered Securities under the Act but the Effective Time
     thereof has not occurred as of such execution and delivery, the Company
     will file the additional registration statement or, if filed, will file a
     post-effective amendment thereto with the Commission pursuant to and in
     accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on
     the date of this Agreement or, if earlier, on or prior to the time the
     Prospectus is printed and distributed to the Lead Placement Agent, any
     other Placement Agent or any Investor, or will make such filing at such
     later date as shall have been consented to by Jefferies.

        (b) The Company will advise Jefferies promptly of any proposal to amend
     or supplement the initial or any additional registration statement as filed
     or the related prospectus or the Initial Registration Statement, the
     Additional Registration Statement (if any) or the Prospectus and will not
     effect such amendment or supplementation without Jefferies' consent, which
     consent shall not be unreasonably withheld after a reasonable opportunity
     by Jefferies to review any such amendment or supplement; and the Company
     will also advise Jefferies promptly of the effectiveness of each
     Registration Statement (if its Effective Time is subsequent to the
     execution and delivery of this Agreement) and of any amendment or
     supplementation of a Registration Statement or the Prospectus and of the
     institution by the Commission of any stop order proceedings in respect of a
     Registration Statement and will use its best efforts to prevent the
     issuance of any such stop order and to obtain as soon as possible its
     lifting, if issued.

        (c) The Company will comply with the requirements of the Act and the
     Rules and Regulations thereunder and any other applicable rules and
     regulations so far as to permit the completion of the distribution of the
     Offered Securities as contemplated in this Agreement and the Prospectus.
     If, at any time when a prospectus relating to the Offered Securities is
     required to be delivered under the Act in connection with the solicitation
     of offers by the Lead Placement Agent, any other Placement Agents or any
     dealers, any event

                                       10
<PAGE>

     occurs as a result of which the Prospectus as then amended or supplemented
     would include an untrue statement of a material fact or omit to state any
     material fact necessary to make the statements therein, in the light of the
     circumstances under which they were made, not misleading, or if it is
     necessary at any time to amend the Prospectus to comply with the Act, the
     Company will promptly notify Jefferies of such event and will promptly
     prepare and file with the Commission, at its own expense, an amendment or
     supplement which will correct such statement or omission or an amendment
     which will effect such compliance. Neither Jefferies' consent to, nor the
     Placement Agents' delivery of, any such amendment or supplement shall
     constitute a waiver of any of the conditions set forth in Section 6.

        (d) As soon as practicable, but not later than the Availability Date (as
     defined below), the Company will make generally available to its
     securityholders an earnings statement covering a period of at least 12
     months beginning after the Effective Date of the Initial Registration
     Statement (or, if later, the Effective Date of the Additional Registration
     Statement) which will satisfy the provisions of Section 11(a) of the Act.
     For the purpose of the preceding sentence, "AVAILABILITY DATE" means the
     45th day after the end of the fourth fiscal quarter following the fiscal
     quarter that includes such Effective Date, except that, if such fourth
     fiscal quarter is the last quarter of the Company's fiscal year,
     "AVAILABILITY DATE" means the 90th day after the end of such fourth fiscal
     quarter.

        (e) The Company will furnish to the Placement Agents copies of each
     Registration Statement (one of which will be signed and will include all
     exhibits), each related preliminary prospectus, and, so long as a
     prospectus relating to the Offered Securities is required to be delivered
     under the Act in connection with the solicitation of offers by the
     Placement Agents or dealers, the Prospectus and all amendments and
     supplements to such documents, in each case in such reasonable quantities
     as Jefferies requests. The Prospectus shall be so furnished on or prior to
     3:00 P.M., New York time, on the business day following the later of the
     execution and delivery of this Agreement or the Effective Time of the
     Initial Registration Statement. All other documents shall be so furnished
     as soon as available. The Company will pay the expenses of printing and
     distributing to the Placement Agents and the Investors all such documents.

        (f) The Company will arrange for the qualification of the Offered
     Securities for sale under the laws of such domestic jurisdictions as
     Jefferies designates and will continue such qualifications in effect so
     long as required for the distribution.

        (g) During the period of five years hereafter, the Company will furnish
     to the Lead Placement Agent and, upon request, to each of the other
     Placement Agents, as soon as practicable after the end of each fiscal year,
     a copy of its annual report to stockholders for such year; and the Company
     will furnish to the Lead Placement Agent (i) as soon as available, a copy
     of each report and any definitive proxy statement of the Company filed with
     the Commission under the Securities Exchange Act of 1934 or mailed to
     stockholders, and (ii) from time to time, such other information concerning
     the Company as Jefferies may reasonably request.

                                       11
<PAGE>

        (h) The Company will pay all expenses incident to the performance of its
     obligations under this Agreement, for any filing fees and other expenses
     (including fees and disbursements of counsel) incurred in connection with
     qualification of the Offered Securities for sale under the laws of such
     domestic jurisdictions as Jefferies designates and the printing of
     memoranda relating thereto, for the filing fee incident to, and the
     reasonable fees and disbursements of counsel to the Placement Agents in
     connection with, the review by the National Association of Securities
     Dealers, Inc. of the Offered Securities, for any travel expenses of the
     Company's officers and employees, any other expenses of the Company in
     connection with attending or hosting meetings with prospective purchasers
     of the Offered Securities and for expenses incurred in distributing
     preliminary prospectuses and the Prospectus (including any amendments and
     supplements thereto) to the Placement Agents and Investors. In addition,
     the Company will pay to the Lead Placement Agent on the Closing Date, or
     upon such other date as set forth in the Escrow Agreement that the funds
     deposited in the Escrow Account are returned to the Investors without a
     closing hereunder, an amount equal to the difference between $[____] minus
     $20,000, which total amount represents reimbursement of all fees,
     disbursements and out-of-pocket expenses (including fees and disbursements
     of counsel) incurred by Jefferies as provided for under the Letter
     Agreement dated July 27, 2000 between Jefferies and the Company.

        (i) For a period of 180 days after the date of the initial public
     offering of the Offered Securities, the Company will not offer, sell,
     contract to sell, pledge or otherwise dispose of, directly or indirectly,
     or file with the Commission any registration statement under the Act
     relating to, any additional shares of its Securities or securities
     convertible into or exchangeable or exercisable for any shares of its
     Securities, or publicly disclose the intention to make any such offer,
     sale, pledge, disposition or filing, whether for the benefit of the
     Company, its securityholders or any other person, without the prior written
     consent of Jefferies, except issuances of Securities pursuant to the
     conversion or exchange of convertible or exchangeable securities or the
     exercise of warrants or options, in each case outstanding on, and in
     accordance with the terms of such securities as of, the date hereof, grants
     of employee stock options pursuant to the terms of a plan in effect on the
     date hereof, issuances of Securities pursuant to the exercise of such
     options.

        (j) The Company will not engage any person other than the Lead Placement
     Agent (including any other Placement Agent) as lead placement agent.

     6. Conditions of the Obligations of the Placement Agents. The obligations
of the Placement Agents hereunder and the obligation of any Investor to purchase
Offered Securities on the Closing Date, whose offer to purchase such Offered
Securities has been solicited by the Placement Agents and accepted by the
Company, will be subject to the accuracy of the representations and warranties
on the part of the Company herein, to the accuracy of the statements of Company
officers made pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions
precedent:

        (a) The Placement Agents shall have received a letter, dated the date of
     delivery thereof (which, if the Effective Time of the Initial Registration
     Statement is prior to the execution and delivery of this Agreement, shall
     be on or prior to the date of this

                                       12
<PAGE>

     Agreement or, if the Effective Time of the Initial Registration Statement
     is subsequent to the execution and delivery of this Agreement, shall be
     prior to the filing of the amendment or post-effective amendment to the
     registration statement to be filed shortly prior to such Effective Time),
     of KPMG LLP confirming that they are independent public accountants for the
     Company within the meaning of the Act and the applicable published Rules
     and Regulations thereunder and stating to the effect that:

                (i) in their opinion the financial statements and schedules)
        examined by them and included in the Registration Statements comply as
        to form in all material respects with the applicable accounting
        requirements of the Act and the related published Rules and Regulations;

                (ii) they have performed the procedures specified by the
        American Institute of Certified Public Accountants for a review of
        interim financial information as described in Statement of Auditing
        Standards No. 71, Interim Financial Information, on the unaudited
        financial statements included in the Registration Statements;

                (iii) on the basis of the review referred to in clause (ii)
        above, a reading of the latest available interim financial statements of
        the Company, inquiries of officials of the Company who have
        responsibility for financial and accounting matters and other specified
        procedures, nothing came to their attention that caused them to believe
        that:

                    (A) the unaudited financial statements included in the
               Registration Statements do not comply as to form in all material
               respects with the applicable accounting requirements of the Act
               and the related published Rules and Regulations or any material
               modifications should be made to such unaudited financial
               statements for them to be in conformity with generally accepted
               accounting principles;

                    (B) at the date of the latest available balance sheet read
               by such accountants, or at a subsequent specified date not more
               than three business days prior to the date of this Agreement,
               there was any change in the capital stock or any increase in
               short-term indebtedness or long-term debt of the Company and its
               consolidated subsidiaries or, at the date of the latest available
               balance sheet read by such accountants, there was any decrease in
               consolidated net current assets or net assets, as compared with
               amounts shown on the latest balance sheet included in the
               Prospectus; or

                    (C) for the period from the closing date of the latest
               income statement included in the Prospectus to the closing date
               of the latest available income statement read by such accountants
               there were any decreases, as compared with the corresponding
               period of the previous year and with the period of corresponding
               length ended the date of the latest income statement included in
               the Prospectus, in consolidated net sales, or

                                       13
<PAGE>

               in the total or per share amounts of consolidated income before
               extraordinary items or net income, except in all cases set forth
               in clause (B) above for changes, increases or decreases which the
               Prospectus discloses have occurred or may occur or which are
               described in such letter; and

                (iv) on the basis of their review of the unaudited pro forma as
        adjusted financial statements and selected consolidated financial data
        included in the Registration Statement and inquiries of officials of the
        Company who have responsibility for financial and accounting matters and
        other specified procedures, nothing came to their attention that caused
        them to believe that the unaudited pro forma as adjusted financial
        statements and selected consolidated financial data included in the
        Registration Statement do not comply as to form in all material respects
        with the applicable accounting requirements under the Act;

                (v) they have compared specified dollar amounts (or percentages
        derived from such dollar amounts) and other financial information
        contained in the Registration Statements (in each case to the extent
        that such dollar amounts, percentages and other financial information
        are derived from the general accounting records of the Company and its
        subsidiaries subject to the internal controls of the Company's
        accounting system or are derived directly from such records by analysis
        or computation) with the results obtained from inquiries, a reading of
        such general accounting records and other procedures specified in such
        letter and have found such dollar amounts, percentages and other
        financial information to be in agreement with such results, except as
        otherwise specified in such letter.

     For purposes of this subsection, (i) if the Effective Time of the Initial
     Registration Statement is subsequent to the execution and delivery of this
     Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration
     statement as proposed to be amended by the amendment or post-effective
     amendment to be filed shortly prior to its Effective Time, (ii) if the
     Effective Time of the Initial Registration Statement is prior to the
     execution and delivery of this Agreement but the Effective Time of the
     Additional Registration is subsequent to such execution and delivery,
     "REGISTRATION STATEMENTS" shall mean the Initial Registration Statement and
     the additional registration statement as proposed to be filed or as
     proposed to be amended by the post-effective amendment to be filed shortly
     prior to its Effective Time, and (iii) "PROSPECTUS" shall mean the
     prospectus included in the Registration Statements.

        (b) If the Effective Time of the Initial Registration Statement is not
     prior to the execution and delivery of this Agreement, such Effective Time
     shall have occurred not later than 10:00 P.M., New York time, on the date
     of this Agreement or such later date as shall have been consented to by
     Jefferies. If the Effective Time of the Additional Registration Statement
     (if any) is not prior to the execution and delivery of this Agreement, such
     Effective Time shall have occurred not later than 10:00 P.M., New York
     time, on the date of this Agreement or, if earlier, the time the Prospectus
     is printed and distributed to the Lead Placement Agent, any other Placement
     Agent or any Investor, or shall have occurred at such later date as shall
     have been consented to by Jefferies. If the Effective Time of the Initial

                                       14
<PAGE>

     Registration Statement is prior to the execution and delivery of this
     Agreement, the Prospectus shall have been filed with the Commission in
     accordance with the Rules and Regulations and Section 5(a) of this
     Agreement. Prior to the Closing Date, no stop order suspending the
     effectiveness of a Registration Statement shall have been issued and no
     proceedings for that purpose shall have been instituted or, to the
     knowledge of the Company, the Lead Placement Agent or any other Placement
     Agent, shall be contemplated by the Commission.

        (c) Subsequent to the execution and delivery of this Agreement, there
     shall not have occurred (i) any change, or any development or event which
     results, or which could reasonably be expected to result, in a change in
     the condition (financial or other), business, properties or results of
     operations of the Company and its subsidiaries taken as one enterprise
     which, in the judgment of Jefferies, is material and adverse and makes it
     impractical or inadvisable to proceed with completion of the public
     offering or the sale of and payment for the Offered Securities; (ii) any
     downgrading in the rating of any debt securities or preferred stock of the
     Company by any "nationally recognized statistical rating organization" (as
     defined for purposes of Rule 436(g) under the Act), or any public
     announcement that any such organization has under surveillance or review
     its rating of any debt securities or preferred stock of the Company (other
     than an announcement with positive implications of a possible upgrading,
     and no implication of a possible downgrading, of such rating); (iii) any
     material suspension or material limitation of trading in securities
     generally on the New York Stock Exchange, or any setting of minimum prices
     for trading on such exchange, or any suspension of trading of any
     securities of the Company on any exchange or in the over-the-counter
     market; (iv) any banking moratorium declared by U.S. Federal or New York
     authorities; or (v) any outbreak or escalation of major hostilities in
     which the United States is involved, any declaration of war by Congress or
     any other substantial national or international calamity or emergency if,
     in the judgment of Jefferies, the effect of any such outbreak, escalation,
     declaration, calamity or emergency makes it impractical or inadvisable to
     proceed with completion of the public offering or the sale of and payment
     for the Offered Securities.

        (d) The Placement Agents shall have received an opinion, dated the
     Closing Date, of Vinson & Elkins, L.L.P., counsel for the Company, to the
     effect that:

                (i) The Company has been duly incorporated and is an existing
        corporation in good standing under the laws of the State of Delaware,
        with corporate power and authority to own its properties and conduct its
        business as described in the Prospectus; and solely based upon
        certificates received from the appropriate government officials, the
        Company is duly qualified to do business as a foreign corporation in
        good standing in all other jurisdictions in which its ownership or lease
        of property or the conduct of its business requires such qualification;

                (ii) Each subsidiary of the Company (A) that is a corporation
        has been duly incorporated and is an existing corporation in good
        standing under the laws of its jurisdiction of incorporation, and has
        corporate power and authority to

                                       15
<PAGE>

        own its property and to conduct its business as described in the
        Prospectus or (B) that is a limited partnership or limited liability
        company, as the case may be, has been duly formed and is validly
        existing as a limited partnership or limited liability company, as the
        case may be, in good standing under the laws of the jurisdiction of its
        formation, and has full power and authority to own its property and to
        conduct its business as described in the Prospectus; and solely based
        upon certificates received from the appropriate governmental officials,
        in either case, is duly qualified to transact business and is in good
        standing in each jurisdiction in which the conduct of its business or
        its ownership or lease of property or the conduct of its business
        requires such qualification; all of the issued and outstanding capital
        stock or other ownership interests of each subsidiary of the Company is
        owned by the Company and has been duly authorized and validly issued and
        is fully paid and nonassessable; the capital stock or other ownership
        interests of each subsidiary owned by the Company, directly or through
        subsidiaries, is owned free from liens, encumbrances and defects; all
        the outstanding shares of capital stock or other ownership interests of
        each subsidiary of the Company have been duly and validly issued and are
        fully paid and nonassessable; and neither the Company nor any of its
        subsidiaries are general partners in any partnership;

                (iii) The Offered Securities delivered on the Closing Date have
        been duly authorized and validly issued, are fully paid and
        nonassessable and conform to the description thereof contained in the
        Prospectus; and the stockholders of the Company have no preemptive
        rights with respect to the Securities;

                (iv) There are no contracts, agreements or understandings known
        to such counsel between the Company and any person granting such person
        the right to require the Company to file a registration statement under
        the Act with respect to any securities of the Company owned or to be
        owned by such person or to require the Company to include such
        securities in the securities registered pursuant to the Registration
        Statement or, except as disclosed in the Prospectus and in an exhibit to
        the opinion, in any securities being registered pursuant to any other
        registration statement filed by the Company under the Act;

                (v) The Company is not and, after giving effect to the offering
        and sale of the Offered Securities and the application of the proceeds
        thereof as described in the Prospectus, will not be an "investment
        company" as defined in the Investment Company Act of 1940;

                (vi) No consent, approval, authorization or order of, or filing
        with, any governmental agency or body or any court is required for the
        consummation of the transactions contemplated by this Agreement in
        connection with the issuance or sale of the Offered Securities by the
        Company, except such as have been obtained and made under the Act and
        such as may be required under state securities laws;

                (vii) The execution, delivery and performance of this Agreement,
        the Escrow Agreement and the issuance and sale of the Offered Securities
        will not

                                       16
<PAGE>

        result in a breach or violation of any of the terms and provisions of,
        or constitute a default under, any statute, any rule, or regulation or,
        to our knowledge, any order of any governmental agency or body or any
        court having jurisdiction over the Company or any subsidiary of the
        Company or any of their properties, or any agreement or instrument to
        which the Company or any such subsidiary is a party or by which the
        Company or any such subsidiary is bound or to which any of the
        properties of the Company or any such subsidiary is subject, or the
        charter or by-laws of the Company or any such subsidiary, and the
        Company has full power and authority to authorize, issue and sell the
        Offered Securities as contemplated by this Agreement;

                (viii) The Initial Registration Statement was declared effective
        under the Act as of the date and time specified in such opinion, the
        Additional Registration Statement (if any) was filed and became
        effective under the Act as of the date and time (if determinable)
        specified in such opinion, the Prospectus either was filed with the
        Commission pursuant to the subparagraph of Rule 424(b) specified in such
        opinion on the date specified therein or was included in the Initial
        Registration Statement or the Additional Registration Statement (as the
        case may be), and, to the knowledge of such counsel, no stop order
        suspending the effectiveness of a Registration Statement or any part
        thereof has been issued and no proceedings for that purpose have been
        instituted or are pending or contemplated under the Act, and each
        Registration Statement and the Prospectus, and each amendment or
        supplement thereto, as of their respective effective or issue dates,
        complied as to form in all material respects with the requirements of
        the Act and the Rules and Regulations; and such counsel do not know of
        any legal or governmental proceedings required to be described in a
        Registration Statement or the Prospectus which are not described as
        required or of any contracts or documents of a character required to be
        described in a Registration Statement or the Prospectus or to be filed
        as exhibits to a Registration Statement which are not described and
        filed as required; it being understood that such counsel need express no
        opinion as to the financial statements or other financial, statistical
        or reserve data contained in the Registration Statements or the
        Prospectus;

                (ix) The statements set forth in the Prospectus under the
        captions "Business--Regulations", "Business--Legal and Regulatory
        Proceedings", "Transactions with Our Management and Securityholders" and
        "Description of Capital Stock", insofar as they are descriptions of
        contracts, agreements or other legal documents, or refer to statements
        of law or legal conclusions, are accurate in all material respects and
        present fairly the information described therein; and

                (x) This Agreement and the Escrow Agreement has been duly
        authorized, executed and delivered by the Company.

                In addition, such counsel shall state that because the primary
        purpose of their engagement was not to establish or confirm factual
        matters or financial, statistical or reserve data and because of the
        wholly or partially non-legal character

                                       17
<PAGE>

        of many of the statements contained in the Registration Statement or the
        Prospectus (except as described in clause (viii) above), they are not
        passing upon and do not assume any responsibility for the accuracy,
        completeness or fairness of the statements contained in the Registration
        Statement or the Prospectus, and they have not independently verified
        the accuracy, completeness or fairness of such statements and that,
        without limiting the generality of the foregoing, they assume no
        responsibility for and have not independently verified the accuracy,
        completeness or fairness of the financial statements and schedules and
        other financial, statistical and reserve data included in the
        Registration Statement and the Prospectus, and they have not examined
        the financial, statistical or reserve records from which such financial
        statements, schedules and other financial, statistical or reserve data
        are derived. Such counsel shall state that they have participated in
        conferences with officers and other representatives of the Company,
        representatives of the independent public accountants of the Company,
        and with representatives of the Placement Agents and counsel of the Lead
        Placement Agent, at which the contents of the Registration Statement and
        the Prospectus and related matters were discussed and that they have
        also reviewed certain corporate documents furnished to them by the
        Company. Such counsel shall state that based upon such participation and
        review, no facts have come to their attention that cause them to believe
        that the Registration Statement, as of its effective date contained, or
        the Prospectus, as of its date contained, or as of the date hereof
        contains, an untrue statement of a material fact or omitted or omits to
        state a material fact necessary to make the statements therein, in the
        light of the circumstances under which they were made, not misleading,
        except that in each case such counsel need express no belief with
        respect to the financial statements and schedules and other financial,
        statistical and reserve data included in the Registration Statement or
        the Prospectus.

                In rendering the foregoing opinion, Vinson & Elkins L.L.P. may
        state that such opinion is limited to the Federal laws of the United
        States and the General Corporation Law of the State of Delaware, and
        that they are expressing no opinion as to the effect of the laws of any
        other jurisdiction. In addition, such counsel may state that they have
        relied as to certain matters on information obtained from public
        officials, officers of the Company and other sources believed by them to
        be responsible.

        (e) The Lead Placement Agent shall have received from Skadden, Arps,
     Slate, Meagher & Flom LLP, counsel for the Lead Placement Agent only, such
     opinion or opinions, dated the Closing Date and addressed only to the Lead
     Placement Agent, with respect to the incorporation of the Company, the
     validity of the Offered Securities delivered on the Closing Date, the
     Registration Statements, the Prospectus and other related matters as the
     Lead Placement Agent may require, and the Company shall have furnished to
     such counsel such documents as they request for the purpose of enabling
     them to pass upon such matters.

        (f) The Placement Agents shall have received a certificate, dated the
     Closing Date, of the President or any Vice President and a principal
     financial or accounting officer of

                                       18
<PAGE>

     the Company in which such officers, to the best of their knowledge after
     reasonable investigation, shall state that: the representations and
     warranties of the Company in this Agreement are true and correct; the
     Company has complied with all agreements and satisfied all conditions on
     its part to be performed or satisfied hereunder at or prior to the Closing
     Date; no stop order suspending the effectiveness of any Registration
     Statement has been issued and no proceedings for that purpose have been
     instituted or are contemplated by the Commission; the Additional
     Registration Statement (if any) satisfying the requirements of
     subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b),
     including payment of the applicable filing fee in accordance with Rule
     111(a) or (b) under the Act, prior to the time the Prospectus was printed
     and distributed to the Lead Placement Agent, any other Placement Agent or
     any Investor; and, subsequent to the respective dates of the most recent
     financial statements in the Prospectus, there has been no material adverse
     change, nor any development or event involving a prospective material
     adverse change, in the condition (financial or other), business, properties
     or results of operations of the Company and its subsidiaries taken as a
     whole except as set forth in or contemplated by the Prospectus or as
     described in such certificate.

        (g) The Placement Agents shall have received a letter, dated the Closing
     Date, of KPMG LLP which meets the requirements of subsection (a) of this
     Section, except that the specified date referred to in such subsection will
     be a date not more than three days prior to the Closing Date for the
     purposes of this subsection.

        (h) The Placement Agents shall have received a letter, dated the Closing
     Date, of Coutret with respect to their status as independent reserve
     engineers and with respect to reserve information of the Company contained
     in the Registration Statement and the Prospectus, in form and substance
     reasonably satisfactory to the Placement Agents.

        (i) On or prior to the date of this Agreement, the Placement Agents
     shall have received lockup letters from each of the executive officers and
     directors of the Company.

        (j) The Offered Securities have been approved for listing on the New
     York Stock Exchange and evidence thereof provided to the Placement Agents.

The Company will furnish the Placement Agents with such conformed copies of such
opinions, certificates, letters and documents as the Placement Agents may
reasonably request.  Jefferies may in its sole discretion waive compliance with
any conditions to the obligations of the Placement Agents hereunder.

     7. Indemnification and Contribution.

        (a) The Company will indemnify and hold harmless each Placement Agent
     (which term as used in this Section 7 shall, for avoidance of doubt,
     include the Lead Placement Agent), their respective partners, directors and
     officers and each person, if any, who controls the respective Placement
     Agents within the meaning of Section 15 of the Act, against any losses,
     claims, damages or liabilities, joint or several, to which any of the
     Placement Agents may become subject, under the Act or otherwise, insofar as
     such losses,

                                       19
<PAGE>

     claims, damages or liabilities (or actions in respect thereof) arise out of
     or are based upon (i) any untrue statement or alleged untrue statement of
     any material fact contained in any Registration Statement, the Prospectus,
     or any amendment or supplement thereto, or any related preliminary
     prospectus, or arise out of or are based upon the omission or alleged
     omission to state therein a material fact required to be stated therein or
     necessary to make the statements therein not misleading or (ii) any act or
     omission of any other Placement Agent engaged by the Company to solicit
     offers to purchase Offered Securities from Investors, and will reimburse
     the Placement Agents for any legal or other expenses reasonably incurred by
     any such Placement Agent in connection with investigating or defending any
     such loss, claim, damage, liability or action as such expenses are
     incurred; provided, however, that the Company will not be liable in any
     such case to the Lead Placement Agent or any other Placement Agent who
     furnished written information to the Company to the extent that any such
     loss, claim, damage or liability arises out of or is based upon an untrue
     statement or alleged untrue statement in or omission or alleged omission
     from any of such documents in reliance upon and in conformity with such
     written information furnished to the Company by the Lead Placement Agent or
     such other Placement Agent, as the case may be, specifically for use
     therein, it being understood and agreed that the only such information
     furnished by the Lead Placement Agent or any other Placement Agents
     consists of the information described as such in subsection (b) below.

          Insofar as the foregoing indemnity agreement, or the representations
     and warranties contained in Section 2(b), may permit indemnification for
     liabilities under the Act of any person who is a Placement Agent or a
     partner or controlling person of a Placement Agent within the meaning of
     Section 15 of the Act and who, at the date of this Agreement, is a
     director, officer or controlling person of the Company, the Company has
     been advised that in the opinion of the Commission such provisions may
     contravene Federal public policy as expressed in the Act and may therefore
     be unenforceable. In the event that a claim for indemnification under such
     agreement or such representations and warranties for any such liabilities
     (except insofar as such agreement provides for the payment by the Company
     of expenses incurred or paid by a director, officer or controlling person
     in the successful defense of any action, suit or proceeding) is asserted by
     such a person, the Company will submit to a court of appropriate
     jurisdiction (unless in the opinion of counsel for the Company the matter
     has already been settled by controlling precedent) the question of whether
     or not indemnification by it for such liabilities is against public policy
     as expressed in the Act and therefore unenforceable, and the Company will
     be governed by the final adjudication of such issue.

        (b) The Lead Placement Agent and each other Placement Agent will
     severally and not jointly indemnify and hold harmless the Company, its
     directors and officers and each person, if any who controls the Company
     within the meaning of Section 15 of the Act, against any losses, claims,
     damages or liabilities to which the Company may become subject, under the
     Act or otherwise, insofar as such losses, claims, damages or liabilities
     (or actions in respect thereof) arise out of or are based upon any untrue
     statement or alleged untrue statement of any material fact contained in any
     Registration Statement, the Prospectus, or any amendment or supplement
     thereto, or any related preliminary prospectus, or arise out of or are
     based upon the omission or the alleged omission to state therein a material
     fact

                                       20
<PAGE>

     required to be stated therein or necessary to make the statements therein
     not misleading, in each case to the extent, but only to the extent, that
     such untrue statement or alleged untrue statement or omission or alleged
     omission was made in reliance upon and in conformity with written
     information furnished to the Company by the Lead Placement Agent or such
     other Placement Agent, as the case may be, specifically for use therein,
     and will reimburse any legal or other expenses reasonably incurred by the
     Company in connection with investigating or defending any such loss, claim,
     damage, liability or action as such expenses are incurred, it being
     understood and agreed that the only such information furnished by the
     Placement Agents consists of the following information in the Prospectus
     under the caption "Plan of Distribution" furnished by the Placement Agents:
     the second, third and fourth sentences of the second paragraph, and the
     fifth paragraph under such caption.

        (c) Promptly after receipt by an indemnified party under this Section of
     notice of the commencement of any action, such indemnified party will, if a
     claim in respect thereof is to be made against the indemnifying party under
     subsection (a) or (b) above, notify the indemnifying party of the
     commencement thereof; but the omission so to notify the indemnifying party
     will not relieve it from any liability which it may have to any indemnified
     party otherwise than under subsection (a) or (b) above. In the case of
     parties indemnified pursuant to subsection (a) above, counsel to the
     indemnified parties shall be selected by Jefferies, and in the case of
     parties indemnified pursuant to subsection (b) above, counsel to the
     indemnified parties shall be selected by the Company. In case any such
     action is brought against any indemnified party and it notifies the
     indemnifying party of the commencement thereof, the indemnifying party will
     be entitled to participate therein and, to the extent that it may wish,
     jointly with any other indemnifying party similarly notified, to assume the
     defense thereof, with counsel satisfactory to such indemnified party, and
     after notice from the indemnifying party to such indemnified party of its
     election so to assume the defense thereof, the indemnifying party, subject
     to the next sentence of this subsection (c) will not be liable to such
     indemnified party under this Section, for any legal or other expenses
     subsequently incurred by such indemnified party in connection with the
     defense thereof other than reasonable costs of investigation.
     Notwithstanding the foregoing, each indemnified party shall have the right
     to employ separate counsel of its choice (including local counsel), and the
     indemnifying parties shall bear the reasonable fees, costs and expenses of
     such separate counsel if (i) the employment of counsel by the indemnified
     party has been authorized in writing by the indemnifying party, (ii) the
     use of counsel chosen to represent such indemnified party would present
     such counsel with a conflict, or potential conflict, of interest, (iii) the
     actual or potential defendants in, or targets of, any such action include
     both such indemnified party and the indemnifying party, and such
     indemnified party shall have reasonably concluded that there may be legal
     defenses available to it and/or other indemnified parties that are
     different from or additional to those available to the indemnifying party,
     or (iv) the indemnifying party shall not have employed counsel satisfactory
     to the indemnified party to represent the indemnified party within a
     reasonable time after notice of the institution of such action. No
     indemnifying party shall, without the prior written consent of the
     indemnified party, effect any settlement of any pending or threatened
     action in respect of which any indemnified party is or could have been a
     party and indemnity could have been sought hereunder by such indemnified
     party unless such settlement (i) includes an unconditional release of such
     indemnified party from all liability

                                       21
<PAGE>

     on any claims that are the subject matter of such action and (ii) does not
     include a statement as to, or an admission of, fault, culpability or a
     failure to act by or on behalf of an indemnified party.

        (d) If the indemnification provided for in this Section is unavailable
     or insufficient to hold harmless an indemnified party under subsection (a)
     or (b) above, then each indemnifying party shall contribute to the amount
     paid or payable by such indemnified party as a result of the losses,
     claims, damages or liabilities referred to in subsection (a) or (b) above
     (i) in such proportion as is appropriate to reflect the relative benefits
     received by the Company on the one hand and the Placement Agents on the
     other from the offering of the Securities or (ii) if the allocation
     provided by clause (i) above is not permitted by applicable law, in such
     proportion as is appropriate to reflect not only the relative benefits
     referred to in clause (i) above but also the relative fault of the Company
     on the one hand and the Placement Agents on the other in connection with
     the statements or omissions which resulted in such losses, claims, damages
     or liabilities as well as any other relevant equitable considerations. The
     relative benefits received by the Company on the one hand and the Placement
     Agents on the other shall be deemed to be in the same proportion as the
     total net proceeds from the offering (before deducting expenses) received
     by the Company bear to the total commissions received by the Placement
     Agents. The relative fault shall be determined by reference to, among other
     things, whether the untrue or alleged untrue statement of a material fact
     or the omission or alleged omission to state a material fact relates to
     information supplied by the Company or the Placement Agents and the
     parties' relative intent, knowledge, access to information and opportunity
     to correct or prevent such untrue statement or omission. The amount paid by
     an indemnified party as a result of the losses, claims, damages or
     liabilities referred to in the first sentence of this subsection (d) shall
     be deemed to include any legal or other expenses reasonably incurred by
     such indemnified party in connection with investigating or defending any
     action or claim which is the subject of this subsection (d).
     Notwithstanding the provisions of this subsection (d), the Placement Agents
     shall not be required to contribute any amount in excess of the amount by
     which the total price at which the Securities underwritten by any such
     Placement Agent and distributed to the public were offered to the public
     exceeds the amount of any damages which any such Placement Agent has
     otherwise been required to pay by reason of such untrue or alleged untrue
     statement or omission or alleged omission. No person guilty of fraudulent
     misrepresentation (within the meaning of Section 11(f) of the Act) shall be
     entitled to contribution from any person who was not guilty of such
     fraudulent misrepresentation. The Placement Agents' obligations in this
     subsection (d) to contribute are several in proportion to their respective
     underwriting obligations and not joint.

        (e) The obligations of the Company under this Section shall be in
     addition to any liability which the Company may otherwise have and shall
     extend, upon the same terms and conditions, to each person, if any, who
     controls any of Placement Agents within the meaning of the Act; and the
     obligations of the Placement Agents under this Section shall be in addition
     to any liability which the respective Placement Agents may otherwise have
     and shall extend, upon the same terms and conditions, to each director of
     the Company, to each officer of the Company who has signed a Registration
     Statement and to each person, if any, who controls the Company within the
     meaning of the Act.

                                       22
<PAGE>

        8. [RESERVED]

        9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the Placement Agents set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of the Placement Agents, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If for any reason the purchase of the
Offered Securities by the Investors is not consummated, the Company shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
5 and the respective obligations of the Company and the Placement Agents
pursuant to Section 7 shall remain in effect, and if any Offered Securities have
been purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of the
Offered Securities by the Investors is not consummated for any reason, the
Company will reimburse the Placement Agents for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with its obligations hereunder.

        10. Notices. All communications hereunder will be in writing and, if
sent to the Placement Lead Agent, will be mailed, delivered or telegraphed and
confirmed to the Placement Agent at 909 Fannin Street, Suite 3100, Houston,
Texas 77010, Attention:   Investment Banking Department--Transactions Advisory
Group, or, if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at 815 Walker, Suite 1040, Houston, Texas 77002, Attention:
President; (provided, however, that any notice to a Placement Agent pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such
Placement Agent.)

        11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.

        12. [RESERVED]

        13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.

        14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to
principles of conflicts of laws.

        The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.

        If the foregoing is in accordance with the Placement Agents'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will

                                       23
<PAGE>

become a binding agreement between the Company and the Placement Agents in
accordance with its terms.

                               Very truly yours,

                                    GOODRICH PETROLEUM CORPORATION

                                          By:__________________________
                                          Name: Robert C. Turnham, Jr.
                                          Title: Executive Vice President and
                                               Chief Operating Officer

The foregoing Placement Agency Agreement is hereby confirmed and accepted as of
the date first above written.

Jefferies & Company, Inc.

By: __________________________________
Name: Todd Dittmann
Title: Senior Vice President

Salomon Smith Barney Inc.
By: __________________________________
Name:
Title:

Chase Securities Inc.
By: __________________________________
Name:
Title:

Janney Montgomery Scott LLC
By: __________________________________
Name:
Title:

Johnson Rice & Co.
By: __________________________________
Name:
Title:

                                       24
<PAGE>

                                   SCHEDULE A

Jefferies & Company, Inc.
909 Fannin Street, Suite 3100
Houston, Texas 77010

Salomon Smith Barney Inc.

Chase Securities Inc.

Janney Montgomery Scott LLC

Johnson Rice & Co.

                                       25
<PAGE>

                                   SCHEDULE B

1.    February 2000 Registration Rights Agreement

2.    September 2000 Registration Rights Agreement

                                       26
<PAGE>

                                   EXHIBIT A

                            FORM OF ESCROW AGREEMENT

                                       27
<PAGE>

                             ESCROW AGREEMENT

          THIS ESCROW AGREEMENT, is dated as of January [__], 2001, by and among
GOODRICH PETROLEUM CORPORATION, a Delaware corporation (the "Company"), the
parties listed on Schedule 1 hereto who are acting as Placement Agents (each a
"Placement Agent" and collectively the "Placement Agents") with respect to the
Shares (as defined herein), and Wells Fargo Bank Minnesota, National
Association, a [____] (the "Escrow Agent").

          WHEREAS, the Company proposes to sell an aggregate of 3,000,000 shares
of its common stock, $0.20 par value per share (the "Shares"), for an aggregate
of $[_____], all as described in the Company's registration statement on Form S-
1 (Registration No. 333-47078) (which, together with all amendments or
supplements thereto is referred to herein as the "Registration Statement");

          WHEREAS, the Shares are being offered by the Company to investors whom
the Placement Agents have introduced to the Company, pursuant to registration
under the Securities Act of 1933, as amended, and pursuant to registration or
exemptions from registration under state securities laws;

          WHEREAS, the offering of the Shares will terminate on January [___],
2001 (the "Final Closing Date") and, if subscriptions for the total number of
Shares being offered pursuant to the Registration Statement have not been
received by the Company on or before the Final Closing Date, no Shares will be
sold and all payments made by subscribers will be refunded by the Escrow Agent
with interest earned thereon, if any; and

          WHEREAS, with respect to all subscription payments received from
subscribers, the Company proposes to establish an escrow account with the Escrow
Agent at [address].

          NOW, THEREFORE, it is agreed as follows:

1.  Establishment of Escrow. The Escrow Agent hereby agrees to receive and
disburse the proceeds from the offering of the Shares and any interest earned
thereon in accordance herewith.

2.  Deposit of Escrowed Property. Each Placement Agent, on behalf of the
subscribers for the Shares solicited by such Placement Agent, shall from time to
time, but in no event later than 12:00 noon on the date following receipt by
such Placement Agent, cause to be wired to or deposited with, or, cause such
subscribers
<PAGE>

for the Shares to wire or deposit with, the Escrow Agent funds or checks of the
subscribers delivered in payment for the Shares (the "Escrowed Property"). Any
checks delivered to the Escrow Agent pursuant to the terms hereof shall be made
payable to or endorsed to the order of the Escrow Agent. The Escrow Agent upon
receipt of such checks shall present such checks for payment to the drawee-bank
under such checks. Any checks not honored by the drawee-bank thereunder after
the first presentment for payment shall be returned to the Placement Agent who
solicited the subscriber issuing such check, on behalf of such subscriber, in
the same manner notices are delivered pursuant to Section 6. Upon receipt of
funds or checks from the Placement Agents, the Escrow Agent shall credit such
funds and the amount of such checks to a non-interest-bearing account (the
"Escrow Account") held by the Escrow Agent. If following the credit of the
amount of any check to the Escrow Account such check is dishonored, the Escrow
Agent, if such dishonored check amount shall have been invested pursuant to
Section 3, shall liquidate to the extent of such dishonored check amount such
investments and debit the Escrow Account for the amount of such dishonored check
plus, if any, the amount of interest and other income earned with respect to any
investment of such dishonored check amount.

3.  Investment of Escrowed Property. The Escrow Agent on the second business day
("business day" defined for purposes of this Escrow Agreement as any day which
is not a Saturday, a Sunday or a day on which banks or trust companies in the
City and State of New York are authorized or obligated by law, regulation or
executive order to remain closed) succeeding (unless such deposit is made in
federal or other immediately available or "same day" funds, in which case, on
the business day next succeeding) the credit of any subscription proceeds to the
Escrow Account pursuant to Section 2 and until release of such proceeds in
accordance with the terms hereof, shall deposit such proceeds in a [DESCRIBE
ACCOUNT], pursuant to Rule 15c2-4 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, in accordance
with the terms set forth on Exhibit A hereto (made a part of this Escrow
Agreement as if herein set forth).  The Escrow Agent shall in no event be liable
for any loss resulting from any change in interest rates applicable to proceeds
invested pursuant to this Section.  Interest on proceeds invested pursuant to
this Section shall accrue from the date of investment of such proceeds until the
termination of such investment pursuant to the terms hereof and shall be paid as
set forth in Section 5.

4.  List of Subscribers. Each Placement Agent shall furnish or cause to be
furnished to the Escrow Agent, at the time of each deposit of funds or checks
pursuant to Section 2, a list, substantially in the form of Exhibit B hereto,
containing the name of, the address of, the number of Shares subscribed for by,
the subscription amount delivered to the Escrow Agent on behalf of, and the
social security or taxpayer identification number, if applicable, of, each
subscriber whose funds are being deposited by such Placement Agent, and to which
is attached a completed W-9

                                       2
<PAGE>

form (or, in the case of any subscriber who is not a United States citizen or
resident, a W-8 form) for each listed subscriber. In the event of any
discrepancy between the subscription amounts set forth on any list delivered by
a Placement Agent pursuant to this Section 4 and the subscription amounts
received by the Escrow Agent, the Escrow Agent shall promptly notify such
Placement Agent and the Company of such discrepancy. The Escrow Agent is
authorized to revise such list to reflect the actual subscription amounts
received and the release of any subscription amounts pursuant to Section 5.

5.  Withdrawal of Subscription Amounts.

     (a) If the Escrow Agent shall receive a notice, substantially in the form
of Exhibit C hereto (an "Offering Termination Notice"), from the Company, the
Escrow Agent shall (i) promptly after receipt of such Offering Termination
Notice and the clearance of all checks received by the Escrow Agent as Escrowed
Property, liquidate any investments that shall have been made pursuant to
Section 3 and send to each subscriber listed on the list held by the Escrow
Agent pursuant to Section 4 whose total subscription amount shall not have been
released pursuant to paragraph (b) or (c) of this Section 5, in the manner set
forth in paragraph (e) of this Section 5, a check to the order of such
subscriber in the amount of the remaining subscription amount held by the Escrow
Agent as set forth on such list held by the Escrow Agent, and (ii) promptly
after the fourth business day of the month immediately following the month in
which the investments made pursuant to Section 3 were terminated pursuant to
this paragraph, send, in the manner set forth in paragraph (e) of this Section
5, a check to the order of each such subscriber in the amount of interest and
other income earned and not yet paid with respect to any investment of such
subscriber's funds. The Escrow Agent shall notify the Company and the Placement
Agents of the distribution of such funds to the subscribers.

     (b) In the event that (i) the Shares have been subscribed for and funds in
respect thereof shall have been deposited with the Escrow Agent on or before the
Final Closing Date and (ii) no Offering Termination Notice shall have been
delivered to the Escrow Agent, the Company and each Placement Agent, shall
deliver to the Escrow Agent a joint notice, substantially in the form of Exhibit
D hereto (a "Closing Notice"), designating the date on which Shares are to be
sold and delivered to the subscribers thereof (the "Closing Date"), which date
shall not be earlier than the clearance of any checks received by the Escrow
Agent as Escrowed Property, the proceeds of which are to be distributed on such
Closing Date, and identifying the subscribers and the number of Shares to be
sold to each thereof on such Closing Date, not less than two (2) nor more than
seven (7) business days prior to such Closing Date. The Escrow Agent, after
receipt of such Closing Notice and the clearance of such checks:

                                       3
<PAGE>

          (i)  on or prior to the Closing Date identified in such Closing
Notice, shall liquidate any investments that shall have been made pursuant to
Section 3 to the extent of the subscription amount to be distributed pursuant to
the immediately succeeding clause (ii);

          (ii)  on such Closing Date, pay to the Company and the Placement
Agents, in federal or other immediately available funds and otherwise in the
manner specified by the Company in such Closing Notice, an amount equal to the
aggregate of the subscription amounts paid by the subscribers identified in such
Closing Notice for the Shares to be sold on such Closing Date as set forth on
the list held by the Escrow Agent pursuant to Section 4; and

          (iii)  promptly after the fourth business day of the month immediately
following the month in which the investments made pursuant to Section 3 were
terminated pursuant to such Closing Notice, shall send, in the manner set forth
in paragraph (e) of this Section 5, a check to the order of each subscriber
identified in such Closing Notice in the amount of interest and other income
earned and not yet paid with respect to any investment of each such subscriber's
funds distributed on such Closing Date.  At the time of such transfer, the
Escrow Agent shall identify in writing to the Company and the Placement Agents
the amount of the interest earned for the account of each subscriber and the
date such subscription was received.

      (c)  If at any time and from time to time prior to the release of any
subscriber's total subscription amount pursuant to paragraph (a) or (b) of this
Section 5 from escrow, the Company shall deliver to the Escrow Agent a notice,
substantially in the form of Exhibit E hereto (a "Subscription Termination
Notice"), to the effect that any or all of the subscriptions of such subscriber
have been rejected by the Company (a "Rejected Subscription"), the Escrow Agent
(i) promptly after receipt of such Subscription Termination Notice and, if such
subscriber delivered a check in payment of its Rejected Subscription, after the
clearance of such check, shall liquidate, to the extent of the sum of such
subscriber's Rejected Subscription amount as set forth in the Subscription
Termination Notice, any investments that shall have been made pursuant to
Section 3 and send to such subscriber, in the manner set forth in paragraph (e)
of this Section 5, a check to the order of such subscriber in the amount of such
Rejected Subscription amount, and (ii) promptly after the fourth business day of
the month immediately following the month in which the investments made pursuant
to Section 3 were terminated pursuant to this paragraph, shall send to such
subscriber, in the manner set forth in paragraph (e) of this Section 5, a check
to the order of such subscriber in the amount of interest and other income
earned and not yet paid with respect to any investment of such subscriber's
Rejected Subscription amount. At the time of such transfer, the Escrow Agent
shall identify in

                                       4
<PAGE>

writing to the Company and the Placement Agents the amount of the interest
earned for the account of each subscriber and the date such subscription was
received.

          (d)  On a date following the transfer of any interest earned for the
account of each subscriber pursuant to Section 5(a), (b) or (c), but not later
than January 31, 2002, the Escrow Agent shall provide each subscriber with tax
form 1099 setting forth the amount of such interest.

          (e)  For the purposes of this Section 5, any check that the Escrow
Agent shall be required to send to any subscriber shall be sent to such
subscriber by first class mail, postage prepaid, at such subscriber's address
furnished to the Escrow Agent pursuant to Section 4.

6.  Notices. All notices and communications hereunder will be in writing and
will be mailed, delivered, or telecopied and confirmed as follows:

               if to the Company, to:

                    Goodrich Petroleum Corporation
                    815 Walker, Suite 1040
                    Houston, Texas 77002
                    Attention: President
                    Facsimile: 713-780-9254

               if to a Placement Agent, to:

                    the name, address and facsimile number for such Placement
                    Agent set forth on Schedule 1 hereto with respect to such
                    Placement Agent

               if to the Escrow Agent, to:

                    Wells Fargo Bank Minnesota, National Association
                    [Address]
                    Attention: [__]
                    Facsimile: [__]

or to such other address as the person to whom notice is to be given may have
previously furnished to the others in the above-referenced manner. All such
notices and communications, if mailed, shall be effective when deposited in the
mails, except that notices and communications to the Escrow Agent and notices of
changes of address shall not be effective until received.

                                       5
<PAGE>

7.  Concerning the Escrow Agent. To induce the Escrow Agent to act hereunder, it
is further agreed by the Company and Placement Agents that:

     (a) The Escrow Agent shall not be under any duty to give the Escrowed
Property held by it hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any funds held hereunder
except as directed in this Escrow Agreement.  Uninvested funds held hereunder
shall not earn or accrue interest.

     (b) This Escrow Agreement expressly sets forth all the duties of the Escrow
Agent with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Escrow Agreement against the Escrow Agent.
The Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto except this Escrow Agreement.

     (c) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct, and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, and the other parties hereto shall jointly and
severally indemnify and hold harmless the Escrow Agent (and any successor Escrow
Agent) from and against any and all losses, liabilities, claims, actions,
damages and expenses, including reasonable attorneys' fees and disbursements,
arising out of and in connection with this Escrow Agreement. Without limiting
the foregoing, the Escrow Agent shall in no event be liable in connection with
its investment or reinvestment of any cash held by it hereunder in good faith,
in accordance with the terms hereof, including without limitation any liability
for any delays (not resulting from gross negligence or willful misconduct) in
the investment or reinvestment of the Escrowed Property, or any loss of interest
incident to any such delays.

     (d) The Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it in good faith to be genuine and may assume, if in good
faith, that any person purporting to give notice or receipt or advice or make
any statement or execute any document in connection with the provisions hereof
has been duly authorized to do so.

     (e) The Escrow Agent may act pursuant to the advice of counsel with respect
to any matter relating to this Escrow Agreement and shall not be liable for any
action taken or omitted in good faith and in accordance with such advice.

                                       6
<PAGE>

     (f) The Escrow Agent does not have any interest in the Escrowed Property
deposited hereunder but is serving as escrow holder only. Any payments of income
from the Escrow Account shall be subject to withholding regulations then in
force with respect to United States taxes. The parties hereto will provide the
Escrow Agent with appropriate W-9 forms for tax I.D., number certification, or
non-resident alien certifications.

          This paragraph (f) and paragraph (c) of this Section 7 shall survive
notwithstanding any termination of this Escrow Agreement or the resignation of
the Escrow Agent.

     (g) The Escrow Agent makes no representation as to the validity, value,
genuineness or the collectibility of any security or other document or
instrument held by or delivered to it.

     (h) The Escrow Agent  shall not be called upon to advise any party as to
the wisdom of selling or  retaining or taking or  refraining  from any action
with respect to any securities or other property deposited hereunder.

     (i) The Escrow Agent (and any successor escrow agent) at any time may be
discharged from its duties and obligations hereunder by the delivery to it of
notice of termination signed by the Company and each Placement Agent or at any
time may resign by giving written notice to such effect to the Company and each
Placement Agent.  Upon any such termination or resignation, the Escrow Agent
shall deliver the Escrowed Property to any successor escrow agent jointly
designated by the other parties hereto in writing, or to any court of competent
jurisdiction if no such successor escrow agent is agreed upon, whereupon the
Escrow Agent shall be discharged of and from any and all further obligations
arising in connection with this Escrow Agreement.  The termination or
resignation of the Escrow Agent shall take effect on the earlier of (i) the
appointment of a successor (including a court of competent jurisdiction) or (ii)
the day that is 30 days after the date of delivery: (A) to the Escrow Agent of
the other parties' notice of termination or (B) to the other parties hereto of
the Escrow Agent's written notice of resignation. If at that time the Escrow
Agent has not received a designation of a successor escrow agent, the Escrow
Agent's sole responsibility after that time shall be to keep the Escrowed
Property safe until receipt of a designation of successor escrow agent or a
joint written disposition instruction by the other parties hereto or any
enforceable order of a court of competent jurisdiction.

     (j) The Escrow Agent shall have no responsibility for the contents of any
writing of any third party contemplated herein as a means to resolve disputes
and may rely without any liability upon the contents thereof.

                                       7
<PAGE>

     (k) In the event of any disagreement among or between the other parties
hereto and/or the subscribers of the Shares resulting in adverse claims or
demands being made in connection with the Escrowed Property, or in the event
that the Escrow Agent in good faith is in doubt as to what action it should take
hereunder, the Escrow Agent shall be entitled to retain the Escrowed Property
until the Escrow Agent shall have received (i) a final and non-appealable order
of a court of competent jurisdiction directing delivery of the Escrowed Property
or (ii) a written agreement executed by the other parties hereto and consented
to by the subscribers directing delivery of the Escrowed Property, in which
event the Escrow Agent shall disburse the Escrowed Property in accordance with
such order or agreement. Any court order referred to in (i) above shall be
accompanied by a legal opinion by counsel for the presenting party satisfactory
to the Escrow Agent to the effect that said court order is final and non-
appealable. The Escrow Agent shall act on such court order and legal opinion
without further question.

     (l) As consideration for its agreement to act as Escrow Agent as herein
described, the Company agrees to pay the Escrow Agent the fee set forth on
Exhibit F hereto (made a part of this Escrow Agreement as if herein set forth).
In addition, the Company agrees to reimburse the Escrow Agent for all reasonable
expenses, disbursements and advances incurred or made by the Escrow Agent in
performance of its duties hereunder (including reasonable fees, expenses and
disbursements of its counsel).

     (m) All parties hereto irrevocably (i) submit to the jurisdiction of any
New York State or federal court sitting in New York City in any action or
proceeding arising out of or relating to this Escrow Agreement, (ii) agree that
all claims with respect to such action or proceeding  shall be heard and
determined in such New York State or federal court and (iii) waive, to the
fullest extent possible, the defense of an inconvenient forum.  The other
parties hereby consent to and grant any such court jurisdiction over the persons
of such parties and over the subject matter of any such dispute and agree that
delivery or mailing of process or other papers in connection with any such
action or proceeding in the manner provided herein above, or in such other
manner as may be permitted by law, shall be valid and sufficient service
thereof.

     (n) No printed or other matter in any language (including, without
limitation, the Registration Statement, the Prospectus, notices, reports and
promotional material) which mentions the Escrow Agent's name or the rights,
powers, or duties of the Escrow Agent shall be issued by the other parties
hereto or on such parties' behalf unless the Escrow Agent shall first have given
its specific written consent thereto. The Escrow Agent hereby consents to the
use of its name and the reference to the escrow arrangement in the Registration
Statement and in the Prospectus.

                                       8
<PAGE>

8.  Miscellaneous.

     (a) This Escrow Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their respective successors and assigns,
heirs, administrators and representatives, and the subscribers of the Shares and
shall not be enforceable by or inure to the benefit of any other third party
except as provided in paragraph (i) of Section 7 with respect to the termination
of, or resignation by, the Escrow Agent. No party may assign any of its rights
or obligations under this Escrow Agreement without the written consent of the
other parties.

     (b) This Escrow Agreement shall be construed in accordance with and
governed by the internal law of the State of New York (without reference to its
rules as to conflicts of law).

     (c) This Escrow Agreement may only be modified by a writing signed by all
of the parties hereto and consented to by the subscribers of the Shares
adversely affected by such modifications. No waiver hereunder shall be effective
unless in a writing signed by the party to be charged.

     (d) This Escrow Agreement shall terminate upon the payment pursuant to
Section 5 of all amounts held in the Escrow Account.

     (e) The section headings herein are for convenience only and shall not
affect the construction thereof. Unless otherwise indicated, references to
Sections are to Sections contained herein.

     (f) This Escrow Agreement may be executed in one or more counterparts but
all such separate counterparts shall constitute but one and the same instrument;
provided that, although executed in counterparts, the executed signature pages
of each such counterpart may be affixed to a single copy of this Agreement which
shall constitute an original.

                    [Signature page follows.]

                                       9
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed as of the day and year first above written.

                         GOODRICH PETROLEUM CORPORATION

                         By:_____________________________
                            Name:
                            Title:

                         JEFFERIES & COMPANY, INC.

                         By:_____________________________
                            Name:
                            Title:

                         SALOMON SMITH BARNEY INC.

                         By:_____________________________
                            Name:
                            Title:

                         CHASE SECURITIES INC.

                         By:_____________________________
                            Name:
                            Title:

                         JANNEY MONTGOMERY SCOTT LLC

                         By:_____________________________
                            Name:
                            Title:

                         JOHNSON RICE & CO.

                         By:_____________________________
                            Name:
                            Title:

                                      10
<PAGE>

                         WELLS FARGO BANK MINNESOTA,
                         NATIONAL ASSOCIATION,
                         as Escrow Agent

                         By:_____________________________
                            Name:
                            Title:

                                      11
<PAGE>

                             SCHEDULE 1

                             PLACEMENT AGENTS

Name                            Address
----                            -------
Jefferies & Company, Inc.       900 Fannin Street
                                Suite 3100
                                Houston, Texas 77010
                                Attention: Investment Banking Department -
                                 Transactions Advisory Group
                                Facsimile: [__]

[OTHERS]

                                      12
<PAGE>

                                   EXHIBIT A

                               [NAME OF ACCOUNT]

          Deposits/Withdrawals may be made to the [____] Account (the
"Deposit Account") established under the Escrow Agreement to which this Exhibit
is attached only through the Escrow Account.  All transaction and balance
reporting of the Deposit Account will be included as part of the Escrow Account
Statement. Activity in the Deposit Account will be reflected as the equivalent
of dollars on deposit in a [___] Account.  Deposits/Withdrawals to the Deposit
Account will be made only as permitted by the Escrow Agreement to which this
Exhibit is attached. The Deposit Account has certain regulatory restrictions as
well as some minimum requirements:

1.  By regulation, Wells Fargo Bank Minnesota, National Association is required
to reserve the right to require seven days' prior notice of any withdrawals of
funds from an account; provided, however, that, if Wells Fargo Bank Minnesota,
National Association elects to exercise its right to require seven days' prior
notice, it shall exercise such right as to all such accounts established.

2.  Rates will be determined by Wells Fargo Bank Minnesota, National Association
and can be determined by calling your custody account officer.

3.  Balances up to $100,000 (total on deposit at Wells Fargo Bank Minnesota,
National Association) are FDIC-insured.

                                      A-1
<PAGE>

                                   EXHIBIT B
                           SUMMARY OF CASH RECEIVED
                            NEW PARTICIPANT DEPOSIT

                               [TO BE DISCUSSED]

                                      B-1
<PAGE>

                                   EXHIBIT C

                      FORM OF OFFERING TERMINATION NOTICE

                               ____________, 2001

Wells Fargo Bank Minnesota, National Association
[Address]

Attention:

Ladies and Gentlemen:

          Pursuant to Section 5(a) of the Escrow Agreement dated as of January
[__], 2001 (the "Escrow Agreement") among Goodrich Petroleum Corporation (the
"Company"), the parties named as Placement Agents therein and you, the Company
hereby notifies you of the termination of the offering of the Shares (as that
term is defined in the Escrow Agreement) and directs you to make payments to
subscribers as provided for in Section 5(a) of the Escrow Agreement.

                         Very truly yours,

                         GOODRICH PETROLEUM CORPORATION

                         By:____________________________
                            Name:
                            Title:

                                      C-1
<PAGE>

                                   EXHIBIT D

                            FORM OF CLOSING NOTICE

                              ____________, 2001

Wells Fargo Bank Minnesota, National Association
[Address]

Attention:

Ladies and Gentlemen:

          Pursuant to Section 5(b) of the Escrow Agreement dated as of January
[__], 2001 (the "Escrow Agreement") among Goodrich Petroleum Corporation (the
"Company"), the parties named as Placement Agents therein and you, the Company
hereby certifies that it has received subscriptions for the Shares (as that term
is defined in the Escrow Agreement) and the Company will sell and deliver Shares
to the subscribers thereof at a closing to be held on January [__], 2001 (the
"Closing Date").  The names of the subscribers concerned, the number of Shares
subscribed for by each of such subscribers and the related subscription amounts
are set forth on Schedule I annexed hereto.

          Please accept these instructions as standing instructions for the
closing to be held on the Closing Date. The parties hereto certify that they do
not wish to have a call back regarding these instructions.  The parties hereto
further certify that these instructions may be transmitted to you via facsimile.

          We hereby request that the aggregate subscription amount be paid to
you, the Placement Agent and us as follows:

1.  To the Company, $_________;

2.  To Jefferies & Company, Inc., $_________;

3.   To [list each other Placement Agent], $______; and

4.   To the Escrow Agent, $_________.

                                      C-2
<PAGE>

          These instructions may be executed in any number of counterparts, each
of which shall be deemed to be an original, and all of which together shall
constitute one and the same instrument.

                         Very truly yours,

                         GOODRICH PETROLEUM CORPORATION

                         By:____________________________
                            Name:
                            Title:

                                      C-3
<PAGE>

                                  SCHEDULE I

        Name of                      Number of                 Subscription
      Subscriber                      Shares                     Amount
      ----------                     ---------                 ------------

                                      C-4
<PAGE>

                                   EXHIBIT E

                    FORM OF SUBSCRIPTION TERMINATION NOTICE

                              ____________, 2001

Wells Fargo Bank Minnesota, National Association
[Address]

Attention:

Ladies and Gentlemen:

          Pursuant to Section 5(c) of the Escrow Agreement dated as of as of
January [__], 2001 (the "Escrow Agreement") among Goodrich Petroleum Corporation
(the "Company"), the parties named as Placement Agents therein and you, the
Company hereby notifies you that the following subscription(s) have been
rejected:

        Name of              Amount of Subscribed          Dollar Amount of
      Subscriber               Shares Rejected          Rejected Subscription
      ----------             --------------------       ----------------------

                                        Very truly yours,

                                        GOODRICH PETROLEUM CORPORATION

                                        By:
                                           ----------------------------------
                                           Name:
                                           Title:

                                      C-5
<PAGE>

                                   EXHIBIT F

Fee to Escrow Agent:        $[___]

                                      F-1AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

     THIS AMENDED AND RESTATED LOAN AND SECURITY  AGREEMENT (this  "Agreement"),
is entered into as of December 12, 2000, between FOOTHILL CAPITAL CORPORATION, a
California  corporation  ("Foothill"),  with a place of business located at 2450
Colorado Avenue,  Suite 3000 West,  Santa Monica,  California 90404 and TECSTAR,
LLC, an Indiana limited liability company ("Borrower"), with its chief executive
office located at 2703 College Avenue, P.O. Box 1903, Goshen, Indiana 46528.

     WHEREAS, Tecstar, Inc., an Indiana corporation ("Old Tecstar") and Foothill
are parties to a Loan and Security  Agreement dated as of November 20, 1998 (the
"Old Loan Agreement");

     WHEREAS,  Old Tecstar is a wholly owned  subsidiary of Borrower and entered
into a plan of  liquidation in connection  with which it transferred  all of its
assets to Borrower;

     WHEREAS,  upon such  transfer,  Borrower  acquired all of the assets of Old
Tecstar and assumed all of the  liabilities of Old Tecstar  (including,  without
limitation, the "Obligations" (as defined in the Old Loan Agreement));

     WHEREAS,  this Agreement  amends and restates the Old Loan Agreement in its
entirety;

     NOW, THEREFORE, the parties agree as follows:

1.   DEFINITIONS AND CONSTRUCTION.

     1.1. Definitions.

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

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

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

     "Accounts Advance Rate" means 85%; provided, that at all times on and after
February 1, 2001, the Accounts Advance Rate means 80%.

     "Additional  Availability  Amount" means  $500,000;  provided,  that at all
times on and after February 1, 2001,  Additional  Availability Amount shall mean
an amount equal to zero.

     "Adjusted  Eurodollar Rate" means, with respect to each Interest Period for
any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary,  to
the next 1/16%) determined by dividing (a) the Eurodollar Rate for such Interest
Period by (b) a percentage equal to (i) 100% minus (ii) the Reserve  Percentage.
The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of
any change in the Reserve Percentage.

     "Advances" has the meaning set forth in Section 2.1(a).

     "Affiliate"  means, as applied to any Person, any other Person who directly
or indirectly  controls,  is controlled by, is under common control with or is a
director or officer of such Person.  For purposes of this definition,  "control"
means the possession,  directly or indirectly,  of the power to vote 15% or more
of the securities  having ordinary voting power for the election of directors or
the direct or indirect power to direct the management and policies of a Person.

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

     "Authorized Person" means any officer or other employee of Borrower.

     "Average Unused Portion of the Maximum  Revolving  Amount" means, as of any
date of determination, (a) $7,500,000, less (b) the sum of (i) the average Daily
Balance of Loans that were outstanding  during the immediately  preceding month,
plus (ii) the average Daily  Balance of the undrawn  Letters of Credit that were
outstanding during the immediately preceding month.

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

     "Benefit Plan" means a "defined  benefit plan" (as defined in Section 3(35)
of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA Affiliate
has been an "employer" (as defined in Section 3(5) of ERISA) within the past six
years.

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

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

     "Borrowing Base" has the meaning set forth in Section 2.1(a).

     "Business Day" means any day that is not a Saturday, Sunday or other day on
which  national  banks are  authorized  or required  to close,  except that if a
determination  of a Business Day shall relate to any Eurodollar Rate Loans,  the
term  Business  Day shall  also  exclude  any day on which  banks are closed for
dealings in dollar deposits in the London  interbank  market or other applicable
Eurodollar Rate market.

     "Change  of  Control"  shall be  deemed  to have  occurred  at such time as
Starcraft  Corporation  shall  cease  to own  at  least  50%  of the  membership
interests then  outstanding of Borrower,  except that if Borrower  exercises its
rights under the  Subordinated  Starcraft Loan Documents and obtains 2.5% of the
membership  interests  then  outstanding  of Borrower it shall not  constitute a
Change of Control so long as  Starcraft  Corporation  owns at least 47.5% of the
membership interests then outstanding of Borrower.

     "Closing Date" means the date hereof.

     "Code" means the Illinois Uniform Commercial Code.

     "Collateral" means each of the following:

          (a)  Accounts,

          (b)  Borrower's Books,

          (c)  Equipment,

          (d)  General Intangibles,

          (e)  Inventory,

          (f)  Negotiable Collateral,

          (g)  any money, or other assets of Borrower that now or hereafter come
               into the possession, custody, or control of Foothill, and

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

     "Collateral  Access  Agreement" means a landlord waiver,  mortgagee waiver,
bailee  letter,  or  acknowledgment  agreement of any  warehouseman,  processor,
lessor,  consignee,  or other Person in  possession  of,  having a Lien upon, or
having rights or interests in the Equipment or Inventory,  in each case, in form
and substance satisfactory to Foothill.

     "Collections" means all cash, checks, notes,  instruments,  and other items
of payment  (including,  insurance  proceeds,  proceeds  of cash  sales,  rental
proceeds, and tax refunds).

     "Compliance  Certificate" means a certificate  substantially in the form of
Exhibit  C-1 and  delivered  by the chief  accounting  officer  of  Borrower  to
Foothill.

     "Daily  Balance"  means the  amount of an  Obligation  owed at the end of a
given day.

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

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

     "Designated  Account"  means an account at  Borrower's  Designated  Account
Bank,  or such other  deposit  account of  Borrower  (located  within the United
States) which has been designated, in writing and from time to time, by Borrower
to Foothill.

     "Designated  Account Bank" means a bank selected by Borrower and acceptable
to Foothill.

     "Dilution" means, in each case based upon the experience of the immediately
prior 3 fiscal months,  the result of dividing the Dollar amount of (a) bad debt
write-downs,  discounts  from the invoice  amount of any  Account,  advertising,
returns,  promotions,  credits,  or other  dilutive  items  with  respect to the
Accounts of  Borrower by (b)  Borrower's  Collections  (excluding  extraordinary
items) plus the Dollar amount of clause (a).

     "Dilution  Reserve"  means,  as of any  date of  determination,  an  amount
sufficient  to reduce  Foothill's  advance  rate against  Eligible  Accounts and
Eligible Tooling and/or Engineering Service Accounts by one percentage point for
each percentage point by which Dilution is in excess of 5%.

     "Disbursement  Letter" means an instructional letter executed and delivered
by Borrower to Foothill  regarding  the  extensions  of credit to be made on the
Closing Date, the form and substance of which shall be satisfactory to Foothill.

     "Dollars or $" means United States dollars.

     "Early Termination Premium" has the meaning set forth in Section 3.6.

     "EBITDA"  means,  for any period,  the operating  net income  (exclusive of
extraordinary   items)  of  Borrower   for  such  period,   plus   depreciation,
amortization,  interest and taxes deducted in  determining  operating net income
for such period.

     "Eligible  Accounts"  means  those  Accounts  created  by  Borrower  in the
ordinary  course of  business,  that  arise out of  Borrower's  sale of goods or
rendition  of  services,   that  strictly  comply  with  each  and  all  of  the
representations and warranties  respecting Accounts made by Borrower to Foothill
in the Loan  Documents,  and that are and at all times continue to be acceptable
to Foothill in all respects;  provided,  however,  that standards of eligibility
may be fixed and revised from time to time by Foothill in Foothill's  reasonable
credit judgment. Eligible Accounts shall not include the following:

          (a)  Accounts that the Account Debtor has failed to pay within 60 days
               of invoice date or Accounts  with  selling  terms of more than 30
               days;

          (b)  Accounts owed by an Account Debtor or its Affiliates where 50% or
               more  of all  Accounts  owed  by  that  Account  Debtor  (or  its
               Affiliates)  to Borrower are deemed  ineligible  under clause (a)
               above;

          (c)  Accounts with respect to which the Account Debtor is an employee,
               Affiliate, or agent of Borrower;

          (d)  Accounts  with respect to which goods are placed on  consignment,
               guaranteed sale, sale or return, sale on approval, bill and hold,
               or other  terms by  reason of which the  payment  by the  Account
               Debtor may be conditional;

          (e)  Accounts that are not payable in Dollars or with respect to which
               the Account  Debtor:  (i) does not maintain  its chief  executive
               office in the United States,  or (ii) is not organized  under the
               laws of the United States or any State  thereof,  or (iii) is the
               government of any foreign  country or sovereign  state, or of any
               state,  province,  municipality,  or other political  subdivision
               thereof, or of any department,  agency,  public  corporation,  or
               other  instrumentality   thereof,   unless  (y)  the  Account  is
               supported  by an  irrevocable  letter of credit  satisfactory  to
               Foothill  (as  to  form,   substance,   and  issuer  or  domestic
               confirming  bank)  that has been  delivered  to  Foothill  and is
               directly  drawable by Foothill,  or (z) the Account is covered by
               credit  insurance  in  form  and  amount,   and  by  an  insurer,
               satisfactory to Foothill;

          (f)  Accounts  with respect to which the Account  Debtor is either (i)
               the United States or any department,  agency, or  instrumentality
               of the  United  States  (exclusive,  however,  of  Accounts  with
               respect to which Borrower has complied,  to the  satisfaction  of
               Foothill, with the Assignment of Claims Act, 31 U.S.C. ss. 3727),
               or (ii) any State of the United States  (exclusive,  however,  of
               Accounts  owed  by any  State  that  does  not  have a  statutory
               counterpart to the Assignment of Claims Act);

          (g)  Accounts  with respect to which the Account  Debtor is a creditor
               of Borrower,  has or has asserted a right of setoff  (unless such
               Account Debtor has executed and delivered to Foothill a no offset
               letter  in form and  substance  satisfactory  to  Foothill),  has
               disputed its liability, or has made any claim with respect to the
               Account  (but only to the extent of the  amount of the  liability
               owing to such Account Debtor,  the amount of the set off that has
               or may be asserted,  the amount of the disputed  liability or the
               amount of the claim, as the case may be);

          (h)  Accounts whose total obligations owing to Borrower exceeds 10% of
               all Eligible Accounts,  to the extent of the obligations owing by
               such  Account  Debtor in excess of such  percentage  (unless such
               Account  Debtor is  General  Motors  Corporation,  or upon  prior
               written  notice  to  Foothill,  Ford  Motor  Company  or  Daimler
               Chrysler Corporation);

          (i)  Accounts  with respect to which the Account  Debtor is subject to
               any Insolvency Proceeding,  or becomes insolvent,  or goes out of
               business;

          (j)  Accounts the  collection  of which  Foothill,  in its  reasonable
               credit judgment, believes to be doubtful by reason of the Account
               Debtor's financial condition;

          (k)  Accounts  with  respect  to which the goods  giving  rise to such
               Account have not been  shipped and billed to the Account  Debtor,
               Accounts with respect to which the Account Debtor has been billed
               but the goods giving rise to such Accounts have not been shipped,
               the services  giving rise to such Account have not been performed
               and accepted by the Account Debtor, or the Account otherwise does
               not represent a final sale;

          (l)  Accounts  with respect to which the Account  Debtor is located in
               the states of New  Jersey,  Minnesota  or West  Virginia  (or any
               other state that requires a creditor to file a Business  Activity
               Report or similar  document  in order to bring suit or  otherwise
               enforce its remedies against such Account Debtor in the courts or
               through any judicial process of such state),  unless Borrower has
               qualified to do business in New Jersey, Minnesota, West Virginia,
               or  such  other  states,  or  has  filed  a  Notice  of  Business
               Activities Report with the applicable  division of taxation,  the
               department  of  revenue,  or with such other  state  offices,  as
               appropriate,  for the  then-current  calendar  year, or is exempt
               from such filing requirement; and

          (m)  Accounts  that  represent  progress  payments  or  other  advance
               billings that are due prior to the  completion of  performance by
               Borrower of the subject contract for goods or services;

          (n)  Accounts representing rebate obligations owing to Borrower;

          (o)  Accounts  that are billed to an Account  Debtor for  services  or
               goods  provided  to  Borrower   and/or  such  Account  Debtor  by
               Wheel-To-Wheel, Inc.; and

          (p)  Tooling and/or Engineering Service Accounts.

     "Eligible  Inventory" means Inventory  consisting of first quality finished
goods  held for sale in the  ordinary  course  of  Borrower's  business  and raw
materials for such  finished  goods,  that are located at or in-transit  between
Borrower's  premises  identified on Schedule E-1, that strictly comply with each
and all of the  representations  and  warranties  respecting  Inventory  made by
Borrower  to  Foothill  in the Loan  Documents,  and  that are and at all  times
continue to be acceptable to Foothill in all respects;  provided,  however, that
standards of eligibility  may be fixed and revised from time to time by Foothill
in Foothill's  reasonable  credit  judgment.  In determining the amount to be so
included,  Inventory  shall be  valued at the lower of cost or market on a basis
consistent with Borrower's current and historical accounting practices.  An item
of  Inventory  shall not be included in Eligible  Inventory  if: it is not owned
solely by Borrower or Borrower does not have good,  valid,  and marketable title
thereto; it is not located at one of the locations set forth on Schedule E-1; it
is not  located  on  property  owned or  leased  by  Borrower  or in a  contract
warehouse,  in each case,  subject to a Collateral Access Agreement  executed by
the mortgagee,  lessor, the warehouseman,  or other third party, as the case may
be, and segregated or otherwise separately identifiable from goods of others, if
any,  stored on the premises;  it is not subject to a valid and perfected  first
priority security  interest in favor of Foothill;  it consists of goods returned
or rejected by Borrower's  customers or goods in transit;  and it is obsolete or
slow moving, work-in-process, a component that is not part of finished goods, or
constitutes  spare parts,  packaging  and shipping  materials,  supplies used or
consumed in  Borrower's  business,  Inventory  subject to a Lien in favor of any
third  Person,  bill and hold goods,  defective  goods,  "seconds," or Inventory
acquired on consignment.

     "Eligible Tooling and/or Engineering  Service Accounts" means those Tooling
and/or  Engineering  Service Accounts created by Borrower in the ordinary course
of  business,  that  arise  out of  Borrower's  sale of  goods or  rendition  of
services,  that  strictly  comply with each and all of the  representations  and
warranties  respecting  Accounts  made  by  Borrower  to  Foothill  in the  Loan
Documents,  and that are and at all times  continue to be acceptable to Foothill
in all respects;  provided,  however, that standards of eligibility may be fixed
and  revised  from time to time by  Foothill  in  Foothill's  reasonable  credit
judgment. Eligible Tooling and/or Engineering Service Accounts shall not include
any  Tooling  Account  that fails to satisfy  any of the  criteria  of  Eligible
Accounts  (other than  clauses (k),  (m) and (p) of the  definition  of Eligible
Accounts).

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

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  29
U.S.C.ss.ss.1000   et  seq.,   amendments  thereto,   successor  statutes,   and
regulations or guidance promulgated thereunder.

     "ERISA  Affiliate"  means  (a)  any  corporation  subject  to  ERISA  whose
employees  are  treated as employed by the same  employer  as the  employees  of
Borrower under IRC Section  414(b),  (b) any trade or business  subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower  under IRC Section  414(c),  (c) solely for  purposes of Section 302 of
ERISA and Section 412 of the IRC,  any  organization  subject to ERISA that is a
member of an affiliated  service  group of which  Borrower is a member under IRC
Section  414(m),  or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC,  any party  subject to ERISA  that is a party to an  arrangement
with Borrower and whose  employees are aggregated with the employees of Borrower
under IRC Section 414(o).

     "ERISA Event" means (a) a Reportable Event with respect to any Benefit Plan
or Multiemployer  Plan, (b) the withdrawal of Borrower,  any of its Subsidiaries
or ERISA  Affiliates  from a Benefit  Plan  during a plan year in which it was a
"substantial  employer"  (as defined in Section  4001(a)(2)  of ERISA),  (c) the
providing  of  notice  of  intent to  terminate  a  Benefit  Plan in a  distress
termination (as described in Section  4041(c) of ERISA),  (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or  Multiemployer  Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1),  (2),
or (3) of ERISA for the  termination  of,  or the  appointment  of a trustee  to
administer,  any Benefit Plan or Multiemployer  Plan, or (ii) that may result in
termination of a Multiemployer  Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete  withdrawal  within the meaning of Sections 4203 and 4205 of
ERISA,  of  Borrower,  any  of  its  Subsidiaries  or  ERISA  Affiliates  from a
Multiemployer  Plan,  or (g)  providing  any security to any Plan under  Section
401(a)(29)  of the IRC by  Borrower  or its  Subsidiaries  or any of their ERISA
Affiliates.

     "Eurodollar  Rate"  means,  with  respect  to  the  Interest  Period  for a
Eurodollar  Rate Loan, the interest rate per annum at which United States dollar
deposits are offered to Foothill (or its Affiliate) by major banks in the London
interbank  market (or other  Eurodollar  Rate market selected by Foothill) on or
about 11:00 a.m.  (California time) 2 Business Days prior to the commencement of
such Interest Period in amounts  comparable to the amount of the Eurodollar Rate
Loans  requested by and available to Borrower in accordance with this Agreement,
with a maturity  of  comparable  duration  to the  Interest  Period  selected by
Borrower.

     "Eurodollar  Rate Loans"  means any Loan (or any portion  thereof)  made or
outstanding  hereunder  during any period when interest on such Loan (or portion
thereof) is payable based on the Adjusted Eurodollar Rate.

     "Event of Default" has the meaning set forth in Section 8.

     "FEIN" means Federal Employer Identification Number.

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

     "Foothill Account" has the meaning set forth in Section 2.7.

     "Foothill  Expenses"  means all: costs or expenses  (including  taxes,  and
insurance  premiums)  required  to be paid by  Borrower  under  any of the  Loan
Documents  that  are paid or  incurred  by  Foothill;  fees or  charges  paid or
incurred by Foothill in connection with Foothill's  transactions  with Borrower,
including,  fees  or  charges  for  photocopying,   notarization,  couriers  and
messengers,  telecommunication,  public  record  searches  (including  tax lien,
litigation,  and UCC  searches  and  including  searches  with  the  patent  and
trademark  office,  the copyright  office, or the department of motor vehicles),
filing,  recording,   publication,   appraisal  (including  periodic  Collateral
appraisals),  real estate surveys,  real estate title policies and endorsements,
and  environmental  audits;  costs and  expenses  incurred  by  Foothill  in the
disbursement of funds to Borrower (by wire transfer or otherwise);  charges paid
or  incurred  by  Foothill  resulting  from the  dishonor  of checks;  costs and
expenses  paid or  incurred  by  Foothill  to correct any default or enforce any
provision  of the Loan  Documents,  or in gaining  possession  of,  maintaining,
handling,  preserving,  storing,  shipping,  selling,  preparing  for  sale,  or
advertising to sell the  Collateral,  or any portion  thereof,  irrespective  of
whether a sale is  consummated;  costs and expenses paid or incurred by Foothill
in examining  Borrower's Books;  costs and expenses of third party claims or any
other suit paid or  incurred  by Foothill in  enforcing  or  defending  the Loan
Documents  or in  connection  with  the  transactions  contemplated  by the Loan
Documents  or  Foothill's  relationship  with  Borrower  or any  guarantor;  and
Foothill's   reasonable  attorneys  fees  and  expenses  incurred  in  advising,
structuring,   drafting,  reviewing,   administering,   amending,   terminating,
enforcing  (including  attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or
any guarantor of the Obligations),  defending, or concerning the Loan Documents,
irrespective of whether suit is brought.

     "GAAP" means  generally  accepted  accounting  principles as in effect from
time to time in the United States, consistently applied.

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

     "Governing  Documents" means the certificate or articles of  incorporation,
by-laws, or other organizational or governing documents of any Person.

     "Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive,  legislative,
judicial, regulatory or administrative functions of or pertaining to government.

     "Guaranties"  means (i) the  Guaranty  of even date  herewith  executed  by
Starcraft  Corporation,  (ii) the  Guaranty  of even date  herewith  executed by
Starcraft  Automotive  Group,  Inc.,  (iii) the  Guaranty of even date  herewith
executed by National  Mobility  Corporation,  and (iv) the Guaranty of even date
herewith executed by Imperial Automotive Group, Inc.

     "Hazardous  Materials"  means (a) substances that are defined or listed in,
or otherwise  classified  pursuant to, any  applicable  laws or  regulations  as
"hazardous   substances,"  "hazardous  materials,"  "hazardous  wastes,"  "toxic
substances,"  or any other  formulation  intended to define,  list,  or classify
substances  by  reason  of   deleterious   properties   such  as   ignitability,
corrosivity,   reactivity,   carcinogenicity,   reproductive  toxicity,  or  "EP
toxicity",  (b) oil, petroleum,  or petroleum derived  substances,  natural gas,
natural gas liquids,  synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any  radioactive  materials,  and (d)  asbestos  in any  form  or  electrical
equipment  that  contains  any oil or  dielectric  fluid  containing  levels  of
polychlorinated biphenyls in excess of 50 parts per million.

     "Indebtedness"  means:  (a) all obligations of Borrower for borrowed money,
(b) all obligations of Borrower evidenced by bonds, debentures,  notes, or other
similar  instruments and all  reimbursement or other  obligations of Borrower in
respect of letters of credit, bankers acceptances, interest rate swaps, or other
financial  products,  (c) all obligations of Borrower under capital leases,  (d)
all  obligations  or  liabilities of others secured by a Lien on any property or
asset of  Borrower,  irrespective  of whether  such  obligation  or liability is
assumed,  and (e)  any  obligation  of  Borrower  guaranteeing  or  intended  to
guarantee  (whether  guaranteed,  endorsed,  co-made,  discounted,  or sold with
recourse to Borrower) any indebtedness,  lease,  dividend,  letter of credit, or
other obligation of any other Person.

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

     "Intangible  Assets" means, with respect to any Person, that portion of the
book value of all of such Person's  assets that would be treated as  intangibles
under GAAP.

     "Interest  Period"  shall mean for any  Eurodollar  Rate Loan,  a period of
approximately  30, 60 or 90 days  duration  as  Borrower  may  elect,  the exact
duration to be  determined  in  accordance  with the  customary  practice in the
applicable  Eurodollar Rate market;  provided,  that,  Borrower may not elect an
Interest  Period which will end after the last day of the  then-current  term of
this Agreement.

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

     "Inventory  Advance  Rate"  means 60%;  provided,  that at all times on and
after February 1, 2001, Inventory Advance Rate means 40%.

     "IRC"  means  the  Internal  Revenue  Code of  1986,  as  amended,  and the
regulations thereunder.

     "L/C" has the meaning set forth in Section 2.2(a).

     "L/C Guaranty" has the meaning set forth in Section 2.2(a).

     "Letter  of  Credit"  means  an  L/C  or an L/C  Guaranty,  as the  context
requires.

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

     "Loan Account" has the meaning set forth in Section 2.10.

     "Loan Documents" means this Agreement,  the Letters of Credit,  the Lockbox
Agreements,  the Guaranties,  any note or notes executed by Borrower and payable
to Foothill,  and any other  agreement  entered into,  now or in the future,  in
connection with this Agreement.

     "Loans" means the Advances.

     "Lockbox Account" shall mean a depository account  established  pursuant to
one of the Lockbox Agreements.

     "Lockbox  Agreements"  means those  certain  Lockbox  Operating  Procedural
Agreements  and  those  certain  Depository  Account  Agreements,  in  form  and
substance satisfactory to Foothill,  each of which is among Borrower,  Foothill,
and one of the Lockbox Banks.

     "Lockbox Banks" means such banks as are acceptable to Foothill.

     "Lockboxes" has the meaning set forth in Section 2.7.

     "Material  Adverse  Change"  means  (a) a  material  adverse  change in the
business, prospects,  operations,  results of operations, assets, liabilities or
condition  (financial or otherwise) of Borrower,  (b) the material impairment of
Borrower's  ability to perform its obligations under the Loan Documents to which
it is a party or of  Foothill  to enforce the  Obligations  or realize  upon the
Collateral,  (c) a material adverse effect on the value of the Collateral or the
amount that Foothill would be likely to receive (after giving  consideration  to
delays  in  payment  and  costs  of  enforcement)  in the  liquidation  of  such
Collateral,  or (d) a material  impairment of the priority of  Foothill's  Liens
with respect to the Collateral.

     "Maximum Revolving Amount" means $8,000,000.

     "Multiemployer  Plan" means a  "multiemployer  plan" (as defined in Section
4001(a)(3) of ERISA) to which Borrower,  any of its  Subsidiaries,  or any ERISA
Affiliate has contributed,  or was obligated to contribute,  within the past six
years.

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

     "Obligations"  means  all  loans,  Advances,  debts,  principal,   interest
(including any interest  that,  but for the  provisions of the Bankruptcy  Code,
would have accrued), guaranties,  contingent reimbursement obligations under any
outstanding Letters of Credit,  premiums (including Early Termination Premiums),
liabilities  (including all amounts charged to Borrower's Loan Account  pursuant
hereto), obligations,  fees, charges, costs, or Foothill Expenses (including any
fees or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
Foothill of any kind and  description  (whether  pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and Borrower,
and  irrespective  of  whether  for the  payment of  money),  whether  direct or
indirect,  absolute  or  contingent,  due or to  become  due,  now  existing  or
hereafter arising, and including any debt,  liability,  or obligation owing from
Borrower to others that  Foothill may have  obtained by assignment or otherwise,
and further  including all interest not paid when due and all Foothill  Expenses
that Borrower is required to pay or reimburse by the Loan Documents,  by law, or
otherwise.

     "Overadvance" has the meaning set forth in Section 2.5.

     "Participant"  means any Person to which Foothill has sold a  participation
interest in its rights under the Loan Documents.

     "PBGC" means the Pension Benefit  Guaranty  Corporation as defined in Title
IV of ERISA, or any successor thereto.

     "Permitted  Liens" means (a) Liens held by  Foothill,  (b) Liens for unpaid
taxes  that  either (i) are not yet due and  payable or (ii) are the  subject of
Permitted  Protests,  (c) Liens set forth on Schedule  P-1, (d) the interests of
lessors under operating leases and purchase money Liens of lessors under capital
leases to the  extent  that the  acquisition  or lease of the  underlying  asset
occurs after the Closing Date and is permitted under Section 7.21 and so long as
the Lien only  attaches to the asset  purchased or acquired and only secures the
purchase  price of the asset,  (e) Liens arising by operation of law in favor of
warehousemen,   landlords,  carriers,  mechanics,   materialmen,   laborers,  or
suppliers,  incurred in the  ordinary  course of business of Borrower and not in
connection with the borrowing of money,  and which Liens either (i) are for sums
not yet due and  payable,  or (ii) are the subject of  Permitted  Protests,  (f)
Liens  arising  from  deposits  made  in  connection  with  obtaining   worker's
compensation or other  unemployment  insurance,  (g) Liens or deposits to secure
performance  of bids,  tenders,  or leases (to the extent  permitted  under this
Agreement),  incurred in the ordinary  course of business of Borrower and not in
connection with the borrowing of money,  (h) Liens arising by reason of security
for surety or appeal bonds in the ordinary  course of business of Borrower,  (i)
Liens of or resulting  from any judgment or award that would not have a Material
Adverse Effect and as to which the time for the appeal or petition for rehearing
of which has not yet expired,  or in respect of which  Borrower is in good faith
prosecuting an appeal or proceeding for a review, and in respect of which a stay
of execution pending such appeal or proceeding for review has been secured,  and
(j) with  respect  to any  real  property  that is not  part of the  Collateral,
easements,  rights of way, zoning and similar  covenants and  restrictions,  and
similar  encumbrances that customarily exist on properties of Persons engaged in
similar  activities  and  similarly  situated  and  that  in  any  event  do not
materially  interfere  with or impair the use or operation of the  Collateral by
Borrower  or the value of  Foothill's  Lien  thereon or therein,  or  materially
interfere with the ordinary conduct of the business of Borrower.

     "Permitted  Protest"  means the right of Borrower to protest any Lien other
than any such Lien that secures the  Obligations,  tax (other than payroll taxes
or taxes that are the subject of a United  States  federal tax lien),  or rental
payment,  provided  that  (a) a  reserve  with  respect  to such  obligation  is
established   on  the  books  of  Borrower  in  an  amount  that  is  reasonably
satisfactory  to Foothill,  (b) any such protest is  instituted  and  diligently
prosecuted by Borrower in good faith,  and (c) Foothill is satisfied that, while
any such protest is pending,  there will be no impairment of the enforceability,
validity, or priority of any of the Liens of Foothill in and to the Collateral.

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

     "Plan" means any employee benefit plan, program, or arrangement  maintained
or contributed to by Borrower or with respect to which it may incur liability.

     "Reference  Rate" means the  variable  rate of  interest,  per annum,  most
recently  announced  by Norwest Bank  Minnesota,  National  Association,  or any
successor  thereto,  as its "base rate,"  irrespective of whether such announced
rate is the best rate available from such financial institution.

     "Reference  Rate  Loan"  means any Loan (or any  portion  thereof)  made or
outstanding  hereunder  during any period when interest on such Loan (or portion
thereof) is payable based on the Reference Rate.

     "Renewal Date" has the meaning set forth in Section 3.4.

     "Reportable  Event" means any of the events described in Section 4043(c) of
ERISA or the regulations  thereunder  other than a Reportable  Event as to which
the  provision  of 30  days  notice  to the  PBGC  is  waived  under  applicable
regulations.

     "Reserve  Percentage"  means and refers to, as of the date of determination
thereof,  the maximum  percentage  (rounded upward,  if necessary to the nearest
1/100th of 1%), as determined by Foothill (or its Affiliate) in accordance  with
its (or their) usual procedures (which  determination shall be conclusive in the
absence of manifest error),  that is in effect on such date as prescribed by the
Federal  Reserve  Board for  determining  the  reserve  requirements  (including
supplemental,  marginal,  and emergency  reserve  requirements)  with respect to
eurocurrency  funding (currently  referred to as "eurocurrency  liabilities") by
Foothill or its Affiliates.

     "Retiree  Health Plan" means an "employee  welfare benefit plan" within the
meaning of Section 3(1) of ERISA that  provides  benefits to  individuals  after
termination of their employment, other than as required by Section 601 of ERISA.

     "Solvent"  means,  with respect to any Person on a particular date, that on
such  date (a) at fair  valuations,  all of the  properties  and  assets of such
Person are greater than the sum of the debts, including contingent  liabilities,
of such Person,  (b) the present fair salable value of the properties and assets
of such  Person is not less than the  amount  that will be  required  to pay the
probable  liability  of such  Person on its debts as they  become  absolute  and
matured,  (c) such Person is able to realize upon its  properties and assets and
pay  its  debts  and  other  liabilities,   contingent   obligations  and  other
commitments  as they mature in the normal  course of  business,  (d) such Person
does not intend to, and does not believe  that it will,  incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in  business  or a  transaction,  and is not about to engage  in  business  or a
transaction,  for which such  Person's  properties  and assets would  constitute
unreasonably  small capital  after giving due  consideration  to the  prevailing
practices  in the  industry in which such Person is engaged.  In  computing  the
amount  of  contingent  liabilities  at  any  time,  it is  intended  that  such
liabilities  will be computed at the amount that,  in light of all the facts and
circumstances  existing at such time,  represents the amount that reasonably can
be expected to become an actual or matured liability.

     "Starcraft Loan Agreement"  means the Loan and Security  Agreement dated as
of  October  30,  1998,  as  amended,  among  Foothill,  Starcraft  Corporation,
Starcraft  Automotive Group, Inc.,  Imperial  Automotive Group, Inc. an National
Mobility Corporation.

     "Starcraft   Obligations"  means  the  "Obligations"  (as  defined  in  the
Starcraft Loan Agreement) under the Starcraft Loan Agreement.

     "Subordinated  Starcraft Loan Documents" means that certain promissory note
dated December 12, 2000 executed by Starcraft  Corporation in favor of Borrower,
that certain pledge  agreement  dated as of December 12, 2000 between  Starcraft
Corporation  and  Borrower,  and all other  related  instruments,  documents and
agreements delivered herewith or at any time hereafter.

     "Subsidiary"  of  a  Person  means  a  corporation,   partnership,  limited
liability  company,  or other entity in which that Person directly or indirectly
owns or  controls  the  shares  of  stock or other  ownership  interests  having
ordinary  voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such corporation,  partnership,  limited liability
company, or other entity.

     "Tangible Net Worth" means, as of any date of determination,  the result of
(a)  Borrower's  total  stockholder's  equity,  minus  (b)  the  sum of (i)  all
Intangible  Assets of Borrower,  (ii) all of Borrower's  prepaid  expenses,  and
(iii) all amounts due to Borrower from Affiliates.

     "Tooling Advance Rate" means 85%; provided,  that at all times on and after
February 1, 2001, Tooling Advance Rate means 70%.

     "Tooling and/or Engineering  Service Accounts" means Accounts arising under
a Tooling  Purchase  Order and with  respect  to which  Borrower  has  issued an
invoice for the amount of such Account.

     "Tooling Purchase Order" means a purchase order and related  documentation,
in form and  substance  satisfactory  to Foothill,  entered into at arm's length
between Borrower and General Motors  Corporation  pursuant to which Borrower has
agreed to manufacture and assemble tooling for automotive  platforms  awarded by
General Motors Corporation to Borrower.

     "Voidable Transfer" has the meaning set forth in Section 15.8.

     1.2. Accounting Terms.

     All accounting terms not specifically  defined herein shall be construed in
accordance with GAAP. When used herein,  the term "financial  statements"  shall
include the notes and schedules thereto.

     1.3. Code.

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

     1.4. Construction.

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

     1.5. Schedules and Exhibits.

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

2.       LOAN AND TERMS OF PAYMENT.

     2.1. Revolving Advances.

     (a) Subject to the terms and conditions of this Agreement,  Foothill agrees
to make advances ("Advances") to Borrower in an amount outstanding not to exceed
at any one  time  the  lesser  of (i) the  Maximum  Revolving  Amount  less  the
outstanding  balance of all undrawn or unreimbursed  Letters of Credit,  or (ii)
the  Borrowing  Base less the  aggregate  amount of all undrawn or  unreimbursed
Letters of Credit.  For purposes of this Agreement,  "Borrowing Base", as of any
date of determination, shall mean the result of:

          (w) the  lesser  of (i) the sum of (A)  the  product  of the  Accounts
     Advance Rate multiplied by the amount of Eligible  Accounts of Borrower and
     (B) the product of the Tooling and/or Engineering  Service Accounts Advance
     Rate  multiplied  by the  amount of  Eligible  Tooling  and/or  Engineering
     Service  Accounts of  Borrower,  less the amount,  if any, of the  Dilution
     Reserve, and (ii) an amount equal to Borrower's Collections with respect to
     Accounts of Borrower for the immediately preceding 60 day period (provided,
     that the  limitation  set forth in this clause (ii) shall not be applicable
     during the months of December and January), plus

          (x) the lower of (i) $2,500,000, and (ii) the product of the Inventory
     Advance Rate  multiplied by of the value of Eligible  Inventory;  provided,
     that at all times on and after  February 1, 2001,  Advances with respect to
     Eligible  Inventory shall not exceed 80% of the orderly  liquidation  value
     (as determined by an appraiser and an appraisal  methodology  acceptable to
     Foothill) of the Eligible Inventory, plus

          (y) the Additional Availability Amount, minus

          (z) the aggregate amount of reserves,  if any, established by Foothill
     under Section 2.1(b); --------------

     (b)  Anything to the  contrary  in Section  2.1(a)  above  notwithstanding,
Foothill may create  reserves  against the Borrowing  Base or reduce its advance
rates based upon Eligible Accounts,  Eligible Tooling and/or Engineering Service
Accounts or Eligible Inventory without declaring an Event of Default (i) for any
amount  subject to a Permitted  Protest,  (ii) for amounts owing to landlords or
similar Persons that could assert a statutory lien that would have priority over
Foothill's Lien in respect of any of the  Collateral,  (iii) for such amounts as
Foothill  deems  appropriate  for  finished  goods  that may be  located  with a
processor,  and/or  (iv) as  determined  by Foothill  in its  reasonable  credit
judgment.

     (c) Each Loan shall be made upon Borrower's  request (pursuant to the terms
of Section  2.9),  which  request  shall be  irrevocable  except as set forth in
Section  2.12,  specifying  (i) the  amount  of the  requested  Loan;  (ii)  the
requested  funding date of such Loan;  (iii) whether the Loan is to constitute a
Eurodollar  Rate  Loan or a  Reference  Rate  Loan;  and (iv) if such Loan is to
constitute a Eurodollar Rate Loan, the requested Interest Period therefor.  If a
requested  Loan  constitutes  a  Eurodollar  Rate  Loan,  such  request  must be
delivered to Foothill no later than 11:00 a.m. (California time) 2 Business Days
prior to the requested funding date therefor.

     (d)  Amounts  borrowed  pursuant  to this  Section  2.1 may be repaid  and,
subject to the terms and  conditions of this  Agreement,  reborrowed at any time
during the term of this Agreement.

     2.2. Letters of Credit.

     (a) Subject to the terms and conditions of this Agreement,  Foothill agrees
to issue  letters of credit for the account of Borrower  (each,  an "L/C") or to
issue guarantees of payment (each such guaranty, an "L/C Guaranty") with respect
to letters  of credit  issued by an issuing  bank for the  account of  Borrower.
Foothill  shall  have no  obligation  to issue a Letter  of Credit if any of the
following would result:

          (i)  the aggregate amount of all undrawn and  unreimbursed  Letters of
               Credit,  would exceed the Borrowing  Base less the amount of ----
               outstanding Advances; or

          (ii) the aggregate  amount of all undrawn or  unreimbursed  Letters of
               Credit  would  exceed  the lower of:  (x) the  Maximum  Revolving
               Amount  less the amount of  outstanding  Advances;  or (y) $0; or
               ----

          (iii)the outstanding  Obligations  would exceed the Maximum  Revolving
               Amount.

Borrower expressly understands and agrees that Foothill shall have no obligation
to arrange for the  issuance by issuing  banks of the letters of credit that are
to be the subject of L/C Guarantees. Borrower and Foothill acknowledge and agree
that  certain  of the  letters  of  credit  that  are to be the  subject  of L/C
Guarantees may be  outstanding on the Closing Date.  Each Letter of Credit shall
have an  expiration  date no later  than 60 days prior to the date on which this
Agreement is scheduled to  terminate  under  Section 3.4 (without  regard to any
potential  renewal  term) and all such  Letters  of Credit  shall be in form and
substance  acceptable  to  Foothill  in its  sole  discretion.  If  Foothill  is
obligated to advance funds under a Letter of Credit,  Borrower immediately shall
reimburse such amount to Foothill and, in the absence of such reimbursement, the
amount  so  advanced  immediately  and  automatically  shall be  deemed to be an
Advance  hereunder  and,  thereafter,  shall  bear  interest  at the  rate  then
applicable to Advances under Section 2.6.

     (b) Borrower hereby agrees to indemnify,  save,  defend,  and hold Foothill
harmless from any loss, cost, expense, or liability,  including payments made by
Foothill,  expenses,  and reasonable attorneys fees incurred by Foothill arising
out of or in connection  with any Letter of Credit.  Borrower agrees to be bound
by the issuing bank's  regulations and  interpretations of any Letters of Credit
guarantied by Foothill and opened to or for Borrower's  account or by Foothill's
interpretations of any L/C issued by Foothill to or for Borrower's account, even
though this  interpretation  may be different from  Borrower's own, and Borrower
understands  and  agrees  that  Foothill  shall  not be  liable  for any  error,
negligence,  or  mistake,  whether  of  omission  or  commission,  in  following
Borrower's  instructions  or those  contained  in the  Letter  of  Credit or any
modifications, amendments, or supplements thereto. Borrower understands that the
L/C  Guarantees  may require  Foothill to indemnify the issuing bank for certain
costs or  liabilities  arising out of claims by Borrower  against  such  issuing
bank.  Borrower  hereby agrees to  indemnify,  save,  defend,  and hold Foothill
harmless with respect to any loss, cost, expense (including reasonable attorneys
fees),  or liability  incurred by Foothill under any L/C Guaranty as a result of
Foothill's indemnification of any such issuing bank.

     (c) Borrower hereby authorizes and directs any bank that issues a letter of
credit guaranteed by Foothill to deliver to Foothill all instruments, documents,
and other  writings and property  received by the issuing bank  pursuant to such
letter of  credit,  and to  accept  and rely upon  Foothill's  instructions  and
agreements with respect to all matters that it would  otherwise  accept and rely
upon Borrower's  instructions  and  agreements,  arising in connection with such
letter of credit and the  related  application.  Borrower  may or may not be the
"applicant" or "account party" with respect to such letter of credit.

     (d) Any and all charges, commissions,  fees, and costs incurred by Foothill
relating to the letters of credit  guaranteed  by Foothill  shall be  considered
Foothill  Expenses  for  purposes of this  Agreement  and  immediately  shall be
reimbursable by Borrower to Foothill.

     (e) Immediately upon the termination of this Agreement,  Borrower agrees to
either (i) provide cash  collateral to be held by Foothill in an amount equal to
102% of the maximum amount of Foothill's obligations under Letters of Credit, or
(ii) cause to be delivered to Foothill releases of all of Foothill's obligations
under outstanding Letters of Credit. At Foothill's  discretion,  any proceeds of
Collateral of Borrower  received by Foothill after the occurrence and during the
continuation of an Event of Default may be held as the cash collateral  required
by this Section 2.2(e).

     (f) If by reason of (i) any change in any applicable law, treaty,  rule, or
regulation  or  any  change  in  the   interpretation   or  application  by  any
governmental  authority of any such applicable law, treaty, rule, or regulation,
or (ii) compliance by the issuing bank or Foothill with any direction,  request,
or  requirement  (irrespective  of  whether  having  the  force  of  law) of any
governmental  authority or monetary  authority  including,  without  limitation,
Regulation  D of the Board of Governors  of the Federal  Reserve  System as from
time to time in effect (and any successor thereto):

          (A)  any  reserve,  deposit,  or  similar  requirement  is or shall be
               imposed or modified  in respect of any  Letters of Credit  issued
               hereunder, or

          (B)  there shall be imposed on the issuing  bank or Foothill any other
               condition regarding any letter of credit, or Letter of Credit, as
               applicable, issued pursuant hereto;

and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any  letter of  credit,  or Letter of Credit,  as  applicable,  or to reduce the
amount receivable in respect thereof by such issuing bank or Foothill, then, and
in any such case, Foothill may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced,  notify Borrower,
and  Borrower  shall pay on demand such  amounts as the issuing bank or Foothill
may specify to be necessary to compensate  the issuing bank or Foothill for such
additional cost or reduced  receipt,  together with interest on such amount from
the date of such demand  until  payment in full thereof at the rate set forth in
Section  2.6(a)(i) or (c)(i),  as applicable.  The  determination by the issuing
bank or Foothill, as the case may be, of any amount due pursuant to this Section
2.2(f), as set forth in a certificate  setting forth the calculation  thereof in
reasonable detail,  shall, in the absence of manifest or demonstrable  error, be
final and conclusive and binding on all of the parties hereto.

     2.3. Intentionally Omitted.

     2.4. Intentionally Omitted.

     2.5. Overadvances.

     If,  at any time or for any  reason,  the  amount  of  Obligations  owed by
Borrower to Foothill pursuant to Sections 2.1 and 2.2 is greater than either the
Dollar  or  percentage  limitations  set  forth  in  Sections  2.1  and  2.2 (an
"Overadvance"),  Borrower immediately shall pay to Foothill, in cash, the amount
of such excess to be used by Foothill first, to repay Advances outstanding under
Section 2.1 and, thereafter, to be held by Foothill as cash collateral to secure
Borrower's obligation to repay Foothill for all amounts paid pursuant to Letters
of Credit.

     2.6. Interest: Rates, Payments and Calculations.

     (a) Interest Rate.  Except as provided in clause (c) below, all outstanding
Obligations  (except  for  undrawn  Letters of Credit)  shall bear  interest  as
follows:

          (i)  Each Eurodollar Rate Loan shall bear interest at a per annum rate
               of 3 percentage points above the Adjusted Eurodollar Rate, and

          (ii) all other  outstanding  Obligations  shall bear interest at a per
               annum rate of 0.5 percentage points above the Reference Rate;

provided  that,  during any period that no Event of Default  exists and the most
recent financial  statements of Borrower  received by Lender pursuant to Section
6.3 reflect  Tangible  Net Worth of at least  $4,000,000,  the per annum rate of
interest  on  all  Obligations  shall,  during  such  period,  be  reduced  by 1
percentage point 10 days following the delivery of such financial statements.

     (b) Letter of Credit Fee. Borrower shall pay Foothill a fee (in addition to
the charges, commissions,  fees, and costs set forth in Section 2.2(d)) equal to
1.75% per annum times the aggregate undrawn amount of all outstanding Letters of
Credit.

     (c) Default Rate.  Upon the  occurrence and during the  continuation  of an
Event of Default,  (i) all  Obligations  (except for undrawn  Letters of Credit)
shall bear interest at a per annum rate equal to 3.5 percentage points above the
Reference  Rate,  and (ii) the Letter of Credit fee  provided in Section  2.6(b)
shall be increased to 4.75% per annum times the amount of the undrawn Letters of
Credit that were outstanding during the immediately preceding calendar month.

     (d) Minimum  Interest.  In no event  shall the rate of interest  chargeable
hereunder  for any day be less than 6% per annum.  To the extent  that  interest
accrued  hereunder at the rate set forth herein would be less than the foregoing
minimum  daily  rate,  the  interest  rate  chargeable  hereunder  for  such day
automatically shall be deemed increased to the minimum rate.

     (e)  Payments.  Interest in respect of  Reference  Rate Loans and Letter of
Credit  Fees  shall be due and  payable,  in  arrears,  on the first day of each
calendar  month during the term hereof.  Interest in respect of each  Eurodollar
Rate Loan shall be due and payable,  in arrears, on the last day of the Interest
Period applicable thereto.  Borrower hereby authorizes Foothill,  at its option,
without  prior notice to Borrower,  to charge such interest and Letter of Credit
Fees,  all  Foothill  Expenses  (as and when  incurred),  the  fees and  charges
provided  for in  Section  2.11  (as and  when  accrued  or  incurred),  and all
installments  or other  payments due under any Loan Document to Borrower's  Loan
Account,  which  amounts  thereafter  shall  accrue  interest  at the rate  then
applicable  to Advances  hereunder.  Any interest not paid when due and shall be
compounded and shall  thereafter  accrue interest at the rate then applicable to
Advances hereunder.

     (f)  Computation.  The Reference  Rate as of the date of this  Agreement is
9.50% per annum.  In the event the  Reference  Rate is changed from time to time
hereafter,   the  applicable  rate  of  interest  hereunder   automatically  and
immediately shall be increased or decreased by an amount equal to such change in
the Reference  Rate. All interest and fees  chargeable  under the Loan Documents
shall be computed  on the basis of a 360 day year for the actual  number of days
elapsed.

     (g) Intent to Limit  Charges to Maximum  Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court  of  competent   jurisdiction  shall,  in  a  final  determination,   deem
applicable.  Borrower and Foothill,  in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it;  provided,  however,  that,  anything  contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum  allowable under  applicable law, then, ipso facto as of the
date of this Agreement,  Borrower is and shall be liable only for the payment of
such maximum as allowed by law, and payment  received from Borrower in excess of
such legal maximum,  whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.

     2.7. Collection of Accounts.

     Borrower  shall at all times  maintain  lockboxes  (the  "Lockboxes")  and,
immediately  shall  instruct all Account  Debtors with respect to the  Accounts,
General  Intangibles,  and  Negotiable  Collateral  of  Borrower  to  remit  all
Collections in respect thereof to such Lockboxes.  Borrower,  Foothill,  and the
Lockbox Banks shall enter into the Lockbox Agreements,  which among other things
shall  provide  for  the  opening  of a  Lockbox  Account  for  the  deposit  of
Collections at a Lockbox Bank.  Borrower  agrees that all  Collections and other
amounts  received  by  Borrower  from any  Account  Debtor or any  other  source
immediately upon receipt shall be deposited into a Lockbox  Account.  No Lockbox
Agreement  or  arrangement  contemplated  thereby  shall be modified by Borrower
without the prior written consent of Foothill. Upon the terms and subject to the
conditions  set forth in the Lockbox  Agreements,  all amounts  received in each
Lockbox  Account  after all  applicable  collection  periods shall be wired each
Business Day into an account (the "Foothill Account")  maintained by Foothill at
a depository selected by Foothill.

     2.8. Crediting Payments; Application of Collections.

     The receipt of any  Collections  by Foothill  (whether  from  transfers  to
Foothill by the Lockbox Banks  pursuant to the Lockbox  Agreements or otherwise)
immediately   shall  be  applied   provisionally   to  reduce  the   Obligations
outstanding,  but shall not be  considered  a payment  on  account  unless  such
Collection item is a wire transfer of immediately available federal funds and is
made to the Foothill Account or unless and until such Collection item is honored
when presented for payment.  From and after the Closing Date,  Foothill shall be
entitled to charge Borrower for 2 Business Days of `clearance' or `float' at the
rate set forth in Section 2.6(a)(i) or Section 2.6(c)(i), as applicable,  on all
Collections  that are received by Foothill  (regardless of whether  forwarded by
the  Lockbox  Banks to  Foothill,  whether  provisionally  applied to reduce the
Obligations,  or otherwise).  This  across-the-board 2 Business Day clearance or
float charge on all  Collections is acknowledged by the parties to constitute an
integral  aspect of the pricing of Foothill's  financing of Borrower,  and shall
apply  irrespective  of the  characterization  of whether  receipts are owned by
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such  clearance  or float charge  being the  equivalent  of charging 2
Business Days of interest on such Collections. Should any Collection item not be
honored when  presented for payment,  then Borrower  shall be deemed not to have
made such payment, and interest shall be recalculated  accordingly.  Anything to
the contrary  contained  herein  notwithstanding,  any Collection  item shall be
deemed received by Foothill only if it is received into the Foothill  Account on
a Business Day on or before 11:00 a.m.  California  time. If any Collection item
is received into the Foothill  Account on a non-Business Day or after 11:00 a.m.
California  time on a Business  Day, it shall be deemed to have been received by
Foothill as of the opening of business  on the  immediately  following  Business
Day.

     2.9. Designated Account.

     Foothill is authorized to make the Advances and the Letters of Credit under
this Agreement based upon telephonic or other instructions  received from anyone
purporting to be an Authorized  Person,  or without  instructions if pursuant to
Section 2.6(e). Borrower agrees to establish and maintain the Designated Account
with the  Designated  Account Bank for the purpose of receiving  the proceeds of
the  Advances  requested  by  Borrower  and made by Foothill  hereunder.  Unless
otherwise agreed by Foothill and Borrower, any Advance requested by Borrower and
made by Foothill hereunder shall be made to the Designated Account.

2.10.    Maintenance of Loan Account; Statements of Obligations.

     Foothill  shall  maintain  an account on its books in the name of  Borrower
(the "Loan Account") on which Borrower will be charged with all Advances made by
Foothill to Borrower or for Borrower's  account,  including,  accrued  interest,
Foothill Expenses,  and any other payment Obligations of Borrower. In accordance
with Section 2.8, the Loan Account will be credited  with all payments  received
by Foothill  from  Borrower or for  Borrower's  account,  including  all amounts
received in the Foothill  Account from any Lockbox Bank.  Foothill  shall render
statements  regarding  the  Loan  Account  to  Borrower,   including  principal,
interest,  fees,  and  including  an  itemization  of all charges  and  expenses
constituting  Foothill Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and  constitute  an account  stated  between
Borrower and Foothill unless,  within 30 days after receipt thereof by Borrower,
Borrower  shall deliver to Foothill  written  objection  thereto  describing the
error or errors contained in any such statements.

     2.11. Fees.

     Borrower shall pay to Foothill the following fees:

     (a)  Modification  Fee. On the date hereof, a modification fee in an amount
equal to $50,000;

     (b) Financial  Examination,  Documentation,  and Appraisal Fees. Foothill's
customary fee of $650 per day per examiner, plus out-of-pocket expenses for each
financial  analysis  and  examination  (i.e.,  audits) of Borrower  performed by
personnel employed by Foothill; Foothill's customary appraisal fee of $1,500 per
day per  appraiser,  plus  out-of-pocket  expenses  for  each  appraisal  of the
Collateral performed by personnel employed by Foothill;  and, the actual charges
paid or incurred by Foothill if it elects to employ the  services of one or more
third Persons to perform such financial analyses and examinations (i.e., audits)
of Borrower or to appraise the Collateral; and

     (c) Unused Line Fee. On the first day of each month during the term of this
Agreement,  an unused  line fee in an amount  equal to 0.25% per annum times the
Average Unused Portion of the Maximum Revolving Amount.

     2.12. Eurodollar Rate Loans.

     Any other provisions herein to the contrary notwithstanding,  the following
provisions  shall govern with respect to Eurodollar Rate Loans as to the matters
covered:

     (a) Borrowing; Conversion; Continuation. Borrower may from time to time, on
or after the Closing Date, request in a written or telephonic communication with
Foothill:  (i) Loans to constitute  Eurodollar  Rate Loans  (pursuant to Section
2.12(c));  (ii) that  Reference  Rate Loans be converted  into  Eurodollar  Rate
Loans;  or (iii) that existing  Eurodollar Rate Loans continue for an additional
Interest  Period.  Any such request shall  specify the  aggregate  amount of the
requested Eurodollar Rate Loans, the proposed funding date therefor (which shall
be a Business  Day, and with respect to continued  Eurodollar  Rate shall be the
last day of the  Interest  Period of the  existing  Eurodollar  Rate loans being
continued),  and the  proposed  Interest  Period,  in each case  subject  to the
limitations set forth below).  Eurodollar Rate Loans may only be made, continue,
or extended if, as of the proposed  funding date  therefor each of the following
conditions is satisfied:

          (v)  no Event of Default exists;

          (w)  no more than 3 Interest Periods may be in effect at any one time;

          (x)  the amount of each Eurodollar Rate Loan borrowed,  converted,  or
               continued  must be in an  amount  not less  than  $1,000,000  and
               integral multiples of $500,000 in excess thereof;

          (y)  Foothill  shall  have  determined  that the  Interest  Period  or
               Adjusted  Eurodollar  Rate is  available  to Foothill  and can be
               readily  determined  as of the  date  of  the  request  for  such
               Eurodollar Rate Loan by Borrower; and

          (z)  Foothill  shall have  received  such  request at least 2 Business
               Days prior to the proposed funding date therefor.

Any request by Borrower to borrow  Eurodollar Rate Loans,  to convert  Reference
Rate Loans to Eurodollar Rate Loans, or to continue any existing Eurodollar Rate
Loans shall be  irrevocable,  except to the extent that Foothill shall determine
under Sections  2.12(a),  2.13 or 2.14 that such Eurodollar Rate Loans cannot be
made or continued.

     (b)  Determination  of Interest  Period.  By giving  notice as set forth in
Section  2.12(a),  the  Borrower  shall have the option of selecting an Interest
Period for such Eurodollar  Rate Loan. The  determination  of Interests  Periods
shall be subject to the following provisions:

          (i)  in the case of  immediately  successive  Interest  Periods,  each
               successive  Interest  Period shall  commence on the date on which
               the next preceding Interest Period expires;

          (ii) if any Interest period would  otherwise  expire on a day which is
               not a Business  Day,  the  Interest  Period  shall be extended to
               expire on the next succeeding  Business Day;  provided,  however,
               that if the next succeeding  Business Day occurs in the following
               calendar  month,  then such  Interest  Period shall expire on the
               immediately preceding Business Day;

          (iii)if any  Interest  Period  begins  on the last  Business  Day of a
               calendar  month,  or on a day for which  there is no  numerically
               corresponding  day in the  calendar  month  at  the  end of  such
               Interest  Period,  then the Interest Period shall end on the last
               Business  Day of the calendar  month at the end of such  Interest
               Period; and

          (iv) Borrower may not select an Interest  period which  expires  later
               than the last day of the current term of this Agreement.

     (c) Automatic Conversion;  Optional Conversion by Foothill.  Any Eurodollar
Rate Loan shall automatically convert to a Reference Rate Loan upon the last day
of the applicable  Interest  Period,  unless  Foothill has received a request to
continue such  Eurodollar Rate Loan at least 2 Business Days prior to the end of
such  Interest  period in  accordance  with the terms of  Section  2.12(a).  Any
Eurodollar  Rate Loan shall,  at  Foothill's  option,  upon notice to  Borrower,
convert to a Reference Rate Loan in the event that (i) an Event of Default shall
have occurred and be  continuing  as of the last day of the Interest  Period for
such Eurodollar Rate Loan, or (ii) this Agreement shall terminate,  and Borrower
shall pay to Foothill any amounts required by Section 2.15 as a result thereof.

     2.13. Illegality.

     Any other provision herein to the contrary notwithstanding, if the adoption
of or any  change in any law or in the  interpretation  or  application  thereof
shall make it unlawful for Foothill to make or maintain Eurodollar Rate Loans as
contemplated by this Agreement, (a) the obligation of Foothill hereunder to make
Eurodollar  Rate  loans,  continue  Eurodollar  Rate Loans as such,  and convert
Reference Rate Loans to Eurodollar  Rate Loans shall  forthwith be cancelled and
(b)  Foothill's  then  outstanding  Eurodollar  Rate  Loans,  if any,  shall  be
converted  automatically  to Reference Rate Loans on the respective last days of
the then current  Interest  Periods with respect  thereto or within such earlier
period as  required  by law;  provided,  however,  that  before  making any such
demand,  Foothill agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory  restrictions  and so long as such efforts would
not be  disadvantageous  to it,  in its  reasonable  discretion,  in any  legal,
economic or regulatory  manner) to designate a different  lending  office if the
making of such a  designation  would allow  Foothill  or its  lending  office to
continue to perform its  obligations to make  Eurodollar Rate Loans. If any such
conversion  of a Eurodollar  Rate Loan occurs on a day which is not the last day
of the then current Interest period with respect thereto,  Borrower shall pay to
Foothill such amounts,  if any, as may be required  pursuant to Section 2.15. If
circumstances subsequently change so that Foothill shall determine that it is no
longer so affected,  Foothill will promptly notify Borrower, and upon receipt of
such notice,  the  obligations of Foothill to make or continue  Eurodollar  Rate
Loans or to convert  Reference  Rate Loans into  Eurodollar  Rate Loans shall be
reinstated.

     2.14. Requirements of Law.

     (a) If the adoption of or any change in any law or in the interpretation or
application  thereof or  compliance  by Foothill  with any request or  directive
(whether  or not  having  the  force  of law)  from  any  central  bank or other
Governmental Authority made subsequent to the date hereof:

          (i)  shall subject Foothill to any tax, levy,  charge,  fee, reduction
               or  withholding  of any  kind  whatsoever  with  respect  to this
               Agreement  or any  Loan,  or  change  the  basis of  taxation  of
               payments to Foothill in respect thereof (except for taxes and the
               establishment  of a tax based on the net  income of  Foothill  or
               changes in the rate of tax on the net income of Foothill);

          (ii) shall  impose,  modify or hold  applicable  any reserve,  special
               deposit,  compulsory loan or similar  requirement  against assets
               held by, deposits or other  liabilities in or for the account of,
               Loans or other extensions of credit by, or any other  acquisition
               of funds by, any office of Foothill; or

          (iii)shall  impose on Foothill  any other  condition  with  respect to
               this Agreement or any Loan;

and the result of any of the  foregoing is to increase the cost to Foothill,  by
an amount which  Foothill  deems to be  material,  of making,  converting  into,
continuing  or  maintaining  Loans or to increase  the cost to  Foothill,  by an
amount which Foothill deems to be material,  or to reduce any amount  receivable
hereunder in respect of Loans, or to forego any other sum payable  thereunder or
make any payment on account  thereof,  then,  in any such case,  Borrower  shall
promptly pay Foothill,  upon its demand,  any  additional  amounts  necessary to
compensate  Foothill  for such  increased  cost or  reduced  amount  receivable;
provided,  however,  that before making any such demand,  Foothill agrees to use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions and so long as such efforts would not be  disadvantageous to it, in
its  reasonable  discretion,  in any legal,  economic or  regulatory  manner) to
designate  a  different   Eurodollar  lending  office  if  the  making  of  such
designation would allow Foothill or its Eurodollar lending office to continue to
perform its  obligations to make Eurodollar Rate Loans or to continue to fund or
maintain  Eurodollar Rate Loans and avoid the need for, or materially reduce the
amount of,  such  increased  cost.  If  Foothill  becomes  entitled to claim any
additional amounts pursuant to this Section 2.14, Foothill shall promptly notify
Borrower  of the  event  by  reason  of  which  it has  become  so  entitled.  A
certificate as to any additional  amounts payable  pursuant to this Section 2.14
submitted by Foothill to Borrower shall be conclusive in the absence of manifest
error.  If Borrower so notifies  Foothill  within 5 Business Days after Foothill
notifies Borrower of any increased cost pursuant to the foregoing  provisions of
this  Section  2.14,  Borrower  may  convert  all  Eurodollar  Rate  Loans  then
outstanding  into  Reference  Rate loans in  accordance  with  Section 2.12 and,
additionally, reimburse Foothill for any cost in accordance with Section 2.15.

     (b) If Foothill shall have determined that the adoption of or any change in
any law  regarding  capital  adequacy or in the  interpretation  or  application
thereof or  compliance by Foothill or any Person  controlling  Foothill with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any Governmental  Authority made subsequent to the date hereof does
or shall have the effect of  increasing  the  amount of capital  required  to be
maintained or reducing the rate of return on Foothill's or such Person's capital
as a consequence of its  obligations  hereunder to a level below that which such
Foothill or such Person could have  achieved  but for such change or  compliance
(taking into consideration  Foothill's or such Person's policies with respect to
capital adequacy) by an amount deemed by Foothill to be material, then from time
to time,  after  submission by Foothill to Borrower of a prompt written  request
therefor,  Borrower shall pay to Foothill such  additional  amount or amounts as
will compensate Foothill or such Person for such reduction.

     2.15. Indemnity.

     Borrower  agrees to indemnify  Foothill and to hold Foothill  harmless from
any loss or expense which  Foothill may sustain or incur as a consequence of (a)
default by Borrower in payment when due of the  principal  amount of or interest
on any  Eurodollar  Rate Loan, (b) default by Borrower in making a borrowing of,
conversion  into, or  continuation  of Eurodollar  Rate Loans after Borrower has
given a notice  requesting  the same in accordance  with the  provisions of this
Agreement,  (c) default by Borrower in making any prepayment  after Borrower has
given a notice thereof in accordance with the provisions of this  Agreement,  or
(d) the making of a prepayment  of  Eurodollar  Rate Loans on a day which is not
the last day of an Interest  Period with  respect  thereto  (whether  due to the
termination  of  this  Agreement  upon  the  Event  of  Default  or  otherwise),
including, in each case, any such loss or expense (but excluding loss of margin)
arising from the  reemployment  of funds  obtained by it or from fees payable to
terminate the deposits from which such funds were  obtained.  Calculation of all
amounts  payable to  Foothill  under this  Section  2.15 shall be made as though
Foothill  had  actually  funded the  relevant  Eurodollar  Rate Loan through the
purchase of a deposit bearing interest at the Eurodollar Rate in an amount equal
to the amount of such Eurodollar  Rate Loan and having a maturity  comparable to
the relevant Interest Period; provided,  however, that Foothill may fund each of
the  Eurodollar  Rate  Loans  in any  manner  it sees  fit,  and  the  foregoing
assumption  shall be utilized only for the  calculation of amounts payable under
this Section 2.15.

3.       CONDITIONS; TERM OF AGREEMENT.

     3.1. Conditions Precedent to the Initial Advance and Letter of Credit.

     The obligation of Foothill to make the initial Advance after this Agreement
is executed,  or to issue the initial  Letter of Credit after this  Agreement is
executed, is subject to the fulfillment, to the satisfaction of Foothill and its
counsel, of each of the following conditions on or before the Closing Date:

     (a) Foothill  shall have  received an opinion of counsel of Old Tecstar and
Borrower  that the assets and  liabilities  of Old Tecstar have been acquired by
Borrower;

     (b) Foothill  shall have  received  searches  reflecting  the filing of its
financing statements and fixture filings for Borrower;

     (c) Foothill  shall have  received each of the  following  documents,  duly
executed, and each such document shall be in full force and effect:

          (i)  the Lockbox Agreements; and

          (ii) the Guaranties.

     (d) Foothill shall have received a certificate  from an officer of Borrower
attesting to the  resolutions of Borrower's  Board of Managers  authorizing  its
execution,  delivery,  and  performance  of this  Agreement  and the other  Loan
Documents  to which  Borrower is a party and  authorizing  specific  officers of
Borrower to execute the same;

     (e) Foothill shall have received copies of Borrower's  Governing Documents,
as amended,  modified,  or  supplemented  to the Closing  Date,  certified by an
officer of Borrower;

     (f) Foothill  shall have received a  certificate  of status with respect to
Borrower,  dated  within 30 days of the Closing  Date,  such  certificate  to be
issued  by the  appropriate  officer  of the  jurisdiction  of  organization  of
Borrower,  which certificate shall indicate that Borrower is in good standing in
such jurisdiction;

     (g) Foothill  shall have  received  certificates  of status with respect to
Borrower, each dated within 30 days of the Closing Date, such certificates to be
issued by the appropriate  officer of the  jurisdictions in which its failure to
be duly qualified or licensed would constitute a Material Adverse Change,  which
certificates   shall  indicate  that  Borrower  is  in  good  standing  in  such
jurisdictions;

     (h) Foothill shall have received a certificate of insurance,  together with
the  endorsements  thereto,  as are  required  by  Section  6.10,  the  form and
substance of which shall be satisfactory to Foothill and its counsel;

     (i) Foothill shall have received such  Collateral  Access  Agreements  from
lessors, warehousemen, bailees, and other third parties as Foothill may require;

     (j) Foothill  shall have received an opinion of Borrower's  counsel in form
and substance satisfactory to Foothill in its sole discretion;

     (k)  all  other   documents  and  legal  matters  in  connection  with  the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance  satisfactory to Foothill and its
counsel.

     3.2. Conditions Precedent to all Advances and all Letters of Credit.

     The following shall be conditions precedent to all Advances and all Letters
of Credit hereunder:

     (a) the representations and warranties  contained in this Agreement and the
other Loan Documents  shall be true and correct in all respects on and as of the
date of such extension of credit,  as though made on and as of such date (except
to the extent  that such  representations  and  warranties  relate  solely to an
earlier date);

     (b) no Default or Event of Default shall have occurred and be continuing on
the date of such  extension of credit,  nor shall either  result from the making
thereof; and (c) no injunction,  writ,  restraining order, or other order of any
nature prohibiting,  directly or indirectly,  the extending of such credit shall
have been  issued  and  remain in force by any  governmental  authority  against
Borrower, Foothill, or any of their Affiliates.

     3.3. Condition Subsequent.

     As a condition  subsequent to initial  closing  hereunder,  Borrower  shall
perform or cause to be performed  the  following  (the failure by Borrower to so
perform or cause to be performed constituting an Event of Default) within:

     (a) 30 days of the Closing Date,  deliver to Foothill the certified  copies
of the policies of insurance,  together with the  endorsements  thereto,  as are
required by Section 6.10, the form and substance of which shall be  satisfactory
to Foothill and its counsel.

     3.4. Term; Automatic Renewal.

     This  Agreement  shall become  effective  upon the  execution  and delivery
hereof by Borrower and Foothill and shall  continue in full force and effect for
a term ending on November 19, 2004 (the "Renewal Date") and automatically  shall
be renewed for successive one year periods thereafter,  unless sooner terminated
pursuant to the terms hereof.  Borrower or Foothill may terminate this Agreement
effective on the Renewal Date or on any one year anniversary of the Renewal Date
by giving the other parties at least 90 days prior written notice. The foregoing
notwithstanding,  Foothill  shall have the right to  terminate  its  obligations
under this  Agreement  immediately  and without  notice upon the  occurrence and
during the continuation of an Event of Default.

     3.5. Effect of Termination.

     On the date of termination of this Agreement,  all  Obligations  (including
contingent reimbursement obligations of Borrower with respect to any outstanding
Letters of Credit)  immediately  shall become due and payable  without notice or
demand.  No termination of this Agreement,  however,  shall relieve or discharge
Borrower of its duties,  Obligations,  or covenants  hereunder,  and  Foothill's
continuing security interests in the Collateral shall remain in effect until all
Obligations have been fully and finally discharged and Foothill's  obligation to
provide additional credit hereunder is terminated. If Borrower has sent a notice
of termination  pursuant to the provisions of Section 3.4, but Borrower fails to
pay the Obligations in full on the date set forth in said notice,  then Foothill
may, but shall not be required to, renew this  Agreement for an additional  term
of one year.

     3.6. Early Termination by Borrower.

     The  provisions of Section 3.4 that allow  termination of this Agreement by
Borrower   only  on  the  Renewal   Date  and  certain   anniversaries   thereof
notwithstanding, Borrower has the option, at any time upon 90 days prior written
notice to Foothill,  to terminate this Agreement by paying to Foothill, in cash,
the Obligations  (including an amount equal to 102% of the undrawn amount of the
Letters of Credit),  in full,  together  with a premium (the "Early  Termination
Premium")  equal to (a) 2% of the Maximum  Revolving  Amount if terminated on or
before  November  20,  2001;  (b) 1 1/2%  of the  Maximum  Revolving  Amount  if
terminated after November 20, 2001 but on or before November 20, 2002; (c) 1% of
the Maximum  Revolving  Amount if terminated  after  November 20, 2002 but on or
before  November  20,  2003;  and (d) 0.5% of the  Maximum  Revolving  Amount if
terminated after November 20, 2003 but before the Renewal Date.

     3.7. Termination Upon Event of Default.

     If Foothill  terminates  this  Agreement upon the occurrence of an Event of
Default, in view of the  impracticability and extreme difficulty of ascertaining
actual  damages  and by  mutual  agreement  of the  parties  as to a  reasonable
calculation of Foothill's lost profits as a result  thereof,  Borrower shall pay
to Foothill upon the effective date of such termination,  a premium in an amount
equal to the Early  Termination  Premium,  if any,  that would be payable  under
Section 3.6 had Borrower  terminated on such date. The Early Termination Premium
shall be  presumed  to be the amount of damages  sustained  by  Foothill  as the
result of the early  termination and Borrower agrees that it is reasonable under
the circumstances currently existing. The Early Termination Premium provided for
in this Section 3.7 shall be deemed included in the Obligations.

4.       CREATION OF SECURITY INTEREST.

     4.1. Grant of Security Interest.

     Borrower  hereby grants to Foothill a continuing  security  interest in all
currently  existing and hereafter  acquired or arising Collateral of Borrower in
order to secure  prompt  repayment  of any and all  Obligations  and in order to
secure prompt  performance by Borrower of each of its covenants and duties under
the Loan Documents. Foothill's security interests in the Collateral shall attach
to all  Collateral  without  further act on the part of  Foothill  or  Borrower.
Anything  contained in this Agreement or any other Loan Document to the contrary
notwithstanding,  except  for the sale of  Inventory  to buyers in the  ordinary
course  of  business  and  as  permitted  under  Section  7.4,  Borrower  has no
authority,  express  or  implied,  to  dispose  of any  item or  portion  of the
Collateral.

     4.2. Negotiable Collateral.

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

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

     At any time,  Foothill or Foothill's  designee may (a) notify  customers or
Account  Debtors  of  Borrower  that  the  Accounts,  General  Intangibles,   or
Negotiable  Collateral  have been  assigned to Foothill or that  Foothill  has a
security interest therein,  and (b) collect the Accounts,  General  Intangibles,
and Negotiable  Collateral directly and charge the collection costs and expenses
to the Loan Account. Borrower agrees that it will hold in trust for Foothill, as
Foothill's  trustee,  any  Collections  that it receives  and  immediately  will
deliver said Collections to the Lockbox or to Foothill in their original form as
received by Borrower.

     4.4. Delivery of Additional Documentation Required.

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

     4.5. Power of Attorney.

     Borrower hereby irrevocably makes, constitutes,  and appoints Foothill (and
any of  Foothill's  officers,  employees,  or agents  designated by Foothill) as
Borrower's true and lawful  attorney,  with power to (a) if Borrower refuses to,
or fails timely to execute and deliver any of the documents described in Section
4.4, sign the name of Borrower on any of the documents described in Section 4.4,
(b) at any time that an Event of  Default  has  occurred  and is  continuing  or
Foothill deems itself  insecure,  sign Borrower's name on any invoice or bill of
lading relating to any Account,  drafts against Account  Debtors,  schedules and
assignments  of  Accounts,  verifications  of  Accounts,  and notices to Account
Debtors, (c) send requests for verification of Accounts,  (d) endorse Borrower's
name on any Collection item that may come into Foothill's possession, (e) at any
time that an Event of Default has occurred and is continuing  or Foothill  deems
itself  insecure,  notify the post office  authorities to change the address for
delivery of Borrower's mail to an address designated by Foothill, to receive and
open all mail  addressed  to  Borrower,  and to retain all mail  relating to the
Collateral and forward all other mail to Borrower, (f) at any time that an Event
of Default has occurred and is  continuing  or Foothill  deems itself  insecure,
make, settle,  and adjust all claims under Borrower's  policies of insurance and
make  all  determinations  and  decisions  with  respect  to  such  policies  of
insurance,  and (g) at any time that an Event of  Default  has  occurred  and is
continuing or Foothill  deems itself  insecure,  settle and adjust  disputes and
claims  respecting the Accounts  directly with Account Debtors,  for amounts and
upon terms that Foothill determines to be reasonable,  and Foothill may cause to
be executed and delivered any documents and releases that Foothill determines to
be necessary.  The appointment of Foothill as Borrower's attorney,  and each and
every one of Foothill's  rights and powers,  being coupled with an interest,  is
irrevocable  until all of the Obligations have been fully and finally repaid and
performed and Foothill's obligation to extend credit hereunder is terminated.

     4.6. Right to Inspect.

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

5.       REPRESENTATIONS AND WARRANTIES.

     In order to induce  Foothill to enter into this  Agreement,  Borrower makes
the following  representations and warranties which shall be true, correct,  and
complete in all respects as of the date hereof, and shall be true, correct,  and
complete in all  respects as of the Closing  Date,  and at and as of the date of
the making of each Advance or Letter of Credit made  thereafter,  as though made
on and as of the date of such  Advance,  Letter of Credit  (except to the extent
that such  representations  and warranties relate solely to an earlier date) and
such  representations and warranties shall survive the execution and delivery of
this Agreement:

     5.1. No Encumbrances.

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

     5.2.  Eligible  Accounts and Eligible  Tooling and/or  Engineering  Service
Accounts.

     The Eligible  Accounts  and Eligible  Tooling  and/or  Engineering  Service
Accounts of Borrower are bona fide existing  obligations created by the sale and
delivery of  Inventory or the  rendition  of services to Account  Debtors in the
ordinary course of Borrower's business, unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims, or rights of return or cancellation.
The property  giving rise to such Eligible  Accounts or Eligible  Tooling and/or
Engineering Service Accounts has been delivered to the Account Debtor, or to the
Account Debtor's agent for immediate shipment to and unconditional acceptance by
the  Account  Debtor.  Borrower  has not  received  notice of actual or imminent
bankruptcy, insolvency, or material impairment of the financial condition of any
Account Debtor regarding any Eligible Account or Eligible Tooling Account.

     5.3. Eligible Inventory.

     All  Eligible  Inventory  is of good and  merchantable  quality,  free from
defects.

     5.4. Equipment.

     All of the  Equipment  of  Borrower  is used or held for use in  Borrower's
respective business and is fit for such purposes.

     5.5. Location of Inventory and Equipment.

     The Inventory and Equipment are not stored with a bailee, warehouseman,  or
similar party (without Foothill's prior written consent) and are located only at
the  locations  identified  on Schedule  6.12 or otherwise  permitted by Section
6.12.

     5.6. Inventory Records.

     Borrower  keeps correct and accurate  records  itemizing and describing the
kind,  type,  quality,  and  quantity  of the  Inventory,  and  Borrower's  cost
therefor.

     5.7. Location of Chief Executive Office; FEIN.

     The address of Borrower's  chief executive  office and FEIN is as set forth
on Schedule 5.7.

     5.8. Due Organization and Qualification; Subsidiaries.

     (a) Borrower is duly  organized and existing and in good standing under the
laws of the  jurisdiction of its  organization  and qualified and licensed to do
business  in,  and in good  standing  in, any state  where the  failure to be so
licensed or qualified  reasonably  could be expected to have a Material  Adverse
Change.

     (b)  Set  forth  on  Schedule  5.8,  is a  complete  and  accurate  list of
Borrower's direct and indirect  Subsidiaries,  showing:  (i) the jurisdiction of
their  incorporation;  (ii) the  number of shares  of each  class of common  and
preferred stock authorized for each of such  Subsidiaries;  and (iii) the number
and the percentage of the  outstanding  shares of each such class owned directly
or indirectly  by Borrower.  All of the  outstanding  capital stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.

     (c)  Except  as set  forth  on  Schedule  5.8,  no  capital  stock  (or any
securities,  instruments,  warrants,  options,  purchase  rights,  conversion or
exchange rights, calls,  commitments or claims of any character convertible into
or  exercisable  for  capital  stock) of any direct or  indirect  Subsidiary  of
Borrower  is subject  to the  issuance  of any  security,  instrument,  warrant,
option,  purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.

     5.9. Due Authorization; No Conflict.

     (a) The execution,  delivery, and performance by Borrower of this Agreement
and the Loan  Documents to which it is a party have been duly  authorized by all
necessary action.

     (b) The execution,  delivery, and performance by Borrower of this Agreement
and the Loan  Documents  to which it is a party do not and will not (i)  violate
any  provision  of  federal,  state,  or  local  law  or  regulation  (including
Regulations G, T, U, and X of the Federal Reserve Board) applicable to Borrower,
the Governing Documents of Borrower,  or any order,  judgment,  or decree of any
court or other Governmental  Authority binding on Borrower,  (ii) conflict with,
result in a breach of, or constitute  (with due notice or lapse of time or both)
a  default  under any  material  contractual  obligation  or  material  lease of
Borrower,  (iii) result in or require the creation or  imposition of any Lien of
any nature  whatsoever  upon any  properties  or assets of Borrower,  other than
Permitted  Liens,  or (iv)  require any  approval of members or any  approval or
consent of any Person under any material contractual obligation of Borrower.

     (c) Other  than the filing of  appropriate  financing  statements,  fixture
filings, and mortgages, the execution,  delivery, and performance by Borrower of
this  Agreement and the Loan  Documents to which  Borrower is a party do not and
will not require any registration with,  consent,  or approval of, or notice to,
or other action with or by, any federal,  state,  foreign, or other Governmental
Authority or other Person.

     (d) This Agreement and the Loan Documents to which Borrower is a party, and
all other documents contemplated hereby and thereby, when executed and delivered
by Borrower  will be the  legally  valid and binding  obligations  of  Borrower,
enforceable  against Borrower in accordance with their respective terms,  except
as  enforcement  may  be  limited  by  equitable  principles  or by  bankruptcy,
insolvency, reorganization,  moratorium, or similar laws relating to or limiting
creditors' rights generally.

     (e) The Liens granted by Borrower to Foothill in and to its  properties and
assets  pursuant  to this  Agreement  and the other Loan  Documents  are validly
created,  perfected,  and first priority Liens, subject only to Permitted Liens.
5.10. Litigation.

     There are no actions or proceedings  pending by or against  Borrower before
any court or  administrative  agency and  Borrower has no knowledge or belief of
any pending, threatened, or imminent litigation, governmental investigations, or
claims, complaints, actions, or prosecutions involving Borrower or any guarantor
of the Obligations, except for: (a) ongoing collection matters in which Borrower
is the  plaintiff;  (b)  matters  disclosed  on Schedule  5.10;  and (c) matters
arising after the date hereof that, if decided adversely to Borrower,  would not
have a Material Adverse Change.

     5.11. No Material Adverse Change.

     All  financial  statements  relating to Borrower  or any  guarantor  of the
Obligations  that have been delivered by Borrower to Foothill have been prepared
in accordance with GAAP (except, in the case of unaudited financial  statements,
for the lack of footnotes and being subject to year-end audit  adjustments)  and
fairly  present  Borrower's  (or  such  guarantor's,  as  applicable)  financial
condition as of the date thereof and  Borrower's  results of operations  for the
period then ended.  There has not been a Material Adverse Change with respect to
Borrower  (or such  guarantor,  as  applicable)  since  the  date of the  latest
financial statements submitted to Foothill on or before the Closing Date.

     5.12. Solvency.

     Borrower is Solvent.  No transfer of property is being made by Borrower and
no obligation is being incurred by Borrower in connection with the  transactions
contemplated  by this  Agreement or the other Loan  Documents with the intent to
hinder, delay, or defraud either present or future creditors of Borrower.

     5.13. Employee Benefits.

     Neither Borrower,  its Subsidiaries,  nor its ERISA Affiliates maintains or
contributes  to any Benefit  Plan,  other than those  listed on  Schedule  5.13.
Borrower,  its  Subsidiaries  and any ERISA Affiliate have satisfied the minimum
funding  standards  of ERISA and the IRC with  respect to each  Benefit  Plan to
which it is  obligated  to  contribute.  No ERISA Event has occurred nor has any
other event occurred that may result in an ERISA Event that reasonably  could be
expected  to result in a  Material  Adverse  Change.  Neither  Borrower  nor its
Subsidiaries,  any ERISA Affiliate,  nor any fiduciary of any Plan is subject to
any direct or indirect  liability  with respect to any Plan under any applicable
law,  treaty,  rule,  regulation,   or  agreement.   Neither  Borrower  nor  its
Subsidiaries nor any ERISA Affiliate is required to provide security to any Plan
under Section 401(a)(29) of the IRC.

5.14.    Environmental Condition.

     Neither Borrower's  properties or assets has ever been used by such Company
nor, to the best of Borrower's knowledge, by previous owners or operators in the
disposal of, nor to produce,  store, handle, treat,  release, or transport,  any
Hazardous  Materials,  except in compliance with applicable laws or as described
on Schedule 5.14, and Borrower's properties or assets have never been designated
or identified in any manner pursuant to any environmental  protection statute as
a Hazardous  Materials disposal site, or a candidate for closure pursuant to any
environmental  protection  statute.  No Lien  arising  under  any  environmental
protection  statute  has  attached  to any  revenues  or to any real or personal
property  owned or operated by Borrower.  Except as described on Schedule  5.14,
Borrower has not received a summons,  citation,  notice,  or directive  from the
Environmental  Protection  Agency or any  other  federal  or state  governmental
agency concerning any action or omission by Borrower  resulting in the releasing
or disposing of Hazardous Materials into the environment.

6.       AFFIRMATIVE COVENANTS.

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

     6.1. Accounting System.

     Maintain a standard and modern system of accounting  that enables  Borrower
to produce  financial  statements in accordance with GAAP, and maintain  records
pertaining to the Collateral  that contain  information as from time to time may
be requested by Foothill.  Borrower also shall keep a modern inventory reporting
system that shows all additions,  sales,  claims,  returns,  and allowances with
respect to the Inventory.

     6.2. Collateral Reporting.

     Provide  Foothill  with the following  documents at the following  times in
form  satisfactory  to  Foothill:  (a)  on a  weekly  basis,  a  sales  journal,
collection  journal,  and credit  register  since the last such  schedule  and a
calculation  of the Borrowing  Base as of such date, (b) on a monthly basis and,
in any event, by no later than the 10th day of each fiscal month during the term
of this Agreement,  (i) a detailed calculation of the Borrowing Base, and (ii) a
detailed  aging by due date, by total,  of the Accounts (such aging to segregate
the Tooling  and/or  Engineering  Service  Accounts from the other  Accounts) of
Borrower,  together with a  reconciliation  to the detailed  calculation  of the
Borrowing Base previously  provided to Foothill,  (c) on a monthly basis and, in
any event, by no later than the 10th day of each fiscal month during the term of
this Agreement,  a summary aging, by vendor, of Borrower's  accounts payable and
any  book  overdraft,  (d)  on a  weekly  basis,  Inventory  reports  specifying
Borrower's  cost and the  wholesale  market value of its  Inventory by category,
with  additional  detail showing  additions to and deletions from the Inventory,
(e) on a weekly  basis a report  identifying  those  Accounts  which  have  been
invoiced to the customer thereof but with respect to which the Inventory has not
yet been shipped,  (f) on each Business Day if requested by Foothill,  notice of
all  returns,  disputes or claims  (other than claims  described in the warranty
claims  report  delivered  to Foothill  pursuant to clause (h) below),  (g) upon
request,   copies  of  invoices  in  connection  with  the  Accounts,   customer
statements,  credit  memos,  remittance  advices  and  reports,  deposit  slips,
shipping  and  delivery  documents  in  connection  with  the  Accounts  and for
Inventory and Equipment acquired by Borrower,  purchase orders and invoices, (h)
on a quarterly  basis,  a detailed list of  Borrower's  customers and a warranty
claims report in form and substance  satisfactory to Foothill,  (i) on a monthly
basis,  a calculation  of the Dilution for the prior fiscal month;  and (j) such
other reports as to the  Collateral or the financial  condition of each Borrower
as Foothill may request from time to time.  Original sales  invoices  evidencing
daily  sales  shall be  mailed  by  Borrower  to each  Account  Debtor  and,  at
Foothill's direction, the invoices shall indicate on their face that the Account
has been  assigned to Foothill and that all payments are to be made  directly to
Foothill.  In addition to the  foregoing,  Borrower  shall  promptly  provide to
Foothill any report that Borrower delivers to General Motors Corporation.

     6.3. Financial Statements, Reports, Certificates.

     Deliver to Foothill:  (a) as soon as available,  but in any event within 30
days after the end of each fiscal month during each of Borrower's  fiscal years,
a company prepared balance sheet,  income statement,  and statement of cash flow
covering Borrower's  consolidated  operations during such period; (b) as soon as
available,  but in any event within 90 days after the end of each of  Borrower's
fiscal years, consolidated financial statements of Borrower for each such fiscal
year, audited by independent certified public accountants  reasonably acceptable
to Foothill and certified,  without any  qualifications,  by such accountants to
have been prepared in accordance with GAAP,  together with a certificate of such
accountants  addressed  to Foothill  stating that such  accountants  do not have
knowledge of the  existence  of any Default or Event of Default;  and (c) at the
end of a fiscal  year a monthly  budget  for the  following  fiscal  year.  Such
audited  financial  statements  shall include a balance  sheet,  profit and loss
statement, and statement of cash flow and, if prepared, such accountants' letter
to management. The financial statements referred to above shall be prepared on a
consolidated basis for Borrower and its Subsidiaries.

     Each fiscal month, together with the financial statements provided pursuant
to Section  6.3(a),  Borrower shall deliver to Foothill a certificate  signed by
its chief  financial  officer to the effect that:  (i) all financial  statements
delivered or caused to be delivered to Foothill  hereunder have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of  footnotes  and being  subject to year-end  audit  adjustments)  and
fairly present the financial condition of Borrower, (ii) the representations and
warranties of Borrower  contained in this Agreement and the other Loan Documents
are true and  correct  in all  material  respects  on and as of the date of such
certificate,  as though  made on and as of such date  (except to the extent that
such representations and warranties relate solely to an earlier date), (iii) for
each month that also is the date on which a financial  covenant in Section  7.20
is to be tested, a Compliance  Certificate  demonstrating  in reasonable  detail
compliance  at the end of such period with the  applicable  financial  covenants
contained in Section 7.20, and (iv) on the date of delivery of such  certificate
to  Foothill  there does not exist any  condition  or event that  constitutes  a
Default or Event of Default  (or,  in the case of  clauses  (i) or (ii),  to the
extent of any  non-compliance,  describing such non-compliance as to which he or
she may have  knowledge  and what  action  Borrower  has taken,  is  taking,  or
proposes to take with respect thereto).

     Borrower  shall  have  issued  written   instructions  to  its  independent
certified public  accountants  authorizing them to communicate with Foothill and
to release to Foothill whatever financial  information  concerning Borrower that
Foothill may request.  Borrower  hereby  irrevocably  authorizes and directs all
auditors,  accountants,  or other  third  parties  to deliver  to  Foothill,  at
Borrower's expense,  copies of Borrower's financial  statements,  papers related
thereto, and other accounting records of any nature in their possession,  and to
disclose to Foothill any information they may have regarding Borrower's business
affairs and financial conditions.

     6.4. Tax Returns.

     Deliver to Foothill copies of each of Borrower's  future federal income tax
returns,  and any amendments thereto,  within 30 days of the filing thereof with
the Internal Revenue Service.

     6.5. Guarantor Reports.

     Cause any guarantor of any of the  Obligations  (other than IAG) to deliver
its annual financial  statements at the time when Borrower  provides its audited
financial statements to Foothill and copies of all federal income tax returns as
soon as the same are  available and in any event no later than 30 days after the
same are required to be filed by law.

     6.6. Returns.

     Cause returns and allowances,  if any, as between  Borrower and its Account
Debtors  to be on the same  basis and in  accordance  with the  usual  customary
practices of Borrower,  as they exist at the time of the  execution and delivery
of this  Agreement.  If, at a time when no Event of Default has  occurred and is
continuing,  any Account  Debtor  returns any  Inventory to  Borrower,  Borrower
promptly  shall  determine  the reason for such return and, if Borrower  accepts
such return,  issue a credit  memorandum (with a copy to be sent to Foothill) in
the appropriate  amount to such Account  Debtor.  If, at a time when an Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to Borrower,  Borrower  promptly shall determine the reason for such return and,
if Foothill consents (which consent shall not be unreasonably withheld), issue a
credit memorandum (with a copy to be sent to Foothill) in the appropriate amount
to such Account Debtor.

     6.7. Title to Equipment.

     Upon Foothill's  request,  Borrower  immediately shall deliver to Foothill,
properly endorsed, any and all evidences of ownership of, certificates of title,
or applications for title to any items of Equipment.

     6.8. Maintenance of Equipment.

     Maintain the Equipment in good  operating  condition  and repair  (ordinary
wear and tear excepted), and make all necessary replacements thereto so that the
value and operating  efficiency  thereof  shall at all times be  maintained  and
preserved.  Other than those items of Equipment that constitute  fixtures on the
Closing  Date,  Borrower  shall not  permit  any item of  Equipment  to become a
fixture to real estate or an accession  to other  property,  and such  Equipment
shall at all times remain personal property.

     6.9. Taxes.

     Cause all assessments and taxes, whether real, personal, or otherwise,  due
or payable by, or imposed,  levied,  or assessed  against Borrower or any of its
property to be paid in full, before  delinquency or before the expiration of any
extension  period,  except to the extent that the validity of such assessment or
tax shall be the subject of a  Permitted  Protest.  To the extent that  Borrower
fails timely to make  payment of such taxes or  assessments,  Foothill  shall be
entitled,  in its discretion,  to reserve an amount equal to such unpaid amounts
against  the  Borrowing  Base.  Borrower  shall make due and  timely  payment or
deposit  of  all  such  federal,  state,  and  local  taxes,   assessments,   or
contributions  required of it by law,  and will execute and deliver to Foothill,
on demand,  appropriate certificates attesting to the payment thereof or deposit
with respect  thereto.  Borrower will make timely  payment or deposit of all tax
payments and  withholding  taxes  required of it by applicable  laws,  including
those laws concerning F.I.C.A.,  F.U.T.A.,  state disability,  and local, state,
and federal income taxes,  and will, upon request,  furnish  Foothill with proof
satisfactory  to Foothill  indicating  that  Borrower has made such  payments or
deposits.

     6.10. Insurance.

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

     (b) All such policies of insurance  shall be in such form,  with  Borrower,
and in such amounts as may be reasonably  satisfactory  to Foothill.  All hazard
insurance and such other  insurance as Foothill shall  specify,  shall contain a
Form  438BFU  (NS)   mortgagee   endorsement,   or  an  equivalent   endorsement
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of  warranties.  Every policy of insurance  referred to in this
Section  6.10 shall  contain an agreement by the insurer that it will not cancel
such policy except after 30 days prior  written  notice to Foothill and that any
loss payable thereunder shall be payable  notwithstanding  any act or negligence
of  Borrower  or  Foothill  which  might,  absent  such  agreement,  result in a
forfeiture of all or a part of such insurance payment. Borrower shall deliver to
Foothill  certified  copies of such  policies of  insurance  and evidence of the
payment of all then due premiums therefor.

     (c) Original  policies or  certificates  thereof  satisfactory  to Foothill
evidencing  such insurance shall be delivered to Foothill at least 30 days prior
to the  expiration of the existing or preceding  policies.  Borrower  shall give
Foothill prompt notice of any loss covered by such insurance, and Foothill shall
have the right to adjust any loss.  Foothill  shall have the exclusive  right to
adjust  all  losses  payable  under  any such  insurance  policies  without  any
liability  to Borrower  whatsoever  in respect of such  adjustments.  Any monies
received  in  respect  of any  Collateral  as  payment  for any loss  under  any
insurance policy including the insurance policies mentioned above, shall be paid
over  to  Foothill  to be  applied  at the  option  of  Foothill  either  to the
prepayment  of the  Obligations  without  premium,  in such  order or  manner as
Foothill may elect,  or shall be disbursed to Borrower under stage payment terms
satisfactory to Foothill for  application to the cost of repairs,  replacements,
or  restorations;  provided,  that so long as no Event  of  Default  exists  the
proceeds  of a  casualty  involving  less  than  $50,000  shall be  remitted  to
Borrower.  All repairs,  replacements,  or  restorations  shall be effected with
reasonable promptness and shall be of a value at least equal to the value of the
items or  property  destroyed  prior to such  damage  or  destruction.  Upon the
occurrence  of an Event of Default,  Foothill  shall have the right to apply all
prepaid  premiums  to the  payment of the  Obligations  in such order or form as
Foothill shall determine.

     (d) Borrower  shall not take out separate  insurance  concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 6.10, unless Foothill is included thereon as named insured with the loss
payable to Foothill under a standard 438BFU (NS) Mortgagee  endorsement,  or its
local  equivalent.  Borrower  immediately  shall notify  Foothill  whenever such
separate  insurance is taken out,  specifying  the insurer  thereunder  and full
particulars  as to the  policies  evidencing  the same,  and  originals  of such
policies immediately shall be provided to Foothill.

     6.11. No Setoffs or Counterclaims.

     Make payments  hereunder and under the other Loan Documents by or on behalf
of Borrower  without setoff or  counterclaim  and free and clear of, and without
deduction  or  withholding  for or on account of, any federal,  state,  or local
taxes. 6.12. Location of Inventory and Equipment.

     Keep the  Inventory  and  Equipment  only at the  locations  identified  on
Schedule 6.12; provided, however, that Borrower may amend Schedule 6.12 to add a
new location so long as such amendment  occurs by written notice to Foothill not
less than 30 days prior to the date on which the Inventory or Equipment is moved
to such new  location,  so long as such new  location is within the  continental
United  States,  and so long  as,  at the  time of  such  written  notification,
Borrower  provides any  financing  statements  or fixture  filings  necessary to
perfect and continue perfected  Foothill's security interests in such assets and
also provide to Foothill a Collateral Access Agreement.

     6.13. Compliance with Laws.

     Comply with the  requirements of all applicable laws,  rules,  regulations,
and orders of any governmental authority, including the Fair Labor Standards Act
and the Americans With Disabilities  Act, other than laws,  rules,  regulations,
and orders the  non-compliance  with which,  individually  or in the  aggregate,
would not have and could not  reasonably be expected to have a Material  Adverse
Change.

     6.14. Employee Benefits.

     (a) Promptly,  and in any event within 10 Business  Days after  Borrower or
any of its  Subsidiaries  knows or has  reason to know  that an ERISA  Event has
occurred  that  reasonably  could be  expected  to result in a Material  Adverse
Change,  deliver a written  statement of the chief financial officer of Borrower
describing  such ERISA  Event and any action  that is being  taken with  respect
thereto by Borrower,  any such  Subsidiary  or ERISA  Affiliate,  and any action
taken or threatened by the IRS,  Department of Labor, or PBGC.  Borrower or such
Subsidiary,  as  applicable,  shall be  deemed  to know all  facts  known by the
administrator  of any  Benefit  Plan of  which  it is the  plan  sponsor,  shall
promptly,  and in any event within 3 Business Days after the filing thereof with
the IRS, deliver a copy of each funding waiver request filed with respect to any
Benefit  Plan  and  all  communications   received  by  Borrower,   any  of  its
Subsidiaries or, to the knowledge of Borrower,  any ERISA Affiliate with respect
to such  request,  and shall  promptly,  and in any event within 3 Business Days
after  receipt by  Borrower,  any of its  Subsidiaries  or, to the  knowledge of
Borrower,  any ERISA  Affiliate,  of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan, deliver copies
of each such notice.

     (b) Cause to be delivered to Foothill, upon Foothill's request, each of the
following:  (i) a copy of each Plan (or,  where any such plan is not in writing,
complete  description  thereof) (and if applicable,  related trust agreements or
other   funding   instruments)   and  all   amendments   thereto,   all  written
interpretations   thereof  and  written  descriptions  thereof  that  have  been
distributed  to employees or former  employees of Borrower or its  Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any  governmental  agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit  Plan;  (v) a listing of all  Multiemployer  Plans,  with the  aggregate
amount of the most recent annual  contributions  required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements  requiring such  contributions;  (vi) any  information  that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments  made to former  employees  of Borrower or its  Subsidiaries  under any
Retiree Health Plan.

     6.15. Leases.

     Pay when due all rents and other amounts  payable under any leases to which
Borrower  is a party or by which  Borrower's  properties  and  assets are bound,
unless such payments are the subject of a Permitted Protest.  To the extent that
Borrower  fails timely to make payment of such rents and other  amounts  payable
when due under its leases,  Foothill shall be entitled,  in its  discretion,  to
reserve an amount equal to such unpaid amounts against the Borrowing Base.

7.   NEGATIVE COVENANTS.

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

     7.1. Indebtedness.

     Create, incur, assume,  permit,  guarantee,  or otherwise become or remain,
directly or indirectly, liable with respect to any Indebtedness, except:

     (a) Indebtedness evidenced by this Agreement, together with Indebtedness to
issuers of letters of credit that are the subject of L/C Guarantees;

     (b) Indebtedness set forth on Schedule 7.1;

     (c) Indebtedness secured by Permitted Liens; and

     (d) refinancings,  renewals, or extensions of Indebtedness  permitted under
clauses  (b) and (c) of this  Section  7.1 (and  continuance  or  renewal of any
Permitted Liens  associated  therewith) so long as: (i) the terms and conditions
of such  refinancings,  renewals,  or  extensions do not  materially  impair the
prospects  of  repayment  of the  Obligations  by  Borrower,  (ii)  the net cash
proceeds  of such  refinancings,  renewals,  or  extensions  do not result in an
increase in the aggregate  principal  amount of the  Indebtedness so refinanced,
renewed,  or  extended,  (iii)  such  refinancings,   renewals,  refundings,  or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced,  renewed,  or extended,  and (iv) to the extent that
Indebtedness  that is  refinanced  was  subordinated  in right of payment to the
Obligations,  then the  subordination  terms and  conditions of the  refinancing
Indebtedness  must be at least as favorable to Foothill as those  applicable  to
the refinanced Indebtedness.

     7.2. Liens.

     Create, incur, assume, or permit to exist, directly or indirectly, any Lien
on or with  respect to any of its property or assets,  of any kind,  whether now
owned or  hereafter  acquired,  or any income or profits  therefrom,  except for
Permitted Liens (including Liens that are replacements of Permitted Liens to the
extent that the original  Indebtedness is refinanced under Section 7.1(d) and so
long as the  replacement  Liens only  encumber  those  assets or  property  that
secured the original Indebtedness).

     7.3. Restrictions on Fundamental Changes.

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

     7.4. Disposal of Assets.

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

     7.5. Change Name.

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

     7.6. Guarantee.

     Except as described on Schedule 7.6,  guarantee or otherwise  become in any
way  liable  with  respect  to the  obligations  of any third  Person  except by
endorsement  of  instruments  or items of payment  for deposit to the account of
Borrower or which are transmitted or turned over to Foothill.

     7.7. Nature of Business.

     Make any change in the principal nature of Borrower's business.

     7.8. Prepayments and Amendments.

     (a) Except in connection  with a refinancing  permitted by Section  7.1(d),
prepay, redeem, retire, defease, purchase, or otherwise acquire any Indebtedness
owing to any third Person,  other than the  Obligations in accordance  with this
Agreement, and

     (b) Directly or indirectly,  amend, modify, alter,  increase, or change any
of the terms or conditions of any agreement, instrument, document, indenture, or
other writing  evidencing or concerning  Indebtedness  permitted  under Sections
7.1(b), (c) or (d).

     7.9. Change of Control.

     Cause, permit, or suffer, directly or indirectly, any Change of Control.

     7.10. Consignments.

     Consign  any  Inventory  or sell any  Inventory  on bill and hold,  sale or
return, sale on approval, or other conditional terms of sale.

     7.11. Distributions.

     Except for distributions  described on Schedule 7.11, make any distribution
or declare or pay any dividends (in cash or other  property,  other than capital
stock) on, or purchase,  acquire,  redeem,  or retire any of Borrower's  capital
stock, of any class, whether now or hereafter outstanding.

     7.12. Accounting Methods.

     Modify or change  its  method  of  accounting  or enter  into,  modify,  or
terminate any agreement  currently  existing,  or at any time hereafter  entered
into with any third party  accounting firm or service bureau for the preparation
or storage of Borrower's  accounting  records  without said  accounting  firm or
service bureau agreeing to provide Foothill information regarding the Collateral
or  Borrower's  financial  condition.  Borrower  waives  the  right to  assert a
confidential  relationship,  if any,  it may have  with any  accounting  firm or
service bureau in connection with any information requested by Foothill pursuant
to or in accordance  with this  Agreement,  and agrees that Foothill may contact
directly  any such  accounting  firm or service  bureau in order to obtain  such
information.

     7.13. Investments.

     Except for a loan in the amount of $1,500,000  pursuant to the Subordinated
Starcraft Loan Documents,  directly or indirectly  make,  acquire,  or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition  of the securities  (whether debt or equity) of, or other  interests
in, a Person,  (b) loans,  advances,  capital  contributions,  or  transfers  of
property to a Person,  or (c) the acquisition of all or substantially all of the
properties or assets of a Person.

     7.14. Transactions with Affiliates.

     Except as described on Schedule 7.14,  directly or indirectly enter into or
permit to exist any material  transaction  with any Affiliate of Borrower except
for transactions  that are in the ordinary course of Borrower's  business,  upon
fair and reasonable terms, that are fully disclosed to Foothill, and that are no
less favorable to Borrower than would be obtained in an arm's length transaction
with a non-Affiliate.

     7.15. Suspension.

     Suspend or go out of a substantial portion of its business.

     7.16. Compensation.

     Increase the annual fee or  per-meeting  fees paid to directors of Borrower
during  any  fiscal  year by more than 15% over the prior  fiscal  year;  pay or
accrue total cash  compensation,  during any fiscal year, to officers and senior
management  employees  of Borrower in an  aggregate  amount in excess of 115% of
that paid or accrued in the prior fiscal year.

     7.17. Use of Proceeds.

     Use the proceeds of the Advances made  hereunder for any purpose other than
consistent  with the terms and conditions  hereof,  for its lawful and permitted
corporate purposes.

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

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

     7.19. No Prohibited Transactions Under ERISA.

     Directly or indirectly:

     (a)  engage,  or permit  any  Subsidiary  of  Borrower  to  engage,  in any
prohibited  transaction  which is reasonably likely to result in a civil penalty
or excise tax  described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class  exemption is not  available or a private  exemption  has not
been previously obtained from the Department of Labor;

     (b)  permit to exist  with  respect  to any  Benefit  Plan any  accumulated
funding  deficiency  (as defined in  Sections  302 of ERISA and 412 of the IRC),
whether or not waived;

     (c) fail,  or permit any  Subsidiary  of  Borrower  to fail,  to pay timely
required  contributions  or annual  installments  due with respect to any waived
funding deficiency to any Benefit Plan;

     (d)  terminate,  or permit any  Subsidiary  of Borrower to  terminate,  any
Benefit Plan where such event would result in any liability of Borrower,  any of
its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;

     (e)  fail,  or permit  any  Subsidiary  of  Borrower  to fail,  to make any
required contribution or payment to any Multiemployer Plan;

     (f) fail, or permit any Subsidiary of Borrower to fail, to pay any required
installment  or any other  payment  required  under Section 412 of the IRC on or
before the due date for such installment or other payment;

     (g) amend,  or permit any Subsidiary of Borrower to amend, a Plan resulting
in an increase in current  liability for the plan year such that  Borrower,  any
Subsidiary of Borrower or any ERISA Affiliate is required to provide security to
such Plan under Section 401(a)(29) of the IRC; or

     (h) withdraw,  or permit any  Subsidiary of Borrower to withdraw,  from any
Multiemployer  Plan where such withdrawal is reasonably  likely to result in any
liability of any such entity under Title IV of ERISA;

which,  individually  or in the  aggregate,  results in or  reasonably  would be
expected  to result in a claim  against or  liability  of  Borrower,  any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.

     7.20. Financial Covenants.

     Fail to maintain  EBITDA of at least (i)  negative  $100,000 for the fiscal
quarter ending on the Sunday closest to December 31, 2000;  (ii)  $1,400,000 for
the  fiscal  quarter  ending on the  Sunday  closest  to March 31,  2001;  (iii)
$1,900,000 for the fiscal quarter ending on the Sunday closest to June 30, 2001;
and (iv)  $1,100,000  for the fiscal  quarter  ending on the  Sunday  closest to
September 30, 2001.  For each fiscal  quarter ending after the Sunday closest to
September 30, 2001,  Companies shall maintain EBITDA at a level to be determined
by  Foothill,  which level will be based on  Companies'  projections  (but in no
event  shall  EBITDA  for any  fiscal  quarter  be less than the level of EBITDA
required for the corresponding  fiscal quarter in the immediate preceding fiscal
year).

     Companies  agree to deliver to  Foothill  projections  for each fiscal year
prior to the beginning of such fiscal year and such projections shall be in form
and substance acceptable to Foothill.

8.   EVENTS OF DEFAULT.

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

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

     8.2.  (a) If Borrower  fails or  neglects  to perform,  keep or observe any
term,  provision,  condition,  covenant or  agreement  contained in Sections 6.1
(Accounting  System),  6.2 (Collateral  Reporting),  6.3 (Financial  Statements,
Reports,  Certificates),  6.4 (Tax  Returns),  6.7  (Title  to  Equipment),  6.8
(Maintenance  of Equipment),  6.12 (Location of Inventory and  Equipment),  6.13
(Compliance  with  Laws),  6.14  (Employee  Benefits)  or 6.15  (Leases) of this
Agreement and such failure  continues for a period of 5 Business Days; or (b) if
Borrower or any other Obligor fails or neglects to perform, keep, or observe any
other term,  provision,  condition,  covenant  or  agreement  contained  in this
Agreement,  or in any of the other Loan Documents;  in each case, other than any
such term, provision,  condition,  covenant, or agreement that is the subject of
another provision of this Section 8, in which event such other provision of this
Section 8 shall govern;  provided,  that during any period of time that any such
failure  or neglect  of  Borrower  or such  other  Obligor  referred  to in this
paragraph exists, even if such failure or neglect is not yet an Event of Default
by virtue of the existence of a grace or cure period or the pre-condition of the
giving of a notice,  Foothill  shall not be required  during such period to make
Advances to Borrower.

     8.3. If there is a Material Adverse Change;

     8.4.  If any  material  portion  of  Borrower's  properties  or  assets  is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;

     8.5. If an Insolvency Proceeding is commenced by Borrower;

     8.6. If an Insolvency  Proceeding is commenced  against Borrower and any of
the following  events occur:  (a) Borrower  consents to the  institution  of the
Insolvency  Proceeding  against it; (b) the petition  commencing  the Insolvency
Proceeding  is  not  timely  controverted;   (c)  the  petition  commencing  the
Insolvency  Proceeding is not  dismissed  within 60 calendar days of the date of
the filing thereof; provided, however, that, during the pendency of such period,
Foothill shall be relieved of its obligation to extend credit hereunder;  (d) an
interim trustee is appointed to take possession of all or a substantial  portion
of the properties or assets of, or to operate all or any substantial  portion of
the business of, Borrower;  or (e) an order for relief shall have been issued or
entered therein;

     8.7. If Borrower is enjoined,  restrained, or in any way prevented by court
order  from  continuing  to conduct  all or any  material  part of its  business
affairs;

     8.8.  If a notice of Lien,  levy,  or  assessment  is filed of record  with
respect  to any  of  Borrower's  properties  or  assets  by  the  United  States
Government,  or any department,  agency, or instrumentality  thereof,  or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any  time  hereafter  to any one or more of  such  entities  becomes  a Lien,
whether choate or otherwise, upon any of Borrower's properties or assets and the
same is not paid on the payment date thereof;

     8.9. If a judgment  or other  claim in excess of $50,000  becomes a Lien or
encumbrance upon any material portion of Borrower's properties or assets;

     8.10. If there is a default  under any of the  agreements  between  General
Motors  Acceptance  Corporation or any of its  Affiliates,  on the one hand, and
Borrower,  on the other hand; or if there is a default under any other  material
agreement to which  Borrower is a party with one or more third  Persons and such
default (a) occurs at the final maturity of the obligations  thereunder,  or (b)
results in a right by such third Person(s),  irrespective of whether  exercised,
to accelerate the maturity of Borrower's  obligations  thereunder;  or if any of
the Intercreditor Agreements is terminated;

     8.11.  If Borrower  makes any payment on account of  Indebtedness  that has
been  contractually  subordinated  in right of  payment  to the  payment  of the
Obligations,  except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;

     8.12.  If any  warranty,  representation,  statement,  or  report  made  to
Foothill by Borrower or any officer,  employee,  agent, or director of Borrower,
is untrue or  misleading  in any  material  respect  when  made,  or if any such
warranty or representation is withdrawn; or

8.13.  If the  obligation  of any  guarantor  under its  guaranty or other third
Person under any Loan  Document is limited or  terminated by operation of law or
by the  guarantor or other third  Person  thereunder,  or any such  guarantor or
other third Person becomes the subject of an Insolvency Proceeding.

9.   FOOTHILL'S RIGHTS AND REMEDIES.

     9.1. Rights and Remedies.

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

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

     (b) Cease  advancing  money or  extending  credit to or for the  benefit of
Borrower under this  Agreement,  under any of the Loan  Documents,  or under any
other agreement between Borrower and Foothill;

     (c) Terminate  this Agreement and any of the other Loan Documents as to any
future  liability or obligation of Foothill,  but without  affecting  Foothill's
rights and  security  interests  in the  Collateral  and without  affecting  the
Obligations;

     (d) Settle or adjust  disputes and claims directly with Account Debtors for
amounts and upon terms which Foothill  considers  advisable,  and in such cases,
Foothill will credit  Borrower's Loan Account with only the net amounts received
by Foothill in payment of such disputed  Accounts  after  deducting all Foothill
Expenses incurred or expended in connection therewith;

     (e) Cause  Borrower to hold all returned  Inventory in trust for  Foothill,
segregate  all  returned  Inventory  from all other  property  of Borrower or in
Borrower's  possession and  conspicuously  label said returned  Inventory as the
property of Foothill;

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

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

     (h) Hold, as cash collateral, any and all balances and deposits of Borrower
held by Foothill,  and any amounts received in the Lockbox  Accounts,  to secure
the full and final repayment of all of the Obligations;

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

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

     (k) Foothill  shall give notice of the  disposition  of the  Collateral  as
follows:

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

          (ii) The notice  shall be  personally  delivered  or  mailed,  postage
               prepaid,  to Borrower as provided in Section 12, at least 10 days
               before  the date fixed for the sale,  or at least 10 days  before
               the date on or after which the private sale or other  disposition
               is  to be  made;  no  notice  needs  to be  given  prior  to  the
               disposition of any portion of the  Collateral  that is perishable
               or  threatens  to decline  speedily in value or that is of a type
               customarily sold on a recognized market.  Notice to Persons other
               than  Borrower  claiming an interest in the  Collateral  shall be
               sent to such addresses as they have furnished to Foothill;

          (iii)If the sale is to be a public  sale,  Foothill  also  shall  give
               notice of the time and place by  publishing  a notice one time at
               least  10 days  before  the date of the  sale in a  newspaper  of
               general  circulation  in the  county  in which  the sale is to be
               held;

     (l) Foothill may credit bid and purchase at any public sale; and

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

          9.2. Remedies Cumulative.

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

          10.  TAXES AND EXPENSES.

     If Borrower fails to pay any monies (whether taxes, assessments,  insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third  Persons,  or fails to make any deposits
or furnish any required  proof of payment or deposit,  all as required under the
terms of this Agreement,  then, to the extent that Foothill determines that such
failure by Borrower could result in a Material Adverse Change, in its discretion
and  without  prior  notice  to  Borrower,  Foothill  may  do  any or all of the
following:  (a) make  payment of the same or any part  thereof;  (b) set up such
reserves in  Borrower's  Loan  Account as Foothill  deems  necessary  to protect
Foothill from the exposure  created by such failure;  or (c) obtain and maintain
insurance  policies of the type  described in Section 6.10,  and take any action
with respect to such policies as Foothill deems  prudent.  Any such amounts paid
by Foothill  shall  constitute  Foothill  Expenses.  Any such  payments  made by
Foothill shall not constitute an agreement by Foothill to make similar  payments
in the  future  or a waiver  by  Foothill  of any Event of  Default  under  this
Agreement. Foothill need not inquire as to, or contest the validity of, any such
expense,  tax,  or Lien and the  receipt  of the usual  official  notice for the
payment  thereof shall be conclusive  evidence that the same was validly due and
owing.

11.  WAIVERS; INDEMNIFICATION.

     11.1. Demand; Protest; etc.

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

     11.2. Foothill's Liability for Collateral.

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

     11.3. Indemnification.

     Borrower shall pay, indemnify,  defend, and hold Foothill, each Participant
and each of their respective officers,  directors,  employees,  counsel, agents,
and  attorneys-in-fact  (each, an "Indemnified Person") harmless (to the fullest
extent  permitted by law) from and against any and all claims,  demands,  suits,
actions, investigations,  proceedings, and damages, and all reasonable attorneys
fees and  disbursements  and  other  costs and  expenses  actually  incurred  in
connection  therewith (as and when they are incurred and irrespective of whether
suit is brought), at any time asserted against, imposed upon, or incurred by any
of them in  connection  with or as a  result  of or  related  to the  execution,
delivery, enforcement, performance, and administration of this Agreement and any
other Loan Documents or the transactions  contemplated  herein, and with respect
to any investigation,  litigation,  or proceeding related to this Agreement, any
other Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any act,
omission,  event  or  circumstance  in  any  manner  related  thereto  (all  the
foregoing, collectively, the "Indemnified Liabilities"). Borrower shall not have
any obligation to any Indemnified Person under this Section 11.3 with respect to
any  Indemnified  Liability  that a  court  of  competent  jurisdiction  finally
determines to have resulted from the gross  negligence or willful  misconduct of
such  Indemnified  Person.  This provision shall survive the termination of this
Agreement and the repayment of the Obligations.

12.  NOTICES.

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

                 If to Borrower:   TECSTAR, LLC
                                   c/o Starcraft Corporation
                                   2703 College Avenue
                                   Goshen, Indiana  46526
                                   Attn:  Michael H. Schoeffler
                                   Fax No. (219) 534-9524
                 with copies to:   BARNES & THORNBURG
                                   121 West Franklin Street
                                   Suite 200
                                   Elkhart, Indiana  46516
                                   Attn:  Rand W. Nilsson
                                   Fax No. (219) 296-2535
                 If to Foothill:   FOOTHILL CAPITAL CORPORATION
                                   2450 Colorado Avenue
                                   Suite 3000 West
                                   Santa Monica, California 90404
                                   Attn:  Business Finance Division Manager
                                   Fax No. (310) 478-9788
                 with copies to:   GOLDBERG, KOHN, BELL, BLACK,
                                       ROSENBLOOM & MORITZ, LTD.
                                   55 East Monroe Street
                                   Suite 3700
                                   Chicago, Illinois  60603
                                   Attn:  Gary Zussman, Esq.
                                   Fax No. (312) 332-2196

     The  parties  hereto may  change  the  address at which they are to receive
notices  hereunder,  by notice in writing in the  foregoing  manner given to the
other.  All notices or demands  sent in  accordance  with this Section 12, other
than notices by Foothill in  connection  with Sections 9504 or 9505 of the Code,
shall be deemed  received on the earlier of the date of actual receipt or 3 days
after the deposit  thereof in the mail.  Borrower  acknowledges  and agrees that
notices sent by Foothill in  connection  with  Sections 9504 or 9505 of the Code
shall be deemed sent when  deposited in the mail or  personally  delivered,  or,
where permitted by law, transmitted  facsimile or other similar method set forth
above.

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

     THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS  EXPRESSLY  PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN  DOCUMENT),  THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING  HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED  UNDER,  GOVERNED
BY, AND  CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF  ILLINOIS.  THE
PARTIES AGREE THAT ALL ACTIONS OR  PROCEEDINGS  ARISING IN CONNECTION  WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS  SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS OR, AT
THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE
LEGAL OR EQUITABLE  PROCEEDINGS AND WHICH HAS SUBJECT MATTER  JURISDICTION  OVER
THE MATTER IN CONTROVERSY.  EACH OF BORROWER AND FOOTHILL WAIVES,  TO THE EXTENT
PERMITTED  UNDER  APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON  CONVENIENS  OR TO OBJECT TO VENUE TO THE EXTENT ANY  PROCEEDING IS
BROUGHT IN ACCORDANCE  WITH THIS SECTION 13.  BORROWER AND FOOTHILL HEREBY WAIVE
THEIR  RESPECTIVE  RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION  BASED
UPON OR  ARISING  OUT OF ANY OF THE LOAN  DOCUMENTS  OR ANY OF THE  TRANSACTIONS
CONTEMPLATED  THEREIN,  INCLUDING CONTRACT CLAIMS,  TORT CLAIMS,  BREACH OF DUTY
CLAIMS,  AND ALL OTHER  COMMON LAW OR  STATUTORY  CLAIMS.  EACH OF BORROWER  AND
FOOTHILL  REPRESENTS  THAT IT HAS REVIEWED  THIS WAIVER AND EACH  KNOWINGLY  AND
VOLUNTARILY  WAIVES  ITS JURY TRIAL  RIGHTS  FOLLOWING  CONSULTATION  WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION,  A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.

14.  DESTRUCTION OF BORROWER'S DOCUMENTS.

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

15.  GENERAL PROVISIONS.

     15.1. Effectiveness.

     This Agreement shall be binding and deemed  effective when executed by each
Borrower and Foothill.

     15.2. Successors and Assigns.

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

     15.3. Section Headings.

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

     15.4. Interpretation.

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

     15.5. Severability of Provisions.

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

     15.6. Amendments in Writing.

     This Agreement can only be amended by a writing signed by both Foothill and
Borrower.

     15.7. Counterparts; Facsimile Execution.

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

     15.8. Revival and Reinstatement of Obligations.

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

     15.9. Integration.

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

     16.  AMENDMENT  AND  RESTATEMENT  OF OLD LOAN  AGREEMENT;  CONTINUATION  OF
SECURITY INTERESTS

     Upon the date hereof,  this  Agreement  will amend and restate the Old Loan
Agreement.  This Agreement is in no way intended, nor shall it be construed,  to
affect, impair or extinguish the creation, attachment, perfection or priority of
the security  interests in, and other Liens on, the  "Collateral" (as defined in
the Old Loan Agreement) in favor of Foothill, which security interests and other
Liens  Borrower,  by this  Agreement,  acknowledges,  reaffirms  and confirms to
Foothill.

<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed in Chicago, Illinois.

                                     TECSTAR, LLC,
                                     an Indiana corporation

                                     By /s/ Michael H. Schoeffler
                                        ----------------------------------------
                                     Title  Senior Vice President
                                          --------------------------------------

                                     FOOTHILL CAPITAL CORPORATION,
                                     a California corporation

                                      By /s/ Michael P. McGinn
                                        ----------------------------------------
                                     Title  Vice President
                                          --------------------------------------

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