Exhibit 10.12

                           TREESOURCE INDUSTRIES, INC.

                          STOCK OPTION LETTER AGREEMENT

To:  Jess R. Drake

         On  November  3,  1998,  in  connection  with that  certain  Employment
Contract  between you and TreeSource  Industries,  Inc. (the  "Company"),  dated
effective November 4, 1998 (the "Employment  Contract"),  the Board of Directors
of the Company has awarded you stock options for the purchase of 543,295  shares
of the Company's common stock at an exercise price of $.7969 per share,  subject
to your agreement with the terms and conditions set forth below.

1.       Term

         The term of your  option is ten (10) years  from date of grant,  unless
sooner terminated.

2.       Exercise

         During your  lifetime  only you can exercise  the option.  The personal
representative of your estate or the beneficiary thereof may exercise the option
following your death.

         To exercise your option, you must deliver to the Company written notice
of your intention to exercise in the form attached hereto, specifying the number
of shares as to which you  desire to  exercise  the option and the date on which
you desire to complete the transaction.

         Unless the Board of Directors or any committee  authorized by the Board
of Directors to administer  stock  options  granted by the Company (the Board of
Directors  or any  such  committee  is  referred  to  herein  as the  "Board  of
Directors") determines otherwise, on or before the date specified for completion
of the  purchase  of  shares  pursuant  to your  option,  you must have paid the
Company the full purchase price of such shares.  No shares shall be issued until
full payment for the shares has been made.

         After exercise of your option,  immediately  upon  notification  of the
amount due, if any,  you shall pay to the Company in cash  amounts  necessary to
satisfy any applicable federal, state and local tax withholding requirements. If
additional withholding is or becomes required beyond any amount deposited before
delivery  of the  certificates,  you shall pay such  amount  to the  Company  on
demand.  If you fail to pay the amount  demanded,  the Company may withhold that
amount  from other  amounts  payable by the  Company to you,  including  salary,
subject to applicable  law. With the consent of the Board of Directors,  you may
satisfy this  obligation,  in whole or in part,  by having the Company  withhold
amounts due or by  delivering  to the  Company  common  stock  shares that would
satisfy the withholding amount.

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3.       Payment for Shares

         The option may be exercised by the  delivery of cash  (including,  with
the consent of the Board of  Directors,  cash that may be the proceeds of a loan
from the  Company),  and,  unless the Board of Directors at any time  determines
otherwise,  personal  check,  bank  certified  or  cashier's  check or, with the
consent  of Board of  Directors,  in whole or in part,  in  common  stock of the
Company  valued at fair  market  value,  promissory  notes  and  other  forms of
consideration.

         With the consent of the Board of Directors, you may request the Company
to apply  automatically the shares to be received upon the exercise of a portion
of the option  (even  though  stock  certificates  have not yet been  issued) to
satisfy the purchase price for additional portions of the option. If and so long
as the common stock is  registered  under Section 12(b) or 12(g) of the Exchange
Act,  such  cashless  exercise  may be  accomplished  by  delivery of a properly
executed  exercise  notice,  together with  irrevocable  instructions,  to (i) a
brokerage firm designated by the Company to deliver  promptly to the Company the
aggregate  amount of sale  proceeds  to pay the  option  exercise  price and any
withholding tax  obligations  that may arise in connection with the exercise and
(ii) the Company to deliver the  certificates for such purchased shares directly
to such brokerage  firm, all in accordance  with the  regulations of the Federal
Reserve Board.

4.       Termination

         In  the  event  your  employment  or  service  with  the  Company  or a
subsidiary  terminates  for any reason other than for cause (as defined  below),
physical  disability or death, or any reason that results in the Company's being
obligated to provide the payments and benefits specified in Section 6.2.2 of the
Employment  Contract,  your option may only be exercised  within one month after
the date of such  termination  of your  employment or services,  but in no event
later than the remaining term of the option.  In the event that your  employment
is terminated under any provision of the Employment Contract that results in the
Company's  being  obligated to provide the  payments  and benefits  specified in
Section 6.2.2 of the  Employment  Contract,  your option may be exercised at any
time within two (2) years after the date of such termination of your employment,
but in no event later than the remaining term of the option. For the purposes of
this letter agreement  "cause" shall consist of the following:  (i) your willful
and  continual  failure  and  refusal  to  comply  with the  reasonable  express
directives  of the  Company's  Board of Directors;  (ii) your  conviction  for a
felony or any crime involving fraud or dishonesty in the performance of, or that
reflects upon your ability to perform,  your duties on behalf of the Company; or
(iii)  circumstances  where you have been grossly  negligent  or have  exhibited
willful misconduct in the performance of your duties.

         In the event of the  termination  of your  employment  or  service  for
cause,  your  option  shall  automatically  terminate  on the date you are first
notified  by the  Company of such  termination,  unless  the Board of  Directors
determines otherwise.

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<PAGE>
         In the event of the  termination of your  employment or service because
of permanent disability, your option may be exercised only within one year after
such  termination,  but in no event later than the remaining term of the option.
The term "permanent  disability"  means a mental or physical  impairment that is
expected  to result in death or that has  lasted  or is  expected  to last for a
continuous period of six (6) months or more and that causes you to be unable, in
the  opinion of the  Company  and two  independent  physicians,  to perform  the
majority of your usual duties as an employee, director, officer or consultant of
the Company.  Permanent disability shall be deemed to have occurred on the first
day after the Company and the two  independent  physicians  have furnished their
opinion of permanent disability to the Company.

         In the event of your death while  employed by or  providing  service to
the Company or a subsidiary, your option may be exercised at any time within one
year after the date of death,  but in no event later than the remaining  term of
your  option,  and only if and to the extent you were  entitled to exercise  the
option at the date of death,  and only by the  person  or  persons  to whom your
rights  under the option  shall pass by your will or by the laws of descent  and
distribution of estate or country of domicile at the time of death.

         Your  option  may be  exercised  only  if and to the  extent  you  were
entitled to exercise such option at the date of such termination.  To the extent
that your option is not  exercised  within the  applicable  period,  all further
rights to purchase shares pursuant to such option shall cease and terminate.  In
no event may this option be exercised later than its remaining term.

5.       Transfer of Option

         Your  option is not  transferable  except by will or by the  applicable
laws of descent and  distribution of the state or county of your domicile at the
time of death or  pursuant to a qualified  domestic  relations  order as defined
under the Internal  Revenue Code or Title I of the Employee  Income Security Act
of 1974, as amended.














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<PAGE>
6.       Vesting

         Your  option  shall  vest  and  become  exercisable  according  to  the
following schedule:

                                                                Number of shares
                          Date on and after which               for which option
                           option is exercisable                 is exercisable

Upon execution of this letter agreement ........................    25%

On November 3, 1999--the first anniversary of your 
 Employment Contract ...........................................    50%
 
On November 3, 2000--the second anniversary of your 
 Employment Contract ...........................................    75%
 
On November 3, 2001--the third anniversary of your 
 Employment Contract ...........................................   100%

7.       Holding Periods:

7.1      Securities and Exchange Act Section  16


         Shares of common  stock  obtained  upon the exercise of your option may
not be sold by a person  subject  to Section  16 of the  Exchange  Act until six
months after the date such option was granted.

7.2      Taxation of Stock Options


         Tax advice should be obtained when  exercising  any option and prior to
the disposition of the shares issued upon the exercise of any option.

8.       Date of Grant

         The date of grant of the option is November 3, 1998.

9.       Acceleration in Certain Events

         Notwithstanding  any other  provisions  of this letter  agreement,  all
options  outstanding  under  this  letter  agreement  shall  immediately  become
exercisable  in full at any time when any one of the following  events has taken
place:

         (a) The Company  undergoes a change of control,  which for the purposes
of this  option  is  defined  as any sale,  transfer  or  disposition  of all or
substantially  all of the assets of the  Company,  or the merger of the  Company
with another entity that results in the  shareholders  of the Company  obtaining
less than 50% of the voting equity of the resulting company, or an individual or
company in any manner acquires or controls more than 50% of the voting equity of
the Company;

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         (b)  The  Company  receives  notice  from a  senior  lender  under  the
Company's  Credit and Security  Agreement  that such senior  lender has declared
that  the  Company  is in  default  on its  loan  obligations  and that the loan
obligations are being accelerated; or

         (c) The Company  terminates your employment with the Company other than
for cause.

10.      Adjustments


10.1     Adjustment of Shares


         The aggregate number and class of shares for which this option has been
granted and the exercise price per share thereof (but not the total price) shall
be proportionately adjusted for any increase or decrease in the number of issued
shares of common stock resulting from a split-up or  consolidation  of shares or
any like capital adjustment, or the payment of any stock dividend.

10.2     Conversion of Options on Stock for Stock Exchange


         Except as provided in Section 9(a), if the  shareholders of the Company
receive capital stock of another corporation  ("Exchange Stock") in exchange for
their   shares  of  common  stock  in  any   transaction   involving  a  merger,
consolidation,  acquisition of property or stock,  separation or reorganization,
the option  granted  hereunder  shall be  converted  into an option to  purchase
shares of Exchange  Stock.  The amount and price of a converted  option shall be
determined by adjusting the amount and price of the option granted  hereunder in
the same  proportion  as used for  determining  the number of shares of Exchange
Stock the  holders  of the  shares  of  common  stock  receive  in such  merger,
consolidation, acquisition of property or stock, separation or reorganization.

10.3     Fractional Shares


         In the event of any  adjustment in the number of shares covered by this
option,   any  fractional   shares  resulting  from  such  adjustment  shall  be
disregarded and the option shall cover only the number of full shares  resulting
from such adjustment.

10.4     Determination of Board to Be Final

         All Section 10  adjustments  shall be made by the Board of Directors of
the Company, and its determination as to what adjustments shall be made, and the
extent  thereof,  shall be presumed to be correct unless such  determination  is
inconsistent  with the other terms and  requirements  of this  Section 10 or the
terms and  requirements  of the Employment  Contract.  Should any conflict exist
between  the terms of this  letter  agreement  and the  terms of the  Employment
Contract, the terms of the Employment Contract shall govern.



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<PAGE>
10.5     Further Adjustment of Awards

         Subject to Sections  9(a) and 10.2,  the Board of Directors  shall have
the discretion,  exercisable at any time before a sale,  merger,  consolidation,
reorganization,  liquidation or change in control of the Company,  as defined by
the Board of  Directors,  to take such  further  action as it  determines  to be
necessary or advisable, and fair and equitable to you, (but shall not be limited
to) establishing,  amending or waiving the type,  terms,  conditions or duration
of, or restrictions on, the option so as to provide for earlier, later, extended
or additional time for exercise and other modifications.  The Board of Directors
may take such actions  before or after any public  announcement  with respect to
such  sale,  merger,  consolidation,  reorganization,  liquidation  or change in
control that is the reason for such action.

10.6     Limitations


         The grant of this option will in no way affect the  Company's  right to
adjust,  reclassify,  reorganize  or  otherwise  change its  capital or business
structure or to merge, consolidate,  dissolve, liquidate or sell or transfer all
or any part of its business or assets.

11.      Approvals


         The Company  agrees to register for  offering or resale,  or to qualify
for exemption,  under the Securities Act, and to register or qualify under state
securities  laws, any shares of common stock issued to you upon exercise of this
option, and to continue in effect any such registrations or qualifications.

12.      Rights as a Stockholder


         As a holder of an option issued pursuant to this option agreement,  you
have no rights as a stockholder  with respect to any common stock until the date
of issue to you of a stock  certificate  for such  shares.  Except as  otherwise
expressly  provided  herein,  no adjustment  shall be made for dividend or other
rights for which the record date occurs prior to the date such stock certificate
is issued.

         Please execute the Acceptance and Acknowledgment set forth below on the
enclosed copy of this letter agreement and return it to the undersigned.

                                        Very truly yours,

                                        TREESOURCE INDUSTRIES, INC.

                                      
                                        /s/ Robert J. Riecke
                                        ----------------------------------------
                                        By: Robert J. Riecke
                                        Its:  Vice President-Administration
                                        and Secretary




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<PAGE>
                          STOCK OPTION LETTER AGREEMENT
                          ACCEPTANCE AND ACKNOWLEDGMENT

     I, a resident of the State of Washington, accept the stock option described
above, and acknowledge receipt of a copy of this Stock Option Letter Agreement
("Agreement"). I have read and understand this Agreement. I acknowledge that,
except as set forth in this Agreement and that certain Employment Contract with
the undersigned, the Company has no obligation to sell or otherwise issue to me
any stock or other equity or ownership interest in the Company.

Dated: November 6, 1998


 ###-##-####                                       /s/ Jess R. Drake
-------------------------------------              -----------------------------
Taxpayer I.D. Number                               Jess R. Drake

                                                   Address:


     By his or her signature below, the spouse of the Optionee, if such Optionee
is legally married as of the date of his or her execution of this Agreement,
acknowledges that he or she has read this Agreement and is familiar with the
terms and provisions thereof, and agrees to be bound by all the terms and
conditions of this Agreement.

         Dated:  November 6, 1998

                                                     /s/ Sandra Kay Drake
                                                     ---------------------------
                                                     Spouse's Signature


                                                     Sandra Kay Drake
                                                     ---------------------------
                                                     Printed Name

     By his or her signature below, the Optionee represents that he or she is
not legally married as of the date of execution of this Agreement.

         Dated:


                                                     ---------------------------
                                                     Optionee's Signature



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<PAGE>
                       NOTICE OF EXERCISE OF STOCK OPTION

To:  TreeSource Industries, Inc. Board of Directors

         I, a resident of the State of                , hereby exercise my stock
option granted by TreeSource  Industries,  Inc. (the "Company") on             ,
    , subject to all the terms and provisions thereof, and notify the Company of
my desire  to  purchase           shares of  common  stock of the  Company  (the
"Securities")  at the exercise  price of $     per share that were offered to me
pursuant to said option.

         I hereby  represent and warrant that (1) I have been  furnished  with a
copy of all  information  that I deem necessary to evaluate the merits and risks
of the  purchase  of the  Securities;  (2) I have  had  the  opportunity  to ask
questions and receive  answers  concerning  the  information  received about the
Securities and the Company;  and (3) I have been given the opportunity to obtain
any  additional  information  I deem  necessary  to verify the  accuracy  of any
information obtained concerning the Securities and the Company.

         Dated:
               --------------------


-------------------------                              ------------------------
Taxpayer I.D. Number                                         Jess R. Drake

                                     Address













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<PAGE>
                                     RECEIPT

     TreeSource Industries, Inc. hereby acknowledges receipt from Jess R. Drake
in payment for          shares of common stock of TreeSource Industries, Inc.,
an Oregon corporation, of $               in the form of:



                 [ ]  Cash

                 [ ]  Check (personal, cashier's or bank certified)

                 [ ]  Other (specify)


                           TREESOURCE INDUSTRIES, INC.

Date:                      For:
     --------------            -------------------------
























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