FORM 10-KSB

         SECURITIES AND EXCHANGE COMMISSION
             Washington, D.C. 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE
     ACT OF 1934
    For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE
    ACT OF 1934

Commission file number:    333-46643

                  INDUSTRIAL RUBBER PRODUCTS, INC.
                  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 
       (Exact name of registrant as specified in its charter)

               Minnesota                             41-1550505
           - - - - - - - - - - - - - - - -         - - - - - - - - - - - - - -
         (State or other jurisdiction                (I.R.S. Employer
         of incorporation or organization)           Identification No.)

         3804 East 13th Street, Hibbing, MN          55746
          - - - - - - -- - - - - - - - - - - - - - - - - - - - - -        - - -
         (Address of principal executive offices)     (Zip Code)

Issuer's telephone number including area code:       (218) 263-8831

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

                  Common Stock, $.001 Par Value
                  - - - - - - - - - - - - - - - - - - - - - - -

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
                                                                 - - -          


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     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  [ ] - - - The Company's  revenues for its
fiscal year ended December 31, 1998: $9,981,268.

Aggregate  Market  Value of Stock held by  Non-Affiliates  of the  Company as of
March 23, 1999:  $1,762,983,  based on a closing  average bid and asked price on
that date of $1.421875 per share.

The number of shares of the Company's  Common Stock  outstanding as of March 23,
1999 is 4,184,500.

Transitional Small Business Disclosure Form:               Yes: [  ] ; No: [X].
                                                                 
Documents Incorporated by Reference

Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders  are
incorporated by references in Part III.

                           TABLE OF CONTENTS

PART I

    Item 1:       Description of Business.....................................3
    Item 2:       Description of Property....................................15
    Item 3:       Legal Proceedings..........................................16
    Item 4:       Submission of Matters to a Vote of Security Holders........16

Part II

    Item 5:       Market for Common Equity and Related Stockholder
              Matters........................................................16

    Item 6:       Management's Discussion and Analysis of Financial
                Condition and Results of Operations..........................17

    Item 7:       Financial Statements.......................................21

    Item 8:       Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure..........................21


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PART III

    Item 9:       Directors, Executive Officers, Promoters and Control
                Persons; Compliance with Section 16(a) of the
                Exchange Act.................................................22

    Item 10:      Executive Compensation.....................................22

    Item 11:      Security Ownership of Certain Beneficial Owners
               and Management................................................22

    Item 12:      Certain Relationships and Related Transactions.............22

    Item 13:      Exhibits and Reports on Form 8-K...........................22

                                                  PART I

                            Special Note Regarding Forward-Looking Statements

Certain  matters  discussed  in this Annual  Report on Form 10-KSB are  "forward
looking  statements'  intended to qualify for the safe  harbors  from  liability
established  by the  Private  Securities  Litigation  Reform Act of 1995.  These
forward-looking  statements  can  generally  be  identified  as such because the
context of the  statement  will  include  words such as the Company  "believes",
"anticipates", "expects", or words of similar import. Similarly, statements that
describe   the   Company's   future   plans,   objectives   or  goals  are  also
forward-looking  statements.  Such forward-  looking  statements  are subject to
certain risks and  uncertainties  which are described in close proximity to such
statements and which could cause actual results to differ  materially from those
anticipated as of the date of this report. Shareholders, potential investors and
other  readers  are  urged  to  consider   these   factors  in  evaluating   the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking  statements.  The forward-looking statements included herein are
only made as of the date of this report and the Company undertakes no obligation
to publicly update such forward-looking  statements to reflect subsequent events
or circumstances.

Item 1:  Business

     (a)     General development of business

Industrial  Rubber  Products,  Inc. (the "Company" or  "Industrial  Rubber") was
founded in 1986 to acquire and operate a rubber  lining  facility  then owned by
Irathane Systems Incorporated, a wholly owned subsidiary of Illinois Tool Works,
Inc.

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The Company was  incorporated  as a Minnesota  corporation  on March 5, 1986, as
Industrial Rubber  Applicators,  Inc., and on January 30, 1998, changed its name
to Industrial Rubber Products,  Inc. The Company's executive offices are located
at 3804 E. 13th Avenue,  Hibbing,  MN 55746,  and its telephone  number is (218)
263- 8831.

The Company began operations in April of 1986. The Company's business originally
consisted of applying and then  vulcanizing  rubber (for  corrosion and abrasion
resistance  purposes) to wearable  parts that were used  primarily in the mining
industry.

In 1996 the Company entered into a major contract of approximately  $10,000,000,
to provide  rubber  lining  services for the Kennecott  Utah Copper  pipe-lining
project near Salt Lake City,  Utah. To  effectively  provide these  services the
Company leased and opened a  manufacturing  facility in Clearfield Utah in 1996.
During  1997 and 1998 the  Company  used the  facility  to provide  services  to
Kennecott and other  customers in the area. The Kennecott  project was completed
in 1998.

     On January 20, 1999,  the Company  acquired  Sonwil  Products,  Inc. dba TJ
Products in West Jordan,  Utah. This  acquisition is referred to throughout this
Form 10-KSB report and the 1998 Annual Report.

On January  31,  1999,  the lease on the  Clearfield  facility  expired  and the
Company consolidated those operations at the facilities of the newly acquired TJ
Products.

Initially,  the Company was taxed as a C corporation  under the Internal Revenue
Code.  Effective  January  1,  1989,  the  Company  elected  to be taxed as an S
corporation.  The Company  continued to be taxed as an S corporation until March
31, 1998, when the Company elected C corporation status.

     (b)     Narrative description of Industrial Rubber's business

Principal Products, Services and Markets

Industrial Rubber designs, produces and supplies protective materials,  abrasion
resistant  products  and  equipment,  erosion/corrosion  protective  linings and
proprietary  rubber products to the mineral  processing,  power, wood processing
and other heavy industries.

Product Lines

Industrial  Rubber has three product  lines.  Its pipe and pipe lining  products
line consists of rubber lined pipe and pipe parts  fabricated  primarily for the
mineral processing industry. Its proprietary products are engineered replacement
parts primarily for mineral processing facilities.  Its standard rubber products
are sold,

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along with related services,  to the Company's customers in the various industry
segments served by the Company.

Pipe and Pipe Lining  Products.  Industrial  Rubber produces and supplies rubber
and  steel  slurry  pipe  and  components  for  tailings  pipeline  systems.   A
proprietary  formulated  rubber compound  (I.R.P.  X8220) is used which protects
these  pipelines  from abrasion and  corrosion.  This  proprietary  compound has
increased  pipeline life expectancy by 50% in one North American taconite plant.
A taconite plant has advised  Industrial Rubber that its operational  evaluation
has  demonstrated  that  unprotected  steel  tailing  pipe has a service life of
20,000 hours,  while  similar pipe lined with  Industrial  Rubber's  proprietary
compound  X8220 has a service life of 40,000 hours.  The  Company's  proprietary
compound  X8220 has been used in  600,000  feet of  slurry  transportation  pipe
products  for  12  mineral  processing  plants.  Since  its  development  it has
demonstrated its ability to extend service life and protect  expensive  tailings
impoundment  systems from  corrosion  and abrasive  wear.  In 1996,  the Company
designed and developed new processes and equipment  that  decreased the cost and
improved the overall product quality of overland  slurry  pipelines.  Mechanical
couplings, historically used in connecting lined pipe for long distance overland
slurry  systems,  are  typically  high  cost  items  to the  customer.  This  is
particularly  true in high  pressure,  large  diameter  pipelines.  The  Company
believes that prior to 1996,  industry standards and equipment  limitations only
allowed for the  production  of 40' long pipe  sections.  Industrial  Rubber has
designed its own production  equipment,  and presently supplies to its customers
60'  lined  pipe  sections,  eliminating  one third of the  required  mechanical
couplings, and resulting in cost savings to the customers.

The Company used this  technology in lining  120,000 linear feet of pipe for the
abrasive slurry  transportation  system of the Kennecott Utah Copper Corporation
at its $450,000,000  tailings impoundment  modernization  project in Utah. Since
1996, three other major slurry  transportation system products have been ordered
from Industrial Rubber:

         1997     B & K Steel             8,200'   48" diameter pipe (completed)
         1998     Royal Oak Kemess       47,000'   26" diameter pipe (completed)
         1998   Newmont/Batu Haiju       21,000'   44" diameter pipe (completed)

The Company believes that the development of 60' lined pipe has set the standard
for the  industry.  Industrial  Rubber  is  continuing  development  efforts  to
eliminate mechanical couplings in rubber lined pipe products for overland slurry
transportation systems.

In 1996,  Industrial  Rubber and its  suppliers  developed  1" thick  calendared
rubber,  the first in the  industry  to meet  engineered  specifications  for an
abrasive slurry material.  This rubber product doubled the expected service life
of industry standard

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1/2" calendared rubber in slurry  transport,  and is projected to result in cost
savings for customers by reducing replacement costs.

Industrial Rubber's pipe product line includes large overland slurry system pipe
products  and  products  as small as 2" in  diameter.  The  Company  can produce
rubber-lined  pipe from 2" to 72' in  diameter,  from 1" to 60'  long,  and with
calendared  linings from 1/8" to 1" thick.  It can provide all  fittings,  tees,
Y's, manifolds and other piping components  typically used in mineral processing
and power generation facilities.

Proprietary  and  Engineered  Products.   Industrial  Rubber's  proprietary  and
engineered  product line includes  engineered  grinding mill parts.  Examples of
such  products are air bags,  lifter bars and shell  liners.  The hard host rock
that contains  minerals must be ground to small  fragmented  product size, using
large grinding mills.  The wearable parts that protect these grinding mills have
a relatively  short service life.  They have been  typically  made of heavy iron
castings.

Industrial  Rubber  believes that its patented  rubber  grinding mill discharger
reduces weight, matches or increases service life and provides improved fit when
compared to other  dischargers.  A North American  mineral-processing  plant has
informed the Company that by using the Industrial  Rubber patented grinding mill
dischargers,  it  has  reduced  grinding  costs  by  increasing  production  and
decreasing energy costs per ton ground. The patented grinding mill discharger is
being used at two taconite,  one molybdenum and three copper mines, operating in
17 grinding  mills.  Grinding mill  dischargers and other grinding mill products
are being designed for five additional mining properties.

Standard Rubber Products. The Company's standard rubber products range in weight
from less than one pound to over 10,000  pounds,  with costs ranging from $20 to
$20,000 for individual parts. Examples of such products are manifolds,  screens,
pulleys, and rolls. All products are made to customer engineered specifications.
The Company's Quality Assurance Program seeks to insure product conformity while
limiting  defects and  reducing  associated  value  added  costs.  The  Company,
responding to the needs of  international  markets,  has begun  preparations  to
qualify under an ISO 9000 program.

Markets

The markets for the  Company's  products are the hard rock  mineral  processing,
coal and power  generation,  paper and pulp production,  and other similar heavy
industries.  Its  marketing  to  date  has  focused  primarily  on  the  mineral
processing industry.

The North American mining industry is considered  heavy industry.  The hard rock
that hosts important minerals (iron,  copper,  gold,  molybdenum),  is generally
blasted

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from the earth and then crushed, and ground (processed), to allow the extraction
(beneficiation)  of  these  minerals.   The  equipment  needed  to  process  and
beneficiate  this rock is subject to constant  abrasion,  corrosion and erosion.
Industrial Rubber has developed,  designed,  tested and produced rubber products
that protect the mineral processing and beneficiation equipment, extending their
serviceable life, and saving its customers money through  decreased  replacement
costs and reduced  downtime.  The Company's rubber products also provide further
benefits to its customers through noise abatement and dust and dirt reductions.

Although  Industrial  Rubber's  products  protect  the  mineral  processing  and
beneficiation  equipment, the products do become worn and must be replaced. Many
of the Company's  products are used to replace its own and other  manufacturers'
protective products that have become worn.

Industrial  Rubber's  first market was the  Minnesota  taconite  industry  where
taconite  rock  with a  typical  iron ore  content  of 25% to 30% is  excavated,
crushed,  ground and  separated to make 46 million  tons of high grade  taconite
(iron ore) pellets annually.

In  1991,  Industrial  Rubber  began  to sell  its  products  to  other  mineral
processing  markets to diversify its business and minimize the effects of demand
cycles.  In 1998,  approximately  50% of the  Company's  sales  were to  mineral
processing  facilities  other than taconite.  A large  proportion of those sales
related to copper and gold production.

The U.S. and Canada rank number two and number three, respectively, in worldwide
copper production and have slated many new mine openings and expansion  projects
for  copper  production.  Most of  these,  however,  are on hold due to  current
commodity prices. Arizona is the number one copper producing state.

Copper ore is typically a 1% to 1.5% grade. Gold ore is considerably  lower. The
waste  rock  slurry  pipe  systems  needed  to  transport  this  rock  to  large
impoundments  have grown,  due to  environmental  and practical  needs.  A North
American  copper  producer  recently  invested  $450,000,000 in a new 3,500 acre
copper rock waste (tailings) impoundment;  of this total,  $40,000,000 was spent
on highly abrasive resistant, lined pipe products.

Although North America is a large market for the Company's  products,  the world
mining  industry  is  significantly   larger,   with  Chile  alone  operating  a
significant number of grinding mills with resulting mine production of 3,000,000
metric tons.  Recently,  the Company has begun to expand by selling its products
outside of North  America.  In 1997,  less than 1% of the  Company's  sales were
shipped  offshore,  in 1998, this proportion grew to approximately 25% of sales.
The international  market offers potential market growth for Industrial  Rubber,
with most of the actual contracts coming from North American  engineering  firms
or their subcontractors.

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Marketing and Distribution of Products

The Company  markets its products  through a direct sales force and  independent
sales  representatives.  The Company's major customers in 1998 included  Hibbing
Taconite Company, whose majority owner is Bethlehem Steel (taconite production),
Royal   Oak   Mining   Kemess   Mine   (gold   mining),    and   BendTec   (pipe
engineering/manufacturing firm).

The  Company's  present sales force  consists of a sales and marketing  manager,
three  direct   salespeople,   a  sales  clerk,   and  two   independent   sales
representative  companies  that employ five direct  salespeople  and a marketing
consultant. The Company plans to grow its number of direct salespeople and is in
the process of establishing independent sales representation in certain national
and international markets.

The Company has recently added three direct sales people with the acquisition of
TJ Products.  The people,  who previously  worked for TJ's,  cover a seven state
territory including and surrounding Utah.

Industrial  Rubber  seeks to grow  through  increased  penetration  of the North
American  hard  rock  mining  market  with  its  present  rubber  products,  the
development and sales of new products,  sales to new mineral  processing markets
outside of North America and sales of present and new products to the coal power
generation, paper and pulp manufacturing and other heavy industries.

Industrial  Rubber's marketing  strategy is to maximize  penetration of domestic
markets,  including mineral processors and coal and power generating facilities,
with its present products. The Company is acting to expand its product lines and
new products will be cross-sold to existing and new customers.

The marketing plan includes prospective customer identification,  customer needs
analysis and increased and strategic placement of the sales force, to facilitate
geographic market and product expansion. The marketing plan is being implemented
in the U.S. and Canadian  markets and,  when  appropriate,  will be  implemented
internationally.  The  Company  intends to develop  business  partnerships  with
existing customers and the engineering firms that serve them.

Chile,  Peru,  Brazil,  Argentina,  Mexico,  and  Australia  are  major  mineral
processing countries, as are certain Southeast Asian countries. The Company will
direct its efforts to penetrate  these  markets by adding  direct sales  people,
adding independent representatives and forming strategic alliances with original
equipment manufacturers in these markets.

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Industrial  Rubber  utilizes  general and product  specific  brochures and sales
literature.  Video is used as an additional marketing resource.  Advertising and
articles in industry trade magazines,  journals, newsletters and papers has been
increased.  Trade show  attendance and  participation  has increased to become a
larger part of the marketing effort.

Industrial  Rubber  is in  the  process  of  placing  satellite  production  and
distribution  facilities  where  justified by the local market.  The Company has
identified a potential satellite location in southern Arizona.

The Company has identified other protective  material products,  including steel
and iron products, that are not presently produced by Industrial Rubber, but are
used by its customers.  Through its  representation  of Ani Braken,  the Company
seeks to be able to supply cast iron and steel  products to its customers and is
seeking strategic  relationships with the manufacturers of related products. The
goal is to allow  the  Company  to  supply  its  customers  with a full  line of
protective  products  eliminating the disadvantage to the customers of acquiring
components from multiple suppliers. Customers should further benefit by having a
single source for the design and testing of protective product improvements.

Recent  studies in Minnesota  and  Michigan  have  demonstrated  that there is a
concern among its customers regarding the environmental  considerations both for
present disposal costs and future liabilities  arising from landfill disposal of
steel,  rubber,  urethane  and other worn out  products.  At the  present  time,
grinding mill parts, pump parts, classification screens, pipe products and other
benefication  equipment protective parts made of rubber, steel and urethane, are
disposed of after usable life,  normally through a landfill method.  The Company
is continuing to expand its closed-loop recycling program to allow its customers
to return these used equipment products to the Company.  The Company will remove
the elastomeric  compounds,  and through cryogenic  technology and the Company's
and other's proprietary  material  enhancement  processes,  produce recycled raw
materials  to be  used in  manufacturing  molded  rubber  protective  parts  for
repurchase.

Industrial Rubber is investigating  developing a  closed-loop-recycling  program
for integration into its marketing  strategies for all products and locations to
meet its customers'  needs . A further  benefit of the  "closed-loop"  recycling
process  and the  re-manufacturing  of raw  materials  would  be to  reduce  the
Company's future dependency on natural rubber.


Status of Publicly Announced New Products

In August of 1998 the Company signed an agreement to market  high-alloy  ferrous
cast mill and crusher parts in North America for the Melbourne,  Australia based
firm,  ANI Bradken.  Initial  delivery and sales of the product for testing took
place in

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the first  quarter of 1999.  Potential  future  sales for this product line will
depend on several  variables,  including  current testing,  which are unknown at
this time.

Competitive Conditions

The protective material products business that serves the mineral processing and
other heavy industries is competitive.  These protective  material  products are
made of steel, iron, rubber, urethane,  ceramics,  plastics and hybrids of these
materials. The Company's competitors fabricate,  cast, mold, shape, machine, and
form the  material  into  finished  products.  Both  large and  small  companies
throughout  the world  compete  on price and by adding  value to their  products
through fit and function, using physical design, chemical or physical make up or
proprietary data (patents). The competition falls into two categories.

The first  category is the  regional  manufacturer/supplier  that  services  the
mineral  processing  and  power  generation  properties  that  are  close to its
production  facility.   Standard  rubber  liners,  urethane  castors  and  metal
fabricators  typically fall within this category.  They use personalized service
and quick delivery as an advantage to their regional customers.

The second  category is national  manufacturers  of products  that are used by a
large number of mineral processing and power generating plants.  Rubber molders,
cast  iron and  metal  makers,  ceramic  manufacturers  and  original  equipment
manufacturers  typically fall into this category.  They use proprietary  design,
large  distribution  networks  and high  volume to reduce  manufacturing  costs.
Sophisticated quality programs,  managed inventories and just-in-time deliveries
are  advantages  to their  customers and their size provides them with access to
greater financial and other resources.

The Company  believes  that regional  manufacturer/supplier  R. Wales & Sons and
national manufacturer/suppliers Rubber Engineering, Illinois Tool Works, Linatex
and Svedala represent the Company's main sources of competition and each such
competitor has greater resources than the Company.

The Company  believes that it can  successfully  compete with  companies in both
categories,  through focused service to customers located near its Minnesota and
Utah  facilities  and  through  its  ability  to  provide  quality  products  in
increasingly  large quantities to customers  located in  geographically  distant
areas.  The Company also  believes  that the  satellite  facilities  that it may
establish  will  increase  its  ability  to compete  in  geographically  distant
markets.

Raw Materials and Supplies.

The Company currently purchases its rubber from multiple suppliers that
manufacture to the Company's specifications and formulas.  The Company is

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evaluating the potential  acquisition of a raw material supplier or the purchase
of equipment to process raw materials.  This integration could reduce production
costs and expand  potential  markets by providing the  capability to develop new
formulas  internally.  Currently,  the low price of natural  rubber  makes these
alternatives less beneficial.

The Company  obtains most of the rubber used to treat or line its pipe  products
and to manufacture its standard rubber products from  Bedell-Kraus and Dyna-Mix.
The Company obtains pipe from Piping Machine  Specialties,  Naylor Pipe,  Thrall
Distributors  and NAPTech,  Inc. The Company  obtains pipe parts and other metal
products from Furin & Shea and Vidmar Iron Works.  The Company  anticipates that
it will  continue to obtain  these  materials  from these  suppliers,  but other
sources are available for all such materials.

Dependence on Major Customers

While the Company is not dependent on any single customer a substantial  portion
of Industrial  Rubber's  revenues in 1996, 1997 and 1998 were from large project
contracts for rubber lined tailings pipe. The companies purchasing such products
and services from the Company  pursuant to large  contracts  vary and the recent
drops in commodity prices has caused many  modernization  and new projects to be
put on hold. The Company has no orders for large contracts at this time.

Proprietary Rights and Labor Contracts

The Company currently holds one patent for a Discharge  Millhead.  The patent on
the  Discharge  Millhead  will  terminate  on  April 7,  2013.  The  Company  is
developing  additional   potentially   patentable  products,   including  rubber
compounds,  grinding  mill parts,  screens and cyclone  products,  pipe coupling
products and closed loop material handling services. Since many of the Company's
developments  are  extensions of existing  knowledge,  no assurance can be given
that  patents  for either the  products or  processes  being  developed  will be
issued,  that the scope of any patent  protection  will exclude  competitors  or
provide competitive advantages to the Company, that any of the Company's patents
will be held valid if  subsequently  challenged  or that  others  will not claim
rights in or ownership to the patents and other  proprietary  rights held by the
Company.  Further,  there can be no assurance  competitors have not developed or
will not develop  similar  products,  duplicate  the  Company's  products or, if
patents are issued to the  Company,  design  around such  patents.  In addition,
whether or not  patents  are issued,  others may hold or receive  patents  which
contain  claims  having a scope that covers  products  developed by the Company.
Industrial  Rubber's  proprietary  rubber formula is not  patentable.  While the
Company  obtains  confidentiality  agreements  from  its  suppliers  and its key
employees,   competitors  could  independently  develop  the  formula.  Further,
litigation to protect either patents or trade secrets, to enforce patents issued
to the Company, to protect trade secrets or know-how owned by the

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Company,  and  to  defend  the  Company  against  claimed  infringement  may  be
necessary.

The Minnesota production employees are covered by a collective bargaining
agreement with the United SteelWorkers of America, Local No. 6860-1, which
terminates on April 1, 2000.  There is no union affiliation at the Utah facility

Research and Development.

The  Company  has not  incurred  significant  research  and  development  costs,
although it has incurred  certain of such costs on a job-by-job  basis which are
expensed as incurred.

The Company has announced  plans to pursue an Elastomer  Technology and Material
Research  Center to be located in Hibbing  Minnesota.  The  center,  which would
develop  better  grinding  and  separation  methods for recycled  rubber,  would
require an initial investment of approximately  $3,000,000 of public and private
funds. The Company has committed  $500,000 and is currently pursuing both public
and private sources for the remaining  funds. The Company proposes to manage the
center and use the developed  technology  for product  development  and a closed
loop recycling program.

Governmental Regulation

While  Industrial  Rubber's  products are not subject to, and do not require any
governmental approvals, before sale, the Company is subject to a wide variety of
governmental  regulations.  As a  manufacturing  company,  Industrial  Rubber is
subject to safety  regulations  established  by the United States  Department of
Labor and the Minnesota  Department of Labor and Industry under the Occupational
Safety and Health Act  ("OSHA").  Because  its  products  are sold to the mining
industry,  workplace  safety at the Company is also subject to regulation by the
Mine Safety and Health Administration.  The Company's operations are continually
being monitored and inspected.  During February 1998, the Company  received OSHA
reports addressing a number of deficiencies found by inspectors in the Company's
production  facilities,   and  assessing  fines  against  the  Company  totaling
approximately $6,000. In 1998 all deficiencies were addressed, none of which had
a  material  effect  on  the  Company's  operations.   The  Company  intends  to
participate  with  OSHA in a program  to limit or  correct  future  deficiencies
before fines are assessed.

Environmental Regulation

The Company uses hazardous solvents in its production  processes and disposes of
waste products such as used solvents.  These and other activities of the Company
are subject to various federal,  state and local laws and regulations  governing
the

                                                   12

<PAGE>



generation,  handling,  storage,  transportation,   treatment  and  disposal  of
hazardous  wastes.  Under  such laws,  an owner or lessee of real  estate may be
liable  for,  among other  things,  (I) the costs of removal or  remediation  of
certain  hazardous or toxic  substances  located on, in or emanating  from, such
property,  as well as related  costs of  investigation  and property  damage and
substantial  penalties  for  violations  of such  laws,  and (ii)  environmental
contamination at facilities  where its waste is or has been disposed.  Such laws
often impose such liability  without regard to whether the owner or lessee knows
of, or was responsible for, the presence of such hazardous or toxic substances.

     While  the  Company's  operations,  to its  best  knowledge,  are  in  full
compliance with all existing laws and regulations, environmental legislation and
regulations  have changed rapidly in recent years and the Company cannot predict
what,  if any,  impact  future  changes  in  such  legislation  may  have on the
Company's business. Further, environmental legislation has been enacted, and may
in the future be enacted,  that  creates  liability  for past  actions that were
lawful  at the  time  taken.  As in the case  with  manufacturing  companies  in
general,  if damage to persons or the environment has been caused,  or is in the
future  caused,  by the  Company's  use of  hazardous  solvents or by  hazardous
substances located at the Company's facilities, the Company may be fined or held
liable for the cost of remediating such damage.  Imposition of such fines or the
incurrence of such liability may have a material adverse effect on the Company's
business,  financial  condition and results of operations.  Further,  changes in
environmental  regulations  in the  future  may  require  the  Company  to  make
significant  capital  expenditures  to change  methods of disposal of  hazardous
solvents or otherwise alter aspects of its operations.

The United States  Environmental  Production  Agency ("EPA") in its October 1992
Preliminary  Assessment of the Company's  Minnesota  facility  reported that the
Company's predecessor had a 5,000 square foot unlined outdoor waste drum storage
area between 1967 and 1981. The EPA's assessment revealed no documented releases
from this area.  During 1997, the Minnesota  Pollution  Control Agency  ("MPCA")
notified the Company  that it was required to complete an initial  investigation
of possible  soil  contamination  caused by the previous  owner of the Minnesota
facility.  In June of 1998 representatives from the MPCA's Regulatory Compliance
Section ("RCS") collected samples from the former drum storage area. All results
were reported as below detection  limits;  therefore,  no further soil or ground
water investigation is necessary at this time.

Recent Event

On March 25, 1999 the Company  executed an agreement  with  Illinois  Tool Works
Inc.,  ("ITW") to acquire all of the assets of ITW's Irathane Systems  Division.
Irathane Systems produces liquid urethanes,  urethane  moldings,  and rubber and
urethane linings for the mineral processing, aggregate, paper and electric power
industries.

                                                   13

<PAGE>



The assets to be acquired include all of the machinery, equipment, tools, molds,
vehicles,  furniture,  fixtures,  supplies,  leasehold  improvements,   accounts
receivable,  inventories,  and real  estate of the  division.  It also  includes
prepaid expenses,  and intangible assets including the Irathane trademark in the
United States and Canada, trade secrets,  intellectual property, customer lists,
existing  contracts,  and similar  assets.  The assets  that are  proposed to be
purchased  include the Irathane  System  Division  real estate owned in Colorado
Springs, Colorado, and Sudbury, Ontario, Canada.

The Irathane Systems Division has manufacturing  facilities in Colorado Springs,
Colorado,  Hibbing,  Minnesota and Sudbury, Ontario, Canada. As a requirement of
the agreement,  all of Irathane's  current employees will be offered  employment
with Industrial Rubber at the time of the closing.

The  purchase  price  of  the  assets  to  be  acquired  will  be  approximately
$8,000,000.  Approximately  $300,000 of this will be paid by the  assumption  of
liabilities,  and the remaining $7,  700,000 will be paid in cash. The source of
the cash funds to make the  acquisition is the remaining  proceeds of Industrial
Rubber Products,  Inc.'s Initial Public Offering  completed in April of 1998 and
bank financing provided by U.S. Bank.

While an allocation  of the purchase  price to the assets will not be made until
after  closing,  it is  anticipated  that accounts  receivable  will  constitute
approximately  $1,300,000 of the assets  purchased,  inventory  will  constitute
approximately  $1,250,000  of the assets  purchased  and prepaid  expenses  will
constitute  approximately  $50,000 of the assets purchased The remaining balance
of the purchase price will be allocated between physical assets and intangibles.

In order to  permit  the  closing  of the  transaction  at the end of the  first
quarter of 1999,  the parties have agreed that the customary due diligence  that
would  otherwise take place in a transaction  such as this will take place after
closing.  The Purchase  Agreement  contains  special  provisions  providing  for
adjustments  to be made to the  purchase  price based upon the post  closing due
diligence as well as the more traditional  adjustments  arising as a result of a
closing.  The Company has obtained a  commitment  for bridge  financing  for the
acquisition of $7,000,000 as well as a commitment  for line of credit  financing
of $2,000,000 from U.S. Bank. The bank financing will be closed at the same time
as, or just prior,  to the closing of the  acquisition  of the  Irathane  System
Division assets.

Employees

As of February 28, 1999,  Industrial  Rubber had 80 employees,  all of whom were
full-time;  50 were in Minnesota  and 30 were in Utah (TJ  Products).  Of the 80
employees, 55 were in production,  seven were in sales, four were in engineering
and  design,  and  fourteen  were  in  executive,  administrative  and  clerical
positions.

                                                   14

<PAGE>



The Company  believes  that its  relations  with its  employees  are  excellent,
demonstrated  by a low turnover  rate.  The Minnesota  production  employees are
covered by a collective  bargaining  agreement with the United  SteelWorkers  of
America,  local No. 6860-1, which terminates on April 1, 2000. There is no union
affiliation at the Utah facility.  The Company believes that the  representation
of the  Minnesota  production  employees by the Union acts to remove a potential
barrier to the sale of certain of the Company's  products to the taconite mining
plants by responding to union  contract  language  that limits  out-sourcing  of
work.

Item 2:  Properties

Industrial  Rubber  operates three  production  and  distribution  centers.  Its
Minnesota manufacturing facility (located on the Mesaba Iron Range, the heart of
the  taconite  mining  industry)  is a 30,000  square foot  manufacturing/office
facility.  Proprietary  and rubber lined pipe products  produced at the facility
are used by taconite pellet producing  companies and are also shipped throughout
North America for use in copper,  gold,  molybdenum and other mineral processing
operations.  The facility also houses the Company's  corporate  headquarters and
sales and technical support staffs.

The Company  recently  acquired a second  facility in  Hibbing,  Minnesota.  The
facility,  which is  approximately  16,000  sq.ft.,  is being  used for  general
expansion and a distribution center.

In 1996,  due to customer  demand,  a second  production  facility in Clearfield
Utah, equipped with over $1,000,000 in specially designed processing  machinery,
was opened.  The  Clearfield  plant was designed to supply  Industrial  Rubber's
piping and pipe products to the western United States and Canada.

In  December  of 1998 the  Company  made a decision  to cancel it's lease on the
Clearfield  facility  effective January 31, 1999, and consolidate the operations
from the  Clearfield  facility  with the soon to be acquired TJ  Products.  This
consolidation is expected to reduce future operating costs. It also provides the
Company with  sufficient  equipment to start-up a new  satellite  facility  most
likely Arizona.

The Hibbing Minnesota manufacturing facility is a 30,000 square foot facility on
four acres of land in the Hibbing  Industrial  Park.  Newly renovated  corporate
office space occupies approximately 4,000 square feet of this facility, with the
remainder dedicated to manufacturing  space.  Portions of the four acres of land
are used for receiving, storage and sandblasting activities.

The Hibbing  manufacturing  facility  is subject to a mortgage  with a principal
balance of $311,000 as of December 31, 1998.


                                                   15

<PAGE>



The Company leases structures of approximately  25,000 square feet and 3.5 acres
of land in West Jordan, Utah, that were previously leased by TJ Products,  which
the Company  acquired on January 20,  1999.  The lease  agreement  runs  through
January 19,  2009,  and the Company  has  options to  terminate  the lease after
January 19, 2003 upon six months'  notice,  and options during the entire period
to purchase the facilities and property at "appraised value".

The Company believes that all facilities are in satisfactory condition.

Item 3:  Legal Proceedings

The Company has not been involved in any legal proceedings since the date of the
initial  public  offering  and there are no known  pending or  threatened  legal
proceedings at this time.

Item 4:  Submission of Matters to a Vote of Security Holders

No matters have been submitted to a vote of the security  holders of the Company
since the date of its  initial  public  offering,  April 24,  1998,  through the
solicitation of proxies or otherwise.

                                                 Part II

Item 5:  Market for Registrant's Common Equity and Related Stockholder
             Matters

The Company's Common Stock trades on the Nasdaq SmallCap Market under the symbol
INRB.  The  following  table sets forth the high and low bid  quotation  for the
quarters shown.  The prices quoted  represent prices between trades in the stock
without  adjustments  for  mark-ups,   mark-downs  or  commissions  and  do  not
necessarily reflect actual  transactions.  The Company's initial public offering
date was April 24, 1998.
                                                   1998

         Quarter                            High                       Low
            1st                                n/a                     n/a
            2nd                               4-7/8                    3-1/4
            3rd                               3-7/8                    2
            4th                               2-3/4                    1

The approximate number of shareholders of record and beneficial  shareholders of
the  Company's  $.001 par value  common stock as of December 31, 1998 was 50 and
1,000, respectively.


                                                   16

<PAGE>



The  Company  has not paid any  dividends  on its Common  Stock,  and intends to
follow a policy of retaining all of its earnings to finance its business and any
future acquisitions.  The terms of the Company's covenants with its bank further
limits its ability to pay dividends

Item 6: Management's Discussion and Analysis of Financial Condition and
            Results of Operations

This commentary should be read in conjunction with the Financial  Statements and
Notes, presented immediately following the signature page of this 10-KSB Report,
for a full  understanding of Industrial  Rubber's financial position and results
of operations.

Fiscal 1998 Compared With 1997.

Net sales in the year ended December 31, 1998, of $9,981,268 decreased 30.8%, or
$4,440,091, when compared to 1997 sales of $14,421,359.  The decrease was mainly
attributable to the decrease in major  contracts.  In 1997 the Company  realized
nearly $8.1  million in net sales from the  Kennecott  Utah Copper  pipe- lining
project.  During 1998 the Company's net sales  included two major projects which
totaled  approximately $4.1 million. As a result, the Company experienced a loss
of about $4.0 million in net sales from major projects.

Although the Company  continues to pursue major  projects,  currently  depressed
commodity  prices make the  near-term  likelihood of such projects very low. The
Company is not  projecting any sales from major  projects in 1999.  Rather,  the
Company is projecting sales growth through  expansion and  acquisition,  such as
the January 20,  1999  acquisition  of TJ  Products  in West  Jordan,  Utah.  TJ
Products is expected to  contribute  annual sales of about $3.5 to $4.0 million.
The Company is also actively pursing other acquisition candidates, such as ITW's
Irathane System Division previously referred to.

The Company's  order backlog on December 31, 1998, was  approximately  $789,290.
The Company  currently  anticipates that it will have filled all current backlog
orders by the end of the first quarter of 1999.

Cost of sales as a percentage of net sales was 78.0% in 1998 compared with 69.0%
in 1997.  The increase  was  primarily  the result of a loss in major  projects,
especially  the  Kennecott  Utah  Copper  project,   which  are  generally  more
profitable and provide certain economies-of-scale benefits.

Selling,  general and administrative  expenses increased from $1,664,611 in 1997
to $2,342,553 in 1998.  Approximately  $300,000 of the $677,942 increase was the
result of increased  administrative personnel and associated expenses related to
organizing and operating a public company. In addition, the Company recorded a

                                                   17

<PAGE>



$280,000  allowance for doubtful  accounts to cover the entire trade  receivable
balance from Kemess Royal Oak mines,  which recently filed for protection  under
Canadian  bankruptcy law. The Company plans to continue to pursue  collection of
the unpaid balance to the fullest extent possible.  The Company also recorded an
$81,000  loss in  achieving a final and complete  out-of-court  settlement  with
IRM/NAPTech, concerning certain claims related to the $10 million Kennecott Utah
Copper project.

The Company experienced a $209,881 pre-tax provision for the restructuring costs
associated  with  the  closing  of  the   Clearfield,   Utah  facility  and  the
consolidation of Clearfield operations at the acquired facilities of TJ Products
in nearby  West  Jordan,  Utah.  This  consolidation  is  expected  to result in
operating cost savings in future years.

Non-operating  income  increased from $3,620 in 1997 to $245,713.  This increase
was the result of  interest  income  earned on the net  proceeds  on the initial
public offering on April 24, 1998, and approximately  $81,000 of interest earned
on trade receivable accounts.  The Company anticipates that interest income will
be  substantially  reduced in the future as the net  proceeds  from the  initial
public  offering  are  utilized  as planned.  Interest  expense  increased  from
$110,731 in 1997 to $138,247 in 1998.  The primary  reasons for the  increase is
higher  short-term  borrowing  early  in the  year  to fund  trade  receivables,
partially  offset by reduced  long-term  interest due to the early retirement of
equipment loans in 1997.

As discussed  elsewhere in this Form  10-KSB,  the Company was an S  Corporation
until March 31, 1998,  and as such,  was  generally not  responsible  for income
taxes.  Instead,  the then sole  stockholder was taxed on the Company's  taxable
income.  If the Company had paid income taxes as a C corporation,  its estimated
income taxes during 1997 would have been $1,038,000. It is estimated that income
taxes for 1998 would have been a credit of $80,000.  Additional  information  is
provided  in Note 9.  Income  Tax  Matters  and  Change  in Tax  Status,  of the
Financial Statements, presented immediately following the signature page of this
10-KSB Report.

The  pro-forma  net loss of  $168,454,  or $.04 per basic and diluted  share for
1998,  represents a decrease from pro forma net income of $1,663,767 or $.54 per
basic and diluted  share of the prior  year.  This change was due to the reduced
sales and increased costs and expenses previously discussed.

Fiscal 1997 Compared with 1996.

Net sales increased from $6,309,775 for 1996 to $14,421,359 for 1997. Of the net
sales in 1997,  $8,094,517  was  related to  Kennecott  Utah  Copper pipe lining
project.  The  Company's  order  backlog on January 15,  1998 was  approximately
$6,300,000,  most of which was related to two major  projects,  Royal Oak Kemess
and  Bend  Tec,  which  were  completed  in  the  first  and  second   quarters,
respectively.

                                                   18

<PAGE>



Cost of sales as a  percentage  of sales  was 69% in 1997  compared  with 76% in
1996.  The  decrease  in 1997 was  mainly  due to  achieving  a higher  level of
profitability  on a major  contract and the impact of increased  volume on fixed
overhead costs.

Selling,  general and administrative expenses increased from $1,122,968 in 1996,
to  $1,664,611  in 1997.  The increase was due  primarily to increased  staffing
expenses, which were necessary to service increased sales and increased salaries
for key personnel, reflecting their efforts to increase sales and profitability.

The major  non-operating  expense,  interest expense,  increased from $90,554 in
1996, to $110,731 in 1997.  Non-operating income was not a significant factor in
the Company's operating results in 1996 and 1997.

Net income (before tax) in 1997 was $2,701,767 compared to $319,785 in 1996. Net
income as a percentage of net sales,  increased  from 5% in 1996 to 19% in 1997.
The  increase  was  due  primarily  to  the  successful  completion  of a  major
pipelining contract.

As discussed  elsewhere  in this  Form10-KSB,  the Company was an S  Corporation
until March 31,  1998,  and as such was  generally  not  responsible  for income
taxes.  Instead,  the existing  stockholder  was taxed on the Company's  taxable
income.  If the Company had paid income taxes as a C Corporation,  its estimated
income  taxes in 1996 would have been  $145,300  and in 1997 income  taxes would
have been $1,038,000.

Liquidity and Capital Resources.

The Company's cash flows provided by operating  activities  were  $1,651,198 for
1998,   compared  with  $1,845,624  in  1997.  The  two  periods   included  two
significant,  but nearly  offsetting  changes.  Net income decreased nearly $2.6
million in 1998 compared with 1997.  Favorable  working capital changes in 1998,
compared with 1997,  included  approximately $1.9 million in receivables,  which
consists of  approximately a $1.2 million  increase in 1997 and  approximately a
$700,000 decrease in 1998. Inventories were also reduced in 1998.

Cash flows used for investing  activities were $2,296,703 in 1998, compared with
$587,422 in 1997.  Nearly the entire  difference of  approximately  $1.7 million
related to the  short-term  investment  in  marketable  securities  with initial
public  offering  proceeds in 1998.  Cash invested in property and equipment was
nearly constant for the two periods at about $617,000.

The Company's cash flows  provided by financing  activities  were  $3,229,127 in
1998 compared with a use of cash of $1,165,119 in 1997. The approximate $4.4

                                                   19

<PAGE>



million  increase is the result of net proceeds from the initial public offering
of about  $5.5  million,  offset  by  reductions  in  short-term  and  long-term
borrowing.

At December 31, 1998, the Company had working  capital of $4,953,251,  including
$2,715,966  of  cash  and  cash   equivalents   and   $1,642,784  of  short-term
investments. The Company had long-term debt of $329,108 as of December 31, 1998.
As disclosed elsewhere in this Form 10-KSB, the Company received the proceeds of
its initial  public  offering of $5,463,276 on April 29, 1998.  During the year,
the Company made use of proceeds as outlined in the prospectus, of approximately
$1.1 million.

During the first quarter of 1999, the Company used approximately $2.8 million of
additional proceeds from the initial public offering.  Most of these funds, $2.6
million,  were used for the  acquisition  of TJ Products in January of 1999. The
Company  intends to complete bank  financing  during 1999 on a portion of the TJ
Products acquisition.  Further, the Company intends to leverage potential future
acquisitions  with a combination  of initial public  offering  proceeds and bank
term  financing,  such as the  acquisition  of ITW's  Irathane  System  Division
previously referred to.

The  Company  believes  that  it can  fund  proposed  capital  expenditures  and
operational  requirements  from  operations,  currently  available cash and cash
equivalents,  short-term  investments  and existing bank credit lines.  Proposed
capital  expenditures,  excluding  potential  acquisitions,  for the year ending
December 31, 1998 are expected to total  approximately  $600,000,  compared with
$617,000 the past two years.

The Company  intends to continue to grow its  business,  internally  and through
alliances and acquisitions. The Company currently anticipates that any potential
acquisitions  would be financed by proceeds  from the initial  public  offering,
additional  term  financing,  internally  generated funds or the issuance of the
Company's common stock.

Impact of the Year 2000 Issue.

The Company has established a team to assess and address the possible  exposures
related to the Year 2000 (Y2K) issue and is in the initial  assessment phase. It
will be using both in-house  personnel and outside  resources to accomplish this
task.  The  areas  under   investigation   include  business  computer  systems,
production  equipment,  vendor readiness and contingency plans. The Company does
not use internally developed computer software and is therefore not anticipating
major  reprogramming  efforts.  The Company's primary financial computing system
has been assessed and is certified Y2K  compliant.  There are several  ancillary
applications  that may not currently be Y2K compliant.  The Company expects them
to be compliant by mid-calendar 1999. The majority of the Company's personal

                                                   20

<PAGE>



computers are currently Y2K compliant. Those computers that may not currently be
Y2K compliant  are planned to be upgraded or replaced in the ordinary  course of
business.  None  of  these  replacements  have  been  accelerated  and  are  not
anticipated  to have a material  effect on the Company's  financial  statements.
Equipment used for  production or quality  control does not use dates to control
operations. The costs of this examination to date have been expensed as incurred
and have not been material.

The Company intends to mail  questionnaires  to each of its significant  vendors
and  customers  early in the second  quarter of 1999 to determine  the extent to
which the Company may be vulnerable to those third parties' failure to remediate
their own Y2K issues. It is anticipated this assessment will be completed by the
end of second  quarter 1999.  The Company  anticipates  developing a contingency
plan once it has completed its  assessment  of  significant  vendor and customer
compliance  that  it  anticipates  to be by the end of  third  quarter  1999.  A
contingency plan, if needed, will be developed during the second half of 1999 to
minimize the Company's  exposure to work slowdowns or business  disruptions.  In
the event any vendors are not Y2K compliant, the Company may seek new vendors to
meet its  production  needs.  Any costs that may be incurred by the Company that
are related to external  systems Y2K issues are unknown at this time (other than
immaterial costs of the questionnaire itself). However,  management expects that
after  reviewing and evaluating the responses to the survey,  it will be able to
complete an  assessment  of its Y2K exposure  and estimate the costs  associated
with resolving any Y2K issues.

Although  the Company does not at this time expect a  significant  impact on its
financial position, results of operations and cash flows, the assessment has not
been completed and there can be no assurance that the systems of other companies
will be converted on a timely  basis and will not have a  corresponding  adverse
effect on the Company.

Item 7.  Financial Statements

The Company's  financial  statements  are filed as a part of this report on Form
10-KSB immediately following the signature page.

Item 8.  Changes in and Disagreements with Accountants on
           Accounting and
            Financial Disclosure

The  Company  has not,  during the past two years and  through  the date of this
report,  had a change in its independent  certified public  accountants or had a
disagreement  with such  accountants  on any  matter of  accounting  principles,
practices or financial statement disclosure.

                                                 Part III

                                                   21

<PAGE>



Item 9.  Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16 (a) of the Exchange Act

The response to this item  incorporates by reference the  information  under the
caption  "Election of Directors" of Industrial  Rubber's Proxy Statement for the
1999 annual meeting of the stockholders.

Item 10.  Executive Compensation

The response to this item  incorporates by reference the  information  under the
caption "Executive  Compensation" of Industrial Rubber's Proxy Statement for the
1999 annual meeting of the stockholders.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The response to this item  incorporates by reference the  information  under the
caption  voting  Securities and Principal  Holders of Industrial  Rubber's Proxy
Statement for the 1999 annual meeting of the stockholders.

Item 12.  Certain Relationships and Related Transactions

The response to this item  incorporates by reference the  information  under the
caption "Certain  Transactions"  of Industrial  Rubber's Proxy Statement for the
1999 annual meeting of the stockholders.


Item 13.  Exhibits and Reports on Form 8-K.

(a)      Required Exhibits

         Exhibits Number
         2.       Purchase  Agreement between Industrial Rubber Products - Utah,
                  Inc. and Company and Sonwil Products,  Inc., dba T.J. Products
                  and Dean G.  Wilson  dated  January 20, 1999 (Filed as Exhibit
                  2.1 to Form 8-K dated February 4, 1999, File No. 000-24039).

         3(a)(1)           Restated  Articles of  Incorporation of Company dated
                           as of January  30, 1998 (Filed as Exhibit 3.1 to Form
                           SB-2 dated February 20, 1998, File No. 333-46643).

         3(a)(2)           Restated  Bylaws of Company as of  January  30,  1998
                           (Filed as Exhibit 3.1 to Form SB-2 dated February 20,
                           1998 File No. 333-46643).


                                                   22

<PAGE>



         10(1)    Employment  Agreement between the Company and Daniel O. Burkes
                  dated  January 30,  1998  (Filed as Exhibit  10.1 to Form SB-2
                  dated February 20, 1998 File No. 333-46643).

         10(2)    Management  Contract  between the Company and Nelson  Roofing,
                  Inc.  dated  January 30,  1998 (Filed as Exhibit  10.2 to Form
                  SB-2 dated February 20, 1998 File No. 333-46643).

         10(3)    Labor Agreement between the Company and United Steelworkers of
                  America dated May 28, 1998 (Filed as Exhibit 10.4 to Form SB-2
                  dated February 20, 1998 File No. 333-46643).

         10(4)    Stock Option Plan,  including  Speciman Stock Option Agreement
                  as of January  30,  1998  (Filed as Exhibit  10.5 to Form SB-2
                  dated February 20, 1998 File No. 333-46643).

         10(5)    Restated  Term Loan and Credits  Agent between the Company and
                  Norwest Bank Minnesota North dated November 20, 1997 (Filed as
                  Exhibit  10.6 to Form SB-2  (Amendment  No 1) dated  March 27,
                  1998 File No. 333-46643).

         10(6)    Waiver Letter from Norwest Bank Minnesota North to the Company
                  dated  February  13, 1998 (Filed as Exhibit  10.6 to Form SB-2
                  (Amendment No 1) dated March 27, 1998 File No. 333-46643).

         10(7) Lease Agreement between DGW Enterprises, L.C. and Industrial
                    Rubber Products - Utah, Inc. dated January 20, 1999.

     10(8) Purchase  Agreement  between  Illinois Tool Works Inc. and Industrial
          Rubber Products, Inc. dated March 25, 1999.

21.      List of Subsidiaries

         Industrial  Rubber Products - Utah, Inc., a Utah corporation which does
         business as "TJ Products".

27.  Financial Data Schedule

         Period Type                                          Year - 1998
         Fiscal Year End                                      December 31, 1998
         Period Start                                         January 1, 1998
         Period End                                           December 31, 1998
         Cash                                                 $2,715,966
         Securities                                           $1,642,784
         Receivables                                          $1,481,564

                                                   23

<PAGE>



         Allowances  280,000  Inventory  408,731 Total Current Assets  6,160,041
         PP&E  3,072,119   Accumulated   Depreciation   1,372,420  Total  Assets
         8,225,790  Total Current  Liabilities  1,206,790  Bonds,  mortgages and
         similar debt 329,108 Preferred stock - mandatory  redemption  Preferred
         stock - no mandatory  redemption Common stock 4,194 Other stockholders'
         equity 6,685,698 Total liabilities and  stockholders'  equity 8,225,790
         Net sales of tangible products  9,981,268 Total revenues 9,981,268 Cost
         of tangible goods sold 7,784,754  Total costs and expenses of sales and
         revenues  10,337,188  Other costs and expenses  Provision  for doubtful
         accounts and notes 280,000  Interest and  amortization of debt discount
         138,247 Income /(loss)  before taxes and other items  (248,454)  Income
         tax  expense/(credit)  (337,000)  Income/(loss)  continuing  operations
         88,546 Discontinued operations Extraordinary items Cumulative effect of
         change in  accounting  principle  Net  income or loss  88,546  Earnings
         (loss)  per share - primary  (0.04)  Earnings  (loss) per share - fully
         diluted (0.04)

(b)      Reports on Form 8-K

         None



                           Signatures



Pursuant to the requirements of Section 13 and 15(d) of the Securities  Exchange
Act of 1934,  this  registrant has caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.



                                                   24

<PAGE>



                                            INDUSTRIAL RUBBER PRODUCTS, INC.

Dated: March 29, 1999                       /s/ John M. Kokotovich
                                            - - - - - - - - - - - - - - - - -
                                            Chief Financial Officer

Pursuant  to the  requirement  of the  Securities  Exchange  Act of  1934,  this
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


Signature                         Title                                  Date

                                  President
    /s/ Daniel O. Burkes          Chief Executive Officer
  Daniel O. Burkes                    and Director                March 29, 1999
                                  Vice President
/s/ Christopher M. Liesmaki       Chief Operating Officer
 Christopher M. Liesmaki              and Director                March 29, 1999

  /s/ Paul A. Friesen
      Paul A. Friesen                 Director                    March 29, 1999

   /s/ James D. Mackay
       James D. Mackay                Director                    March 29, 1999

 /s/ John R. Ryan, Jr.             
      John R. Ryan, Jr.               Director                    March 29, 1999
















                                                   25

<PAGE>






















                                     INDUSTRIAL RUBBER PRODUCTS, INC.

                                             FINANCIAL REPORT

                                            DECEMBER 31, 1998



                                                   26

<PAGE>








                                       INDEX TO FINANCIAL STATEMENTS

                                                                            Page

Report of independent auditors                                                28

Balance sheets as of December 31, 1997 and 1998                               29

Statements of income for the years ended December 31, 1997 and 1998           31

Statements of stockholders' equity for the years ended December 31, 1997
                                         and 1998                             32

Statements of cash flows for the years ended December 31, 1997 and 1998       33

Notes to financial statements                                              34-45













                                                   27

<PAGE>











                                      REPORT OF INDEPENDENT AUDITORS



To the Board of Directors
Industrial Rubber Products, Inc.
Hibbing, Minnesota


         We have audited the  accompanying  balance sheets of Industrial  Rubber
Products,  Inc. as of December 31, 1997 and 1998, and the related  statements of
income,  stockholder's  equity, and cash flows for each of the years then ended.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material  respects,  the financial  position of Industrial Rubber
Products,  Inc.  as of  December  31,  1997 and  1998,  and the  results  of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
generally accepted accounting principles.





                                                         McGLADREY & PULLEN, LLP


Duluth, Minnesota
February 23,  1999,  except for the last  paragraph  of Note 13, as to which the
   date is March 25, 1999


                                                   28

<PAGE>




INDUSTRIAL RUBBER PRODUCTS, INC.

BALANCE SHEETS
December 31, 1997 and 1998



ASSETS (Notes 5 and 6)                                  1997               1998
--------------------------------------------------------------------------------

Current Assets
   Cash and cash equivalents              $          132,344 $        2,715,966
   Marketable debt securities (Note 3)                    -           1,642,784
   Trade receivables, less allowance for doubtful
       accounts of $280,000 in 1998                2,282,637            947,364
   Income tax refund receivable                           -             254,200
   Inventories (Note 4)                              840,363            408,731
   Prepaid expenses                                   53,367             57,996
   Deferred taxes (Note 9)                                -             133,000
                                                ------------ -- ----------------
              Total current assets                 3,308,711          6,160,041
                                          - ---------------- -- ----------------

Other Assets
   Cash value of life insurance                      122,780             135,166
   Other                                                  -               23,884
                                                  ---------- -- ----------------
                                                     122,780             159,050
                                                   --------- -- ----------------

Deferred Taxes (Note 9)                                   -              207,000
                                                   --------- -- ----------------

Property and Equipment (Note 12)
   Land                                               10,000              10,000
   Buildings                                         518,741             572,907
   Automotive equipment                              339,481             458,759
   Machinery and equipment                         1,709,134           2,030,453
                                                ------------ -- ----------------
                                                   2,577,356           3,072,119
   Less accumulated depreciation                   1,059,263           1,372,420
                                                ------------ -- ----------------
                                                   1,518,093           1,699,699
                                                ------------ -- ----------------
                                          $        4,949,584  $        8,225,790
                                         == ================ == ================


See Notes to Financial Statements.


                                                   29

<PAGE>









LIABILITIES AND STOCKHOLDERS' EQUITY                    1997                1998
--------------------------------------------------------------------------------

Current Liabilities
   Bank note payable (Note 5)                    $ 1,135,000  $             -
   Current maturities of long-term debt (Note 6)     218,861             174,263
   Due to related party (Note 11)                    106,825                 -
   Accounts payable                                  674,144             485,493
   Accrued expenses                                  399,850             547,034
                                               ------------- -- ----------------
              Total current liabilities            2,534,680           1,206,790
                                               ------------- -- ----------------



Long-Term Debt, less current maturities (Note 6)     171,095             329,108
                                               ------------- -- ----------------




Commitments and Contingencies (Notes 12 and 13)



Stockholders' Equity (Note 7)
   Common stock, $.001 par value; authorized
       25,000,000 shares; issued 1997 2,934,000 shares;
       1998 4,194,000 shares                         2,934                 4,194
   Additional paid-in capital                       143,816            5,605,832
   Retained earnings                             2,097,059             1,090,605
                                            ------------------- ----------------
                                                 2,243,809             6,700,631
   Less cost of 6,500 shares of common stock
      reacquired                                             -            10,739
                                         -- ------------------- ----------------
                                                 2,243,809             6,689,892
                                         -- ------------------- ----------------
                                          $      4,949,584     $       8,225,790
                                         == =================== ================



                                                   30

<PAGE>




INDUSTRIAL RUBBER PRODUCTS, INC.

STATEMENTS OF INCOME
Years Ended December 31, 1997 and 1998



                                                          1997         1998
--------------------------------------------------------------------------------
Net Sales (Notes 2 and 12)                 $        14,421,359 $       9,981,268

Cost of Sales                                        9,947,870         7,784,754
                                         -- ---------------- -- ----------------
              Gross profit                           4,473,489         2,196,514

Operating Expenses                                   1,664,611         2,342,553
Provision for Restructuring of Operations (Note 12)    209,881
                                         -- ---------------- -- ----------------
              Operating income (loss)              2,808,878           (355,920)
                                         -- ---------------- -- ----------------

Nonoperating Income (Expense)
   Interest and other income                            3,620           245,713
   Interest expense                                 (110,731)          (138,247)
                                         -- ---------------- -- ----------------
                                                     (107,111)           107,466
                                         -- ---------------- -- ----------------

              Income (loss) before income taxes   2,701,767            (248,454)

Federal and State Income Taxes (Credits) 
     (Note 9)                                             -            (337,000)
                                         -- ---------------- -- ----------------
              Net income                  $         2,701,767 $           88,546
                                         == ================ == ================

Unaudited Pro Forma Information (Note 9)
   Income (loss) before income taxes      $         2,701,767 $        (248,454)
   Provision for income taxes (credits)           1,038,000             (80,000)
                                         -- ---------------- -- ----------------
              Net income (loss)           $         1,663,767 $        (168,454)
                                         == ================ == ================

   Basic earnings (loss) per share     $              0.54 $              (0.04)
                                         == ================ == ================

   Diluted earnings (loss) per share   $              0.54$               (0.04)
                                         == ================ == ================

   Weighted average shares outstanding             3,087,600           3,803,651
                                         == ================ == ================

See Notes to Financial Statements.


                                                   31

<PAGE>




INDUSTRIAL RUBBER PRODUCTS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997 and 1998



                                                                     
               Common Stock     Additional                              Total  
              ----------------    Paid-in    Retained  Reacquired  Stockholders'
              Shares    Amount    Capital    Earnings   Shares          Equity
--------------------------------------------------------------------------------
Balance, 
 December 31, 1996
              36,880   $38,604   $108,146    $209,945       -          $356,695

 Issuance of 
 additional shares
 and transfer to
 adjust common stock
 to authorized par 
 value as a result 
 of stock split 
 (Note 7)   2,897,120  (35,670)    35,670        -            -              -
   Net income  -           -          -      2,701,767        -       2,701,767
   Dividends on common
       stock   -           -          -       (814,653)       -        (814,653)
        ------------------------------------------------------------------------

Balance, 
 December 31, 1997
            2,934,000    2,934     143,816   2,097,059        -       2,243,809

 Sale of 
  1,260,000 shares
  of common stock,
  net of issuance 
  costs (Note 7)
             1,260,000    1,260   5,462,016       -           -       5,463,276
 Purchase of 
  6,500 shares
  of stock      -           -         -            -       (10,739)     (10,739)
 Net income     -           -         -         88,546       -           88,546
   Dividends 
   on common
   stock 
   (Note 7)     -           -         -      (1,095,000)      -      (1,095,000)
            --------------------------------------------------------------------
Balance, 
 December 31, 1998 
           4,194,000     $ 4,194  $5,605,832 $1,090,605  $ (10,739) $ 6,689,892
           ---------------------------------------------------------------------

See Notes to Financial Statements.


                                                                32

<PAGE>


INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS





INDUSTRIAL RUBBER PRODUCTS, INC.

STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1998


                                                         1997               1998
--------------------------------------------------------------------------------

Cash Flows from Operating Activities
   Net income                                     $2,701,767 $            88,546
   Adjustments to reconcile net income to net cash
       provided by operating activities:
       Depreciation                                  374,551             394,592
       Provision for bad debts                            -              362,839
       Loss on disposal of property and equipment         -               41,451
       Deferred taxes                                     -            (340,000)
       Changes in working capital components:
          (Increase) decrease in trade receivables(1,164,704)            972,434
          Increase in income tax refund receivable         -           (254,200)
          (Increase) decrease in inventories         235,230)            431,632
          Increase in prepaid expenses               (7,447)             (4,629)
          Increase (decrease) in accounts payable
            and accrued expenses                   176,687              (41,467)
                                                 -------------- ----------------
              Net cash provided by operating 
               activities                          1,845,624           1,651,198
                                        --- ------------------- ----------------

Cash Flows from Investing Activities
   Purchase of property and equipment              (617,273)           (617,649)
   Disbursement for marketable debt securities            -          (2,467,784)
   Proceeds from maturity of marketable debt securities   -              825,000
   Disbursement for other assets                          -             (23,884)
   Collection of receivable from related party       32,500                   -
   Increase in cash value of life insurance          (2,649)            (12,386)
                                         -- ------------------- ----------------
              Net cash used in investing activities (587,422)        (2,296,703)
                                             ------------------ ----------------

Cash Flows from Financing Activities
   Net proceeds (repayment) on short-term borrowings 245,000         (1,135,000)
   Proceeds from long-term borrowings                 20,000             358,800
   Principal payments on long-term borrowings      (825,291)           (245,385)
   Proceeds from sale of common stock, 
     net of issuance costs                                -            5,463,276
   Disbursement for common stock reacquired               -             (10,739)
   Dividends paid on common stock                  (711,653)         (1,095,000)
   Advances from (repayment to) related party       106,825            (106,825)
                                            ------------------- ----------------
              Net cash provided by (used in)
               financing activities              (1,165,119)          3,229,127
                                        --- ------------------- ----------------

              Net increase in cash
                and cash equivalents                  93,083           2,583,622

Cash and cash equivalents:
   Beginning                                          39,261             132,344
                                        --- ------------------- ----------------
   Ending                               $            132,344 $         2,715,966
                                        === =================== ================

Supplemental Disclosures of Cash Flow Information
   Cash payments for interest           $            111,430$            136,686
                                        === =================== ================

   Cash payments for income taxes         $                -             257,200
                                        === =================== ================
See Notes to Financial Statements
Note 1.  Nature of Business and Significant Accounting Policies


Nature of business:  The Company's  operations  consist primarily of vulcanizing
rubber and applying urethane (for corrosion and abrasion resistant  purposes) to
pipes,  pumps and  launders  that are used in the mining  industry  in  Northern
Minnesota  and Utah.  The Company  extends  credit to its  customers,  all on an
unsecured basis, on terms that it establishes for individual customers.

A summary of the Company's significant accounting policies follows:

Cash and cash  equivalents:  For purposes of reporting  cash flows,  the Company
considers all highly liquid debt instruments  purchased with a maturity of three
months or less to be cash equivalents.  Cash equivalents consist of money market
funds.

The Company  maintains its cash in accounts which, at times,  may exceed insured
limits. The Company has not experienced any losses in such accounts.

Inventories:  Inventories are stated at the lower of cost or market.  Cost is
determined by the first-in, first-out method.

Investment in debt  securities:  The Company has  investments in marketable debt
securities.   Management  determines  the  appropriate   classification  of  the
securities at the time they are acquired and evaluates  the  appropriateness  of
such classifications at each balance sheet date.  Available-for-sale  securities
are stated at fair value,  and unrealized  holding gains and losses,  net of the
related  deferred  tax  effect,   are  reported  as  a  separate   component  of
stockholders' equity.

Property and equipment:  Property and equipment is stated at cost. Depreciation
is computed as follows:


                                                     Years             Method
----------------------------------------------------------- --------------------
Buildings                                        19 - 39           Straight-line
Automotive equipment                             3 - 5             Accelerated
Machinery and equipment                          5 - 10            Accelerated

Income  taxes:  Deferred  taxes are  provided on an asset and  liability  method
whereby deferred tax assets are recognized for deductible temporary  differences
and operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable  temporary  differences.  Temporary  differences  are the
differences between the reported amounts of assets and liabilities and their tax
bases.  Deferred tax assets are reduced by a valuation  allowance  when,  in the
opinion of  management,  it is more likely than not that some  portion or all of
the  deferred  tax  assets  will  not  be  realized.  Deferred  tax  assets  and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of  enactment.  As described in Note 9, the Company  changed its income tax
status during 1998.

Advertising  costs:  The Company  follows  the policy of  charging  the costs of
advertising  to expense as incurred.  For the years ended  December 31, 1997 and
1998, advertising expense totaled $22,450 and $74,005, respectively.



                                                            33

<PAGE>


INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS




Revenue  recognition:  The Company  recognizes revenue upon shipment of product.
Returns  and  allowances  are  recorded  in the  period  the  need  for  such is
identified.

Disclosures  about fair value of financial  instruments:  The carrying amount of
current  assets and  liabilities  approximates  fair value  because of the short
maturity  of  those   instruments.   The  carrying   amount  of  long-term  debt
approximates  fair value since  primarily all long-term  debt has interest rates
which fluctuates with or approximates the prime rate.

Use of estimates in the preparation of financial statements:  The preparation of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

Segment  information:  The Financial Accounting Standards Board issued FASB
Statement  No. 131,  Disclosures  about  Segments of an  Enterprise  and Related
Information.  Statement  No. 131  establishes  standards for the way that public
business  enterprises  report  information  about  operating  segments in annual
financial  statements  and  requires  that  those  enterprises  report  selected
information about operating segments in interim financial reports. Statement No.
131 also  establishes  standards  for related  disclosures  about  products  and
services, geographic areas, and major customers. All of the Company's revenue is
attributed  to a single  reportable  segment  and  therefore,  the  adoption  of
Statement No. 131 had no effect on the financial statements.

Earnings per share: The FASB has issued  Statement No. 128,  Earnings per Share,
which the Company  adopted  during the first quarter of 1998.  Statement No. 128
requires the presentation of earnings per share by all entities that have common
stock or potential  common  stock,  such as options,  warrants  and  convertible
securities, outstanding that trades in a public market. Those entities that have
only common stock  outstanding are required to present basic earnings  per-share
amounts.  All other entities are required to present basic and diluted per-share
amounts.  Diluted per-share amounts assume the conversion,  exercise or issuance
of all potential common stock instruments  unless the effect is to reduce a loss
or increase the income per common share from continuing operations.

Earnings  per share based on pro forma net income for the years  ended  December
31, 1997 and 1998 follows:


                                   Year Ended December 31,
               -----------------------------------------------------------------
                         1997                                 1998
               --------------------------------  -------------------------------


                                       Net                             Net
                                       Income                          Income
                 Numerator Denominator Per Share Numerator Denominator Per Share
--------------------------------------------------------------------------------

Basic earnings per share:
   Income available
   to common 
   stockholders $1,663,767   2,934,000 $      -  $(168,454) 3,803,651   $-

1997 adjustment(a)       -     153,600        -         -       -        -
        ------------------ ----------- ---------- ------------------------
Basic earnings
 per share       1,663,767   3,087,600      0.54   (168,454) 3,803,651   (0.04)
   Stock options         -           -         -          -         -        -
                ---------- -------------------------- ------ ---------- --------
Diluted earnings
 per share     $ 1,663,767   3,087,600   $  0.54 $ (168,454) 3,803,651  $ (0.04)

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



                                                            34

<PAGE>


INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS




(a) Earnings per share for the year ended  December 31, 1997 are computed  based
upon the weighted average number of shares  outstanding  during the period,  and
assume the  issuance  of  sufficient  shares at $5.00 per share to  provide  net
proceeds, after estimated aggregate offering expenses and underwriting discount,
to repay  short-term  bank debt of $675,000  incurred  to make an S  Corporation
distribution to the existing shareholder.

Diluted earnings per share: During the year ended December 31, 1998, the Company
granted options to employees to purchase 173,600 shares of common stock at $4.50
per share and issued underwriters  warrants to purchase 126,000 shares of common
stock at $6.00 per share.  Those  options and warrants  were not included in the
computation  of diluted  earnings per share because the exercise  price exceeded
the average market price of the common shares during the year.


Note 2.      Segment Information

The  Company's  revenue  results  from one  product  or service  which  consists
primarily of  vulcanizing  rubber and  applying  urethane to pipes,  pumps,  and
launders that are used in the mining industry.  The Company's  revenue (based on
location of the customer) is attributable to the United States, except for sales
to customers in Canada which amounted to  approximately  $639,000 and $1,800,000
for the years ended  December 31, 1997 and 1998,  respectively.  All  long-lived
assets are located in the United States.


The following  table presents net sales from external  customers for each of the
Company's  groups of products and services for the years ended December 31, 1997
and 1998:


                                                       1997               1998
----------------------------------------------------------- -------------------

Pipe and pipe lining products           $        11,068,890  $        6,503,184
Proprietary and engineered products                 857,858             878,980
Standard rubber products                          2,200,153           2,107,511
Other                                               294,458             491,593
                                           ---------------- -------------------
                                        $        14,421,359 $         9,981,268

Net  sales for the years  ended  December  31,  1997 and 1998  include  sales to
several major  customers,  each of which accounted for 10 percent or more of net
sales:

                                        Amount of Net Sales
                                        Year Ended December 31,
                                        --------------------------------------
                                        1997               1998
------------------------------------------------------ -------------------------

Customer A                          $        8,094,517 $         *
Customer B                                           *     2,424,942
Customer C                                           *     1,252,635
Customer D                                           *     1,740,710
*The net sales to these customers was under 10 percent of net sales.







                                                            35

<PAGE>


INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS





Note 3.      Marketable Debt Securities

The  following is a summary of the  Company's  investment  in available for sale
securities in which fair value approximates cost as of December 31, 1998:

                                                                     Amount
--------------------------------------------------------------------------------
US government securities                                 $           448,028
Corporate debt securities                                          1,194,756
                                                             -------------------
                                                         $         1,642,784
                                                             ===================
The debt securities mature through February 1999.

Note 4.      Inventories

Inventories consist of the following as of December 31, 1997 and 1998:


                                                    1997               1998
------------------------------------------------------------------- ------------

Raw materials                            $           538,330 $           241,756
Work in process                                      255,937             126,405
                                         ------------------- -- ----------------
                                                     794,267             368,161
Raw materials purchased on behalf of customers        46,096              40,570
                                          ------------------ -- ----------------
                                         $           840,363 $           408,731
                                         =================== == ================


The Company  incurs costs on behalf of its  customers for the purchase of pipes,
pumps and  launders  and is  reimbursed  for these costs by the  customers.  The
Company  does not receive a commission  or  recognize  gross profit upon sale of
these  components;  therefore,  net sales and cost of sales in the statements of
income do not include amounts for sales and purchases of components.


Note 5.      Note Payable

The Company has a $1,500,000 bank line of credit for working  capital  financing
which is due on  demand.  Advances  under the line of credit  are  subject  to a
borrowing base of eligible trade receivables and inventories,  as defined in the
agreement.   The  line  of  credit  is  collateralized  by  trade   receivables,
inventories, equipment, assignment of a life insurance policy, and is personally
guaranteed  by the  majority  stockholder.  Interest  is payable  monthly at the
bank's prime rate (8.75% at December 31, 1998).

Among other things, the agreement requires the Company to:

a. Maintain a current ratio of at least 1.2 to 1.
b. Maintain a ratio of total liabilities to tangible net worth of less than 3 to
1. c.  Maintain  a ratio of  traditional  cash  flow to  current  maturities  of
long-term  debt of at  least  1.5 to 1. d.  Refrain  from  declaring  or  paying
dividends in excess of 50% of after tax net income.  e.  Refrain from  incurring
additional debt not subordinated to the bank.



                                                            36

<PAGE>


INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS




Note 6.      Long-Term Debt

A summary of long-term debt as of December 31, 1997 and 1998 is as follows:

                                                       1997                1998
----------------------------------------------------------------------------

Note payable bank, due in monthly  installments
   of $20,900 including interest at the bank's 
   prime rate (8.75% at December  31, 1998) to 
   August 1999, at which time the remaining 
   balance is due. The note is subject to the
   same collateral and covenants as described
   in Note 5.                                       $370,594 $           145,540
Note payable bank, due in monthly installments
   of $1,576 including interest at 8.5% to April 
   2003, at which time the remaining balance is due.       -             156,527
Note payable bank, in participation with the Iron
   Range Resources Rehabilitation Board, due in 
   monthly installments of $1,144 including interest 
   at 3.5% to April 2003, at which time the 
   remaining balance is due.                               -             154,589
Other notes payable due through November 2002.        19,362              46,715
                                         ------------------- -------------------
                                                     389,956             503,371
Less current maturities                              218,861             174,263
                                         ------------------- -------------------
                                         $           171,095 $           329,108
                                         =================== ===================

The 8.5 percent and 3.5 percent notes payable to the bank are  collateralized by
real estate and  guaranteed  by the majority  stockholder.  Among other  things,
these notes require the Company to:

a. Maintain a current ratio of at least 1.2 to 1.
b. Maintain a ratio of total liabilities to tangible net worth of less than 3 to
1. c.  Maintain  a ratio of  traditional  cash  flow to  current  maturities  of
long-term  debt of at  least  1.5 to 1. d.  Refrain  from  declaring  or  paying
dividends  in  excess  of  50%  of  after  tax  net  income.  e.  Limit  capital
expenditures to $500,000. f. Obtain bank approval for the issuance of additional
debt.
    g. Refrain from consolidating, combine or merging with any other corporation
    or purchase or acquire the assets of another business.

The  Company  was in  violation  of  certain  covenants  of the above bank notes
payable and line of credit  agreement as of December 31,  1998;  however,  these
violations have been waived by the Bank.


Aggregate  maturities  required on long-term debt as of December 31, 1998 are as
follows:


December 31,                                                 Amount
------------------------------------------------------------ -------------------

1999                                                         $           174,263
2000                                                                      30,360
2001                                                                      27,204
2002                                                                      22,630
2003                                                                     248,914
                                                             -------------------
                                                             $           503,371
                                                             ===================

Note 7.      Stockholders' Equity

In January 1998, the Company amended its Articles of  Incorporation  to increase
the number of  authorized  shares of common stock to  25,000,000  and declared a
stock split so that 2,934,000 shares of common stock were outstanding. The stock
split has been retroactively reflected in the accompanying financial statements.

During 1997,  the Company  commenced  activity to accomplish  an initial  public
offering  (IPO) of its common stock.  The Company  completed the initial  public
offering  on April 24,  1998,  and  issued  1,260,000  shares  of  common  stock
(excluding the  underwriters'  over  allotment  option to purchase an additional
189,000  shares  of  common  stock) at an  offering  price of $5.00  per  share.
Proceeds  raised from the sale of common stock  amounted to  $5,463,276,  net of
offering expenses of $836,724.

In connection  with the initial public  offering the Company issued  warrants to
the  underwriters  to  purchase  126,000  shares of the  Company's  common.  The
warrants may not be exercised  during the first year after the effective date of
the offering and are exercisable  during a period of four years  thereafter at a
price equal to $6.00 per share.

During 1997, distributions totaling $814,653 were paid to the stockholder to pay
his individual  income taxes on the Company's  taxable income for the year ended
December 31, 1996. The Company made  distributions  totaling  $1,095,000  during
1998 to enable the  stockholder to pay income taxes on the Company's  income for
the year ended December 31, 1997 and period ended March 31, 1998. (See Note 9).

In  November  1998,  the Board of  Directors  authorized  a plan that allows the
Company to  purchase  up to 50,000  shares of the  Company's  common  stock.  In
December 1998, the Company repurchased 6,500 shares at a cost of $10,739.


Note 8.      Stock Option Plan

On January  30,  1998,  the  Company  adopted  the 1998 Stock  Option Plan which
provided for the granting of stock options to employees,  directors and officers
of the  Company.  The number of shares  issued  pursuant to the options  granted
shall not exceed  400,000  shares.  Options are  exercisable  at $4.50 per share
which  approximates fair market value at the date of grant and expire five years
after date of grant.  Options  generally  vest at a rate of 25 percent  per year
over a period of four years from the date of grant.




                                                            37

<PAGE>


INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS




A summary of the status of the  Company's  stock  option plan as of December 31,
1998, and the changes during the year is presented below:

                                  Weighted-
                                  Average
                                                         Exercise Price
                                  Shares
                                  ----------------------     -------------------

Outstanding at beginning of year                   -     $                 -
   Granted                                   173,600                      4.50
   Exercised                                       -                       -
   Forfeited                                  (4,400)                     4.50
Outstanding at end of year                   169,200      $               4.50
                                      --------------------       ---------------

Exercisable at end of year                        -
                                      --------------------

Weighted-average fair value per option of
   options granted during the year                        $               4.01
                                                                ----------------


At December 31, 1998, the options outstanding under the stock option plan has an
exercise price of $4.50 per share and a weighted-average  remaining  contractual
life of 4.35 years. Options begin to vest in January 1999.

As permitted under generally accepted  accounting  principles,  grants under the
plan are accounted  for  following the  provisions of APB Opinion No. 25 and its
related interpretations.  Accordingly,  no compensation cost has been recognized
for grants made to date.

Pro forma net earnings and earnings per share  information,  as required by SFAS
No. 123 Accounting for  Stock-Based  Compensation  has been determined as if the
Company  had  accounted  for the stock  option  plan under SFAS 123's fair value
method.  The fair value of these  options  was  estimated  at grant date using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions for 1998:  risk-free  interest rate of 5.75; no dividends;  expected
option life of 4 years; no volatility.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the 4-year average vesting period.




                                                            38

<PAGE>


INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS




Had compensation  costs for the Company's stock options been determined based on
the fair value method  prescribed  in FASB  Statement No. 123, net income (loss)
and earnings  (loss) per share would have been reduced to the pro forma  amounts
shown below:


Year Ended December 31, 1998                                             Amount
--------------------------------------------------------------------------------
Net income (loss):
   As reported                                               $         (168,454)
   Pro forma                                                 $         (189,254)

Basic earnings (loss) per share:
   As reported                                               $            (0.04)
   Pro forma                                                 $            (0.05)

Diluted earnings (loss) per share:
   As reported                                               $            (0.04)
   Pro forma                                                 $            (0.05)

Options  were not  included in the  computation  of diluted  earnings  per share
because the exercise price of those options exceeded the average market price of
the common shares during the year.

The pro  forma  effects  of  applying  Statement  No.  123  are not  necessarily
representative of the effects on pro forma disclosures of future years.


Note 9.      Income Tax Matters and Change in Tax Status

For the years ended  through  December 31, 1997 and the three month period ended
March 31, 1998, the Company, with the consent of its stockholder,  elected to be
taxed under sections of federal and state income tax law, which provide that, in
lieu of corporation  income taxes,  the stockholder  separately  account for the
Company's items of income,  deductions,  losses and credits.  On March 15, 1998,
the Company's  stockholder  terminated  this election  effective with the period
beginning on April 1, 1998 in connection with the initial public offering of its
common stock. (See Note 7).

As a result of the termination, the Company recorded a net deferred tax asset of
$15,000,  by a credit to income tax expense,  for temporary  differences between
the financial reporting and the income tax basis.

Deferred taxes credited to income during 1998 consisted of the following:

                                                                          Amount
--------------------------------------------------------------------------------


 Effect of change in tax status                              $            15,000
 Change in net deferred tax assets                                       325,000
                                                             -------------------
                                                             $           340,000
                                                             ===================

Pro forma income taxes represent the estimated income taxes that would have been
reported had the Company  filed  federal and state income tax returns  under the
asset and liability method of accounting.


                                                            39

<PAGE>


INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS





The following  summarizes the pro forma provision for income taxes (credits) for
the years  ended  December  31, 1997 and 1998 as if the Company was taxed as a C
Corporation  for the years then  ended,  and the actual  tax  provision  for the
period since the S Corporation termination:


                                         Pro forma                  Actual
                                  ----------------------------------------------
Year Ended December 31,                 1997               1998            1998
--------------------------------------------------------------------------------

Current:
   Federal                        $    873,300         $     4,200 $           
   State                               167,400               3,800         3,000
                                  -----------------    --------------- ---------
                                     1,040,700               8,000         3,000
                                  -----------------    --------------- ---------
Deferred:
   Federal                              (2,150)            (68,000)    (265,000)
   State                                  (550)            (20,000)     (75,000)
                                  -----------------    --------------- ---------
                                        (2,700)            (88,000)    (340,000)
                                  -----------------    --------------- ---------
              Total               $ 1,038,000         $   (80,000) $   (337,000)
                                  =================   ================ =========

The income tax  provision  differs from the amount of income tax  determined  by
applying the US federal income tax rate to pretax income due to the following:


                                               Pro forma               Actual
                                             -----------------------------------
Year Ended December 31,                       1997         1998          1998
--------------------------------------------------------------------------------

 Computed "expected" tax expense            $ 945,600    $(87,000)     $(87,000)

 Increase (decrease) in income taxes resulting from:

   State income taxes, 
     net of federal tax benefit               110,100     (10,700)      (14,800)
   Benefit of income taxed at lower rates     (27,000)      6,800         6,800
   Deferred taxes recorded due to change 
     in tax status                                -           -         (15,000)
   Effect of S Corporation earnings not 
     included in taxable income for first 
     quarter of 1998                              -            -       (241,000)
   Nondeductible expenses and other             9,300      10,900        14,000
                                           -------------------------------------
              Total                        $1,038,000   $ (80,000)    $(337,000)
                                           =====================================

Net deferred tax assets  consist of the following  components as of December 31,
1998:
                                                                        Amount
--------------------------------------------------------------------------------
Property and equipment, principally due to differences
   in accumulated depreciation and bases of assets           $          (30,000)
                                                             -------------------

Additional costs capitalized to inventory for income tax purposes         12,000
Accrued expenses not currently deductible for tax purposes                 9,000
Allowance for doubtful accounts                                          112,000
Net operating loss carryforwards                                         237,000
                                                             -------------------
              Total deferred tax assets                                  370,000
                                                             -------------------

Valuation allowance for deferred tax assets                                   -
                                                             -------------------
              Net deferred tax assets                        $           340,000
                                                             ===================

The deferred tax amounts have been classified on the accompanying balance sheet
as of December 31, 1998 as follows:

                                                                        Amount
--------------------------------------------------------------------------------
Current deferred tax assets                                 $           133,000
Noncurrent deferred tax assets                                          207,000
                                                             -------------------
              Net deferred tax assets                       $           340,000
                                                            ===================


The Company has determined that it is more likely than not that the deferred tax
assets  will be  realized  and a  valuation  allowance  for such  assets  is not
required.

At December 31, 1998, the Company has federal net operating  loss  carryforwards
of approximately  $602,000 and state operating loss  carryforwards for Minnesota
and  Utah of  approximately  $379,000  and  $215,000,  respectively,  which  are
available to reduce future taxable income.  The net operating loss carryforwards
expire through 2018.


Note 10.     Retirement Plan

The  Company  has  a  Salary  Savings  Plan  and  Trust  (401(k))  which  covers
substantially all employees of the Company.  The plan provides for contributions
in such  amounts  as the Board of  Directors  may  annually  determine.  Company
contributions for 1997 and 1998 were $49,165 and $29,000, respectively.


Note 11.     Related Party Transactions

The Company had a payable of $106,825 to Nelson Roofing, Inc. as of December 31,
1997, a company owned by the majority  stockholder  of the Company.  The Company
has a receivable of $6,986 as of December 31, 1998,  from Nelson  Roofing,  Inc.
Under the terms of an agreement with Nelson Roofing,  Inc. the Company  provides
management  and  administrative  services  based upon actual  employee cost plus
overhead and receives a management fee for such services.

     Management   fees  received   from  Nelson   Roofing,   Inc.   amounted  to
approximately  $102,000 in 1997 and $90,400 in 1998. The Company paid $9,243 and
$7,874 in 1997 and 1998, respectively,  to Nelson Roofing, Inc. for construction
services.

The  Company  rented a house  in Utah  owned by the  majority  stockholder  on a
month-to-month  basis. Total rent paid to the majority  stockholder  amounted to
$61,100 in 1997 and $50,760 in 1998.

The  Company  rents  warehouse  space  from a  company  owned  by  the  majority
stockholder which amounted to $6,700 for both 1997 and 1998.

On January 30, 1998, the Company  entered into a two-year  employment  agreement
with its president,  who is also the majority stockholder.  Under the agreement,
the  president  will receive a base salary of $255,216 and bonuses as determined
by the  Board  of  Directors.  The  agreement  contains  certain  noncompetition
provisions.


                                                            40

<PAGE>


INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS






Note 12.     Leases and Business Restructuring

The Company leased its Utah production  facility under the terms of an operating
lease expiring January 31, 1999. Lease payments amounted to $13,600 per month at
December 31, 1998. The lease  provided that the Company pay all  utilities,  and
property taxes and insurance over certain amounts.

Total  rent  expense,  including  rent  paid to  related  parties,  amounted  to
approximately $282,000 in 1997 and $301,200 in 1998.

On December 16, 1998, the Company  decided to discontinue  the operations of the
Clearfield,  Utah facility and relocate certain assets to a new facility in Utah
as described in Note 13. The Company  terminated its operating  lease  effective
January 31, 1999.  The estimated loss on closing the facility for the year ended
December 31, 1998 is as follows:


                                                                        Amount
--------------------------------------------------------------------------------

Loss on disposal of assets                                     $       39,881
Operating losses from measurement date to December 31, 1998            43,000
Estimated expenses to close from January 1, 1999 to 
   anticipated disposal date                                          127,000
                                                                 ---------------
                                                               $      209,881
                                                               =================


Inventory  amounting to $84,600 and property and equipment with a net book value
of approximately $548,000, as of December 31, 1998, are expected to be stored at
the new facility and placed in service in future periods.

Approximately  70 percent  and 35 percent  of net sales  resulted  from the Utah
operations for the years ended December 31, 1997 and 1998, respectively.


Note 13.     Subsequent Event

On  January  20,  1999,  the  Company,   through  a  newly  formed  wholly-owned
subsidiary,  entered  into an  agreement  to purchase  certain  assets of a Utah
corporation engaged in the business of producing rubber linings, rubber moldings
and urethane moldings for the mineral processing,  electric power, paper, and US
military and aerospace industries.  The total acquisition cost was approximately
$2,260,000 and will be accounted for under the purchase method.

The Company  entered into a lease  agreement of real  property with the previous
owner. The lease term is for ten years, which can be terminated at the option of
the  Company  after  four  years,   and  requires   monthly  lease  payments  of
approximately  $13,300  and payment of all real estate  taxes,  maintenance  and
insurance. The Company also entered into employment agreements with the previous
owner and certain  employees  of the  acquired  company and issued the  previous
owner options to purchase  30,000 shares of the Company's  common stock at $4.50
per share.



                                                            41

<PAGE>


INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS




On March 25, 1999 the Company signed an agreement to purchase  certain assets of
the Irathane Systems Division of Chicago-based  Illinois Tool Works, Inc. (ITW).
Under the terms of the agreement the Company will pay  approximately  $8,000,000
for the trade accounts receivable,  inventory,  land, building,  equipment molds
and intangible assets. The Company will acquire Irathane Systems'  manufacturing
facilities  in Colorado  Springs,  Colorado;  Hibbing,  Minnesota;  and Sudbury,
Ontario,  Canada.  ITW's Irathane  Systems Division  produces liquid  urethanes,
urethane  moldings and rubber and urethane  linings for the mineral  processing,
aggregate,  paper and power  industries.  To finance the acquisition the Company
plans to obtain a term loan from a bank and use the  remaining  proceeds  of its
initial  public  offering.  The  acquisition  will be  accounted  for  under the
purchase method of accounting.



                                                            42

<PAGE>



                                                       EXHIBIT 10(7)

                                                      LEASE AGREEMENT

         This Lease  Agreement  (the "Lease") is made effective as of the 20 day
of January,  1999,  between DGW  Enterprises,  L.C.,  a Utah  limited  liability
company  ("Lessor"),  and Industrial  Rubber  Products-Utah,  a Utah corporation
("Lessee").

                                                     R E C I T A L S :

A. Lessor is the owner of certain  real  property  located in Salt Lake  County,
Utah, at 5574 Leo Park Road, West Jordan, and four (4) buildings located on such
real property (collectively, the "Buildings").

B. Lessee desires to lease the Premises, as defined herein, from Lessor upon the
terms and conditions set forth below.

NOW THEREFORE,  In consideration of the mutual covenants  contained herein,  and
for other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, Lessor and Lessee hereby agree as follows:

                                                        SECTION ONE

1.1 PREMISES: Lessor hereby leases to Lessee and Lessee hereby rents from Lessor
the real  property  that is more  particularly  described  and  depicted  on the
attached  Exhibit "A" and the Buildings and other  improvements  located thereon
(the "Premises").

1.2 CONDITION.  Lessor shall deliver the Premises to Lessee on the  Commencement
Date, as defined herein, in their "as-is" condition.

1.3 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges (a) that it has inspected
and hereby  accepts the Premises in their "as-is"  "with-all-faults"  condition;
(b) that Lessee has made such investigation as it deems necessary with reference
to such matters and assumes all  responsibility  therefor as the same relates to
Lessee's  occupancy of the Premises  and/or for the term of this Lease;  and (c)
that neither Lessor,  nor any of Lessor's  agents,  has made any oral or written
representations  or  warranties,  implied or express,  with  respect to the said
matters other than as set forth in this Lease.

                                                        SECTION TWO

2.1 TERM OF LEASE.  The  initial  term of the Lease shall be for a period of ten
(10) years (the  "Term"),  commencing  on January  20,  1999 (the  "Commencement
Date"), and terminating on January 19, 2008. Lessee shall surrender the Premises
to Lessor  immediately on termination of the Lease.  Further,  Lessee shall have
the right to terminate this Lease upon at any time after January 19, 2003,  upon
six (6) months' prior written notice to Lessor.


                                                       SECTION THREE


                                                            43

<PAGE>



SIGNAGE:  In the event that  Lessee  desires to affix any signage to any part of
the exterior of the Premises, such signage shall be at Lessee's expense. Signage
must comply with  Lessor's  master sign plan and with all local  ordinances  and
must be pre-approved in writing by Lessor. Upon expiration or termination of the
Lease,  Lessee  shall  remove any such signage at its sole cost and shall repair
any damage to the Premises or the Buildings.

                                                       SECTION FOUR

4.1 RENT:  Lessee shall cause  payment of Rent and  charges,  as the same may be
adjusted  from time to time,  to be  received  by Lessor in lawful  money of the
United  States,  without  offset or demand,  except as set forth  herein,  on or
before  the day on which it is due under the terms of this  Lease.  Rent and all
other rent and charges for any period  during the term hereof  which is for less
than one (1) full calendar  month shall be prorated based upon the actual number
of days of the calendar month involved.  Payment of Rent and other charges shall
be made to Lessor at its address  stated  herein or to such other  persons or at
such other  addresses  as Lessor may from time to time  designate  in writing to
Lessee.  For purposes of this Lease,  the term "Rent" shall  include the monthly
rental  amounts due  hereunder  and all other charges and amounts due under this
Lease.  Lessee shall pay Rent in advance on the first (lst) day of each month of
the Term of this Lease as  follows:  (a)  $12,500.00  per month from  January 1,
1999,  through and including  December 31, 2000;  (b)  $13,000.00 per month from
January 1, 2001,  through and including  December 31, 2003;  (c)  $13,500.00 per
month from January 1, 2004,  through and  including  December 31, 2005;  and (d)
$14,000.00  per month from January 1, 2006,  through and including  December 31,
2008.

4.2  PAYMENTS:  Rent payments  shall be made to Lessor at the address  directed,
from time to time,  by Lessor.  A payment  shall be  delinquent  if not paid and
received by the tenth  (10th) day of the month in which it is due, at which time
the late  charges  referred  to in  Section  14 hereof  shall  apply and will be
assessed against Lessee. On Lessee's failure to pay the Rent when due, a Default
shall have  occurred  hereunder,  and Lessor shall have the right to damages for
Default and to enforce the remedies  permitted  hereunder  and under  applicable
law.

4.3  INTENTIONALLY DELETED.

                                                       SECTION FIVE

5.1 USE OF PREMISES:  Lessee  agrees to use the Premises  hereunder for the sole
purpose  of  providing,   manufacturing,  and  distributing  protective  rubber,
urethane,  and other  abrasion  resistant  products,  coatings,  and linings and
related  specialty  materials and products and certain  painting.  Lessee agrees
that the Premises  shall not be used for any other  purposes or for any unlawful
purpose,  and Lessee agrees that Lessee shall not permit any use of the Premises
which is in violation of any law,  ordinance or regulation  of any  governmental
authority,  or any use which will  constitute a nuisance.  Lessee further agrees
that the Premises shall not be used in any manner that will injure or impair the
structural strength or the integrity of the Buildings. Lessee agrees not to sell
or  display  any  offensive  or  inappropriate  merchandise  in or  outside  the
Premises.

5.2  MAINTENANCE.



                                                            44

<PAGE>



(a) Lessee  shall,  at Lessee's  sole cost and  expense and at all times,  keep,
repair,  and  maintain  the  Premises  and every  part  thereof  in good  order,
condition  and  repair,  non-structural  (whether  or not  such  portion  of the
Premises  requiring  repair  and  maintenance,  or the  means of  repairing  and
maintaining  the same,  are  reasonably  or readily  accessible  to Lessee,  and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises),  including,
without  limiting the generality of the  foregoing,  all equipment or facilities
serving  the  Premises,  such as  fans,  plumbing,  heating,  air  conditioning,
ventilating,   electrical,  lighting  facilities,  boilers,  fired  or  unfired,
pressure  vessels,  fire sprinkler  and/or standpipe and hose or other automatic
fire extinguishing  system,  including fire alarm and/or smoke detection systems
and equipment, fire hydrants,  fixtures, interior walls, ceilings, floors, slab,
windows, doors, plate glass, stained glass, skylights,  landscaping,  driveways,
parking lots,  fences,  retaining walls,  walls needing interior and/or exterior
paint,  signs,  sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises  (including through the plumbing
or sanitary  sewer system) and shall  promptly,  at Lessee's  expense,  take all
investigatory  and/or remedial  action  reasonably  recommended,  whether or not
formally ordered or required,  for the cleanup of any  contamination of, and for
the maintenance, security and/or remedial action reasonably recommended, whether
or not formally ordered or required,  for the cleanup of any  contamination  of,
and for the  maintenance,  security  and/or  monitoring  of, the  Premises,  the
elements  surrounding  same,  or  neighboring  properties,  that was  caused  or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance  and/or  storage  tank  brought  onto the Premises by or for Lessee or
under its control.  Lessee, in keeping the Premises in good order, condition and
repair,  shall  exercise  and  perform  good  maintenance  practices.   Lessee's
obligations shall include restorations,  replacements or renewals when necessary
to keep the  Premises  and all  improvements  thereon or a part  thereof in good
order,  condition and state of repair.  Lessor may require Lessee to repaint the
exterior of the Buildings on the Premises as reasonably  required,  but not more
frequently than once every five (5) years at Lessee's cost.

(b) Lessee  shall,  at Lessee's  sole cost and  expense,  procure  and  maintain
contracts,  with copies to Lessor, in customary form and substance for, and with
contractors  specializing  and experienced  in, the inspection,  maintenance and
service of the following  equipment  and  improvements,  if any,  located on the
Premises: (i) heating, air conditioning and ventilation equipment;  (ii) boiler,
fired or unfired  pressure  vessels;  (iii) fire sprinkler  and/or standpipe and
hose or other automatic fire extinguishing systems,  including fire alarm and/or
smoke detection;  (iv) landscaping and irrigation systems; (v) roof covering and
drain maintenance; and (vi) asphalt maintenance.  Notwithstanding the foregoing,
Lessee may provide  reasonable  evidence  of such  inspection,  maintenance  and
service in lieu of outsource contracting.

5.3 LESSOR  OBLIGATIONS.  It is  intended  by Lessor and Lessee that Lessor have
only the  obligation  to repair and maintain the  structural  components  of the
Buildings.  Specifically,  Lessor  shall  maintain  and repair the  foundations,
roofs, and structural components of the walls.  Otherwise,  Lessor shall have no
obligation,  in any manner whatsoever, to repair or maintain the Premises or the
Buildings, the improvements located thereon, or the equipment therein. Except as
expressly set forth in this Section 5.3, all maintenance and repair  obligations
are  intended to be that of the  Lessee's  under  Section 5.2 hereof.  It is the
intention  of the  Lessor and  Lessee  that the terms of this  Lease  govern the
respective  obligations of the Lessor and Lessee as to maintenance and repair of
the Premises.


                                                            45

<PAGE>



5.4  INTENTIONALLY LEFT BLANK.

5.5  INTENTIONALLY LEFT BLANK

5.6  HAZARDOUS SUBSTANCES:

(a) The  term  "Hazardous  Substance,"  as used in this  Lease,  shall  mean any
product, substance, chemical, material or waste whose presence, nature, quantity
and/or  intensity of  existence,  use,  manufacture,  disposal,  transportation,
spill,  release  or  effect,  either  by  itself or in  combination  with  other
materials expected to be on the Premises,  is either: (i) potentially  injurious
to the public health,  safety or welfare, the environment or the Premises,  (ii)
regulated  or  monitored  by any  governmental  authority,  or (iii) a basis for
liability  of  Lessor  to any  governmental  agency  or third  party  under  any
applicable statute or common law theory.  Hazardous Substance shall include, but
not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products,
by-products or fractions thereof. Lessee shall not engage in any activity in, on
or about  the  Premises  which  constitutes  a  Reportable  Use (as  hereinafter
defined) of Hazardous  Substances  without the express prior written  consent of
Lessor and  compliance  in a timely  manner (at Lessee's  sole cost and expense)
with all Applicable Law (as defined in Section 5.7). "Reportable Use" shall mean
(i) the  installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance  that  requires  a permit  from,  or with  respect  to which a report,
notice,  registration  or  business  plan is  required  to be  filed  with,  any
governmental  authority.  Reportable  Use  shall  also  include  Lessee's  being
responsible  for the  presence  in,  on or about  the  Premises  of a  Hazardous
Substance  with respect to which any  Applicable  Law requires  that a notice be
given to persons  entering or occupying the Premises or neighboring  properties.
Notwithstanding the foregoing,  Lessee may, without Lessor's prior consent,  but
in compliance with all Applicable Law, use any ordinary and customary  materials
reasonably  required  to be used by Lessee  in the  normal  course  of  Lessee's
business permitted on the Premises,  so long as such use is not a Reportable Use
and does not expose the Premises or  neighboring  properties  to any  meaningful
risk of contamination or damage or expose Lessor to any liability  therefor.  In
addition, Lessor may (but without any obligation to do so) condition its consent
to the use or presence of any Hazardous  Substance,  activity or storage tank by
Lessee upon Lessee's giving Lessor such additional  assurances as Lessor, in its
reasonable  discretion,  deems  necessary  to protect  itself,  the public,  the
Premises,  and the environment  against damage,  contamination  or injury and/or
liability therefrom or therefor, including, but not limited to, the installation
(and removal on or before Lease expiration or earlier termination) of reasonably
necessary   protective   modifications   to  the  Premises   (such  as  concrete
encasements) and/or the deposit of an additional Security Deposit hereunder.

(b) If Lessee  knows,  or has  reasonable  cause to  believe,  that a  Hazardous
Substance,  or a condition  involving  or  resulting  from same,  has come to be
located in, on, under or about the Premises,  other than as previously consented
to by Lessor,  Lessee  shall  immediately  give  written  notice of such fact to
Lessor.  Lessee  shall also  immediately  give  Lessor a copy of any  statement,
report,  notice,  registration,  application,  permit,  business plan,  license,
claim,  action or  proceeding  given  to, or  received  from,  any  governmental
authority  or private  party,  or persons  entering or occupying  the  Premises,
concerning  the  presence,  spill,  release,  discharge  of, or exposure to, any
Hazardous  Substance or contamination in, on, or about the Premises,  including,
but not limited to, all such  documents as may be involved in any Reportable Use
involving the Premises.


                                                            46

<PAGE>



(c) Lessee  shall  indemnify,  protect,  defend  and hold  Lessor,  its  agents,
employees, lenders and ground Lessor, if any, and the Premises harmless from and
against any and all loss of rents and/or damages, liabilities, judgments, costs,
claims, liens, expenses, penalties, permits and attorneys' and consultant's fees
arising out of or involving any Hazardous Substance or storage tank brought onto
the Premises by or for Lessee or under Lessee's  control.  Lessee's  obligations
under this Section 5.6 shall include,  but not be limited to, the effects of any
contamination  or injury to  person,  property  or the  environment  created  or
suffered by Lessee,  and the cost of investigation  (including  consultant's and
attorneys' fees and testing), removal, remediation, restoration and/or abatement
thereof,  or of any  contamination  therein  involved,  and  shall  survive  the
expiration or earlier termination of this Lease. No termination, cancellation or
release  agreement  entered into by Lessor and Lessee shall release  Lessee from
its obligations under this Lease with respect to Hazardous Substances or storage
tanks,  unless  specifically  so agreed by Lessor in writing at the time of such
agreement.

5.7 LESSEE  COMPLIANCE  WITH LAW.  Except as  otherwise  provided in this Lease,
Lessee shall,  at Lessee's  sole cost and expense,  fully,  diligently  and in a
timely  manner,  comply  with all  "Applicable  Law," which term is used in this
Lease  to  include  all  laws,  rules,  regulations,   ordinances,   directives,
covenants,  easements and restrictions of record,  permits,  the requirements of
any   applicable   fire  insurance   underwriter  or  rating  bureau,   and  the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the  Premises  (including,  but not limited  to,  matters  pertaining  to (i)
industrial  hygiene,  (ii)  environmental  conditions on, in, under or about the
Premises,  including  soil  and  groundwater  conditions,  and  (iii)  the  use,
generation,  manufacture,   production,   installation,   maintenance,  removal,
transportation,  storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written  request,  provide Lessor
with copies of all documents  and  information,  including,  but not limited to,
permits  registrations,   manifests,  applications,  reports  and  certificates,
evidencing  Lessee's compliance with any Applicable Law specified by Lessor, and
shall  immediately  upon  receipt,  notify Lessor in writing (with copies of any
documents  involved)  of any  threatened  or  actual  claim,  notice,  citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.

5.8  INSPECTION/COMPLIANCE.  It is recognized and acknowledged that Lessor or an
employee or agent of Lessor will be on the  premises  working in the capacity of
Lessee's general manager.  In consequence of that,  Lessor  acknowledges that it
has  continuous  opportunities  to inspect  and shall make  itself  aware of the
continuing  condition  of the Premises  and shall  promptly  report any changes,
conditions  or  otherwise  which may trigger  rights or  obligations  under this
Lease. Mr. Dean G. Wilson owns and controls Lessor and is currently  employed by
Lessee. If Mr. Wilson, in his employment  capacity with Lessee,  directly causes
Lessee  to breach  the terms of this  Lease,  Lessee  shall not be  responsible,
financially or otherwise, for such breach.

                                                        SECTION SIX

6.1 TAXES AND  ASSESSMENTS:  This Lease is intended to be absolutely  net of all
costs to Lessor.



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<PAGE>



(a) Payment of Taxes.  Lessee shall pay the Real Property  Taxes,  as defined in
Section 6.2,  applicable to the Premises during the term of this Lease.  Subject
to Section 6.1(b),  all such payments shall be made at least ten (10) days prior
to the  delinquency  date of the applicable  installment.  Lessee shall promptly
furnish Lessor with satisfactory evidence that such taxes have been paid. If any
such taxes to be paid by Lessee shall cover any period of time prior to or after
the expiration or earlier termination of the term hereof, Lessee's share of such
taxes  shall be  equitably  prorated to cover only the period of time within the
tax fiscal year this Lease is in effect,  and Lessor shall reimburse  Lessee for
any  overpayment  after  such  proration.  If Lessee  shall fail to pay any Real
Property  Taxes  required by this Lease to be paid by Lessee,  Lessor shall have
the right to pay the same,  and Lessee  shall  reimburse  Lessor  therefor  upon
demand.

(b) Advance Payment.  In order to insure payment when due and before delinquency
of any or all Real Property Taxes,  Lessor reserves the right, during any period
in which Lessee remains in uncured  default after  applicable  cure periods,  to
estimate the current Real Property  Taxes  applicable  to the  Premises,  and to
require such current  year's Real Property Taxes to be paid in advance to Lessor
by Lessee,  either:  (i) in a lump sum amount equal to the  installment  due, at
least twenty (20) days prior to the applicable delinquency date, or (ii) monthly
in advance  with the payment of the Rent.  If Lessor  elects to require  payment
monthly in  advance,  the monthly  payment  shall be that equal  monthly  amount
which,  over the  number  of  months  remaining  before  the  month in which the
applicable  tax  installment  would  become  delinquent  (and  without  interest
thereon),   would  provide  a  fund  large  enough  to  fully  discharge  before
delinquency  the  estimated  installment  of taxes to be paid.  When the  actual
amount of the  applicable  tax bill is known,  the amount of such equal  monthly
advance payment shall be adjusted as required to provide the funds needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under  the  provisions  of  this  Section  are  insufficient  to  discharge  the
obligations  of Lessee to pay such Real  Property  Taxes as the same become due,
Lessee shall pay to Lessor,  upon Lessor's  demand,  such additional sums as are
necessary to pay such obligations.  All moneys paid to Lessor under this Section
may be intermingled with other moneys of Lessor and shall not bear interest.  In
the event of a Breach by Lessee in the  performance of the obligations of Lessee
under this Lease,  then any balance of funds paid to Lessor under the provisions
of this Section may, subject to proration as provided in Section 6.1(a),  at the
option of Lessor, be treated as an additional Security Deposit hereunder.

6.2 "REAL PROPERTY  TAXES" As used herein,  the term "Real Property Taxes" shall
include any form of real estate tax or assessment, general, special, ordinary or
extraordinary,  and any license fee, commercial rental tax,  improvement bond or
bonds,  levy or tax (other than  inheritance,  personal  income or estate taxes)
imposed upon the Premises by any authority  having the direct or indirect  power
to tax,  including  any  city,  state  or  federal  government,  or any  school,
agricultural,  sanitary,  fire, street,  drainage or other improvement  district
thereof,  levied  against  any legal or  equitable  interest  of Lessor's in the
Premises or in the real  property  of which the  Premises  are a part,  Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises.  The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment  or  charge,  or any  increase  therein,  imposed by reason of events
occurring,  or changes in applicable law taking effect,  during the term of this
Lease, including,  but not limited to, a change in the ownership of the Premises
or  in  the  improvements   thereon,   the  execution  of  this  Lease,  or  any
modification,  amendment or transfer thereof, and whether or not contemplated by
the Lessor and Lessee.



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<PAGE>



6.3 JOINT  ASSESSMENT:  If the Premises are not  separately  assessed,  Lessee's
liability shall be an equitable proportion of the Real Property Taxes for all of
the  land  and  improvements  included  within  the tax  parcel  assessed,  such
proportion to be determined by Lessor from the respective valuations assigned in
the  assessor's  work  sheets or such  other  information  as may be  reasonably
available.

6.4 PERSONAL  PROPERTY  TAXES.  Lessee shall pay prior to delinquency  all taxes
assessed   against   and   levied   upon   Lessee-owned   alterations,   utility
installations,  Trade Fixtures, furnishings, equipment and all personal property
of Lessee  contained in the Premises or elsewhere.  When possible,  Lessee shall
cause  such  Trade  fixtures,  furnishings,  equipment  and all  other  personal
property to be assessed and billed  separately from the real property of Lessor.
If any of Lessee's said personal  property  shall be assessed with Lessor's real
property,  Lessee shall pay Lessor the taxes  attributable  to Lessee within ten
(10)  days  after  receipt  of a  written  statement  setting  forth  the  taxes
applicable to Lessee's  property or, at Lessor's option,  as provided in Section
6.1(b).

6.5  INSURANCE:

(a)  Payment  for  Insurance.  Lessee  shall  obtain  and pay for all  insurance
required  under this  Section 6.5 (the  "Insuring  Party").  Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to  correspond  to the  Lease  term.  Payment  shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.

(b) Liability  Insurance.  Lessee shall obtain and keep in force during the term
of this Lease a Commercial  General  Liability  policy of  insurance  protecting
Lessee and Lessor (as an additional  insured)  against claims for bodily injury,
personal injury and property damage based upon,  involving or arising out of the
ownership,  use,  occupancy  or  maintenance  of  the  Premises  and  all  areas
appurtenant  thereto.  Such insurance shall be on an occurrence  basis providing
single limit coverage in an amount not less than  $1,000,000 per occurrence with
such  endorsements  as Lessor  shall  reasonably  request.  The policy shall not
contain   any   intra-insured   exclusions   as  between   insured   persons  or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's  indemnity  obligations
under this  Lease.  The limits of said  insurance  required  by this Lease or as
carried by Lessee shall not, however,  limit the liability of Lessee nor relieve
Lessee of any obligation hereunder.  All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.

(c)  Property Insurance--Buildings, Improvements and Rental Value.

(i)  Buildings  and  Improvements.  The Insuring  Party shall obtain and keep in
force  during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to the holders of any mortgages,  deeds of trust
or ground leases on the Premises  ("Lender(s)"),  insuring loss or damage to the
Premises.  The amount of such insurance  shall be equal to the full  replacement
cost of the  Premises,  as the same shall exist from time to time, or the amount
required by Lenders,  but in no event more than the commercially  reasonable and
available  insurable  value thereof if, by reason of the unique nature or age of
the  improvements  involved,  such latter  amount is less than full  replacement
cost. If the coverage is available and


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<PAGE>



commercially appropriate, such policy or policies shall insure against all risks
of  direct   physical  loss  or  damage  (except  the  perils  of  flood  and/or
earthquake),  including  coverage for any additional costs resulting from debris
removal and reasonable  amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Premises  required to be demolished or removed by reason of the  enforcement
of any  building,  zoning,  safety or land use laws,  as the result of a covered
cause of loss.  Said policy or policies  shall also contain an agreed  valuation
provision  in  lieu  of any  coinsurance  clause,  waiver  of  subrogation,  and
inflation guard protection  causing an increase in the annual property insurance
coverage  amount by a factor of not less than the adjusted U. S.  Department  of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located.

(ii) Adjacent Premises. If the Premises are part of a larger building, or if the
Premises are part of a group of buildings  owned by Lessor which are adjacent to
the  Premises,  the Lessee  shall pay for any  increase in the  premiums for the
property  insurance of such  building or buildings if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.

(iii) Tenant's  Improvements.  If the Lessor is the Insuring  Party,  the Lessor
shall  not  be  required  to  insure  Lessee  Owned   Alterations   and  Utility
Installations  unless the item in  question  has become the  property  of Lessor
under the terms of this  Lease.  If Lessee is the  Insuring  Party,  the  policy
carried by Lessee under this Section 8.3 shall insure  Lessee Owned  Alterations
and Utility Installations.

(d) Lessee's Property Insurance.  Subject to the requirements of Section 6.5(e),
Lessee at its cost shall either by separate  policy or, at Lessor's  option,  by
endorsement to a policy already carried,  maintain  insurance coverage on all of
Lessee's personal property,  Lessee Owned Alterations and Utility  Installations
in,  on, or about the  Premises  similar  in  coverage  to that  carried  by the
Insuring  Party under 6.5(c).  Such  insurance  shall be full  replacement  cost
coverage.  The proceeds from any such insurance  shall be used by Lessee for the
replacement of personal  property or the restoration of Lessee Owned Alterations
and Utility  Installations.  Lessee shall be the Insuring  Party with respect to
the  insurance  required by this Section  6.5(d) and shall  provide  Lessor with
written evidence that such insurance is in force.

(e) Insurance Policies.  Insurance required hereunder shall be in companies duly
licensed to transact  business in the state where the Premises are located,  and
maintaining  during the policy term a "General  Policyholders  Rating" as may be
required  by a Lender  having a lien on the  Premises,  as set forth in the most
current issue of "Best's  Insurance  Guide." Lessee shall not do or permit to be
done anything which shall invalidate the insurance  policies referred to in this
Section 6.5. If Lessee is the Insuring Party, Lessee shall cause to be delivered
to Lessor  certified  copies  of  policies  of such  insurance  or  certificates
evidencing  the  existence and amounts of such  insurance  with the insureds and
loss  payable  clauses  as  required  by this  Lease.  No such  policy  shall be
cancelable  or subject to  modification  except  after  thirty  (30) days' prior
written  notice to Lessor.  Lessee  shall at least thirty (30) days prior to the
expiration  of such  policies,  furnish  Lessor  with  evidence  of  renewals or
"insurance  binders"  evidencing  renewal  thereof,  or Lessor  may  order  such
insurance  and charge the cost thereof to Lessee,  which amount shall be payable
by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and
maintain the insurance  required to be carried by the Insuring  Party under this
Section 6.5,  the other party hereto may, but shall not be required to,  procure
and maintain the same, but at Lessee's


                                                            50

<PAGE>



expense. Notwithstanding any provision herein to the contrary, Lessee may obtain
insurance  coverages  under  so-called  blanket  basis  policies  which  provide
insurance to other premises operated by Lessee or its affiliates, which policies
may contain such  deductible  and other  features as are determined by Lessee in
the exercise of reasonable business judgment.

(f) Waiver of  Subrogation.  Without  affecting  any other  rights or  remedies,
Lessee and Lessor  ("Waiving  Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against  the  other,  for loss of or damage  to the  Waiving  Party's  property,
arising out of or incident to the perils  required to be insured  against  under
Section  6.5.  The effect of such  releases  and waivers of the right to recover
damages shall not be limited by the amount of insurance carried or required,  or
by any deductibles applicable thereto.

(g)  Indemnity.  Except for Lessor's gross  negligence  and/or breach of express
warranties or breach of this Lease, Lessee shall indemnify,  protect, defend and
hold  harmless  the Lessor and its  agents,  Lessor's  master or ground  lessor,
partners and Lenders,  from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments,  penalties,  attorney's and consultant's fees,
expenses and/or liabilities  arising out of, involving,  or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business,  any act,
omission or neglect of Lessee, its agents,  contractors,  employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any  obligation  on  Lessee's  part to be  performed  under this  Lease.  The
foregoing  shall  include,  but not be limited to, the defense or pursuit of any
claim or any action or proceeding  involved therein,  and whether or not (in the
case of claims made against Lessor)  litigated  and/or reduced to judgment,  and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably  satisfactory to
Lessor and Lessor shall  cooperate with Lessee in such defense.  Lessor need not
have  first  paid any such  claim in  order  to be so  indemnified.  Except  for
Lessee's gross negligence and/or breach of express  warranties or breach of this
Lease, Lessor shall indemnify,  protect, defend and hold harmless the Lessee and
its  agents  from  and  against  any  and all  claims,  damages,  costs,  liens,
judgments,   penalties,   attorneys'  and  consultants'  fees,  expenses  and/or
liabilities  arising out of or involving any act, omission or neglect by Lessor,
its agents, contractors,  employees or invitees and out of any default or breach
by Lessor in the  performance  in a timely manner of any  obligation on Lessor's
part to be performed under this Lease.

(h) Exemption of Lessor from Liability. Lessor shall not be liable for injury or
damage to the person or goods,  wares,  merchandise or other property of Lessee,
Lessee's employees, contractors,  invitees, customers, or any other person in or
about the  Premises,  whether such damage or injury is caused by or results from
fire,  steam,  electricity,  gas, water or rain, or from the breakage,  leakage,
obstruction  or other  defects of pipes,  fire  sprinklers,  wires,  appliances,
plumbing,  air  conditioning  or  lighting  fixtures,  or from any other  cause,
whether the said  injury or damage  results  from  conditions  arising  upon the
Premises or upon other  portions of the  Buildings  of which the  Premises are a
part,  or from other sources or places,  and  regardless of whether the cause of
such damage or injury or the means of repairing  the same is  accessible  or not
unless  caused by the gross  negligence  of Lessor or its agents or employees or
Lessor's  breach of this  Lease.  Lessor  shall not be  liable  for any  damages
arising from any act or neglect of any other tenant of Lessor.


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<PAGE>



6.6 UTILITIES AND SNOW REMOVAL:  Lessee shall arrange,  fix and bear the cost of
gas, electrical,  water, sewage and telephone services furnished to the Premises
during the Term and all renewals thereof of this Lease. Lessee shall pay for all
water, gas, heat, light, power,  telephone,  trash disposal,  snow removal,  and
other utilities and services  supplied to the Premises,  together with any taxes
thereon.  Lessee  agrees  to  remove  accumulations  of snow and  ice,  within a
reasonable  time after such  removal  becomes  necessary,  from the front of the
entire Buildings including the south doorway and the full length of the sidewalk
in order to allow easy access to the  Buildings  and the  Premises and to ensure
safety.

                                                       SECTION SEVEN

7.1 ALTERATIONS/FIXTURES.

(a)  Definitions/Consent  Required. The term "Utility  Installations" is used in
this Lease to refer to all carpeting, window coverings, air lines, power panels,
electrical distribution,  fire protection systems,  lighting fixtures,  heating,
ventilating,  and air conditioning  equipment,  plumbing,  and fencing in, on or
about the Premises.  The term "Trade Fixtures" shall mean Lessee's machinery and
equipment that can be removed without doing material damage to the Premises. The
term  "Alterations"  shall  mean any  modification  of the  improvements  on the
Premises  from that which are  provided by Lessor under the terms of this Lease,
other than  Utility  Installations  or Trade  Fixtures,  whether by  addition or
deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as
Alterations  and/or Utility  Installations made by Lessee that are not yet owned
by Lessor as defined in Section 7.2.  Lessee shall not make any  Alterations  or
Utility Installations in, on, under or about the Premises without Lessor's prior
written consent, which will not be unreasonably withheld or delayed. Lessee may,
however,  make  non-structural  Utility  Installations  to the  interior  of the
Premises (excluding the roof), as long as they are not visible from the outside,
do not  involve  puncturing,  relocating  or removing  the roof or any  existing
walls,  and the cost thereof  during the term of this Lease as extended does not
exceed $50,000.

(b) Consent. Any Alterations that Lessee shall desire to make shall be presented
to Lessor in written form with proposed  detailed  plans.  All consents given by
Lessor,  whether by virtue of Section 7.2(a) or by subsequent  specific consent,
shall be deemed  conditioned upon: (i) Lessee's acquiring all applicable permits
required by  governmental  authorities,  (ii) the  furnishing  of copies of such
permits together with a copy of the plans and  specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the  compliance by Lessee with all  conditions of said permits in a prompt
and  expeditious  manner.  Any  Alterations or Utility  Installations  by Lessee
during the term of this Lease  shall be done in a good and  workmanlike  manner,
with good and sufficient  materials,  and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor.

(c)  Indemnification.  Lessee  shall  pay,  when due,  all  claims  for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the  Premises,  which claims are or may be secured by any  mechanics'  or
materialmen's  lien against the Premises or any interest  therein.  Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about  the  Premises,  and  Lessor  shall  have the right to post
notices of  non-responsibility  in or on the  Premises  as  provided  by law. If
Lessee  shall,  in good faith,  contest the validity of any such lien,  claim or
demand, then Lessee shall, at its sole expense,


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<PAGE>



defend and protect  itself,  Lessor and the Premises  against the same and shall
pay and satisfy any such adverse  judgment that may be rendered  thereon  before
the  enforcement  thereof  against the Lessor or the  Premises.  If Lessor shall
require,  Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount  equal to one and  one-half  times the amount of such  contested  lien
claim or demand, indemnifying Lessor against liability for the same, as required
by law for the  holding  of the  Premises  free from the  effect of such lien or
claim.  In addition,  Lessor may require Lessee to pay Lessor's  attorneys' fees
and costs in  participating  in such action if Lessor  shall decide it is to its
best interest to do so.

(d) Addition. Lessee has informed Lessor that it will require an addition to one
of the  Buildings  located on the  Premises to house the  additional  equipment,
inventory, and supplied currently located in Lessee's Clearfield, Utah, facility
(the  "Addition").  Lessee shall bear the entire cost of the  Addition,  and the
planning and  construction of the Addition shall be subject to the terms of this
Section 7.1 and to the other terms of this Lease.

7.2  OWNERSHIP/REMOVAL/SURRENDER/RESTORATION:

(a) Ownership. Subject to Lessor's right to require their removal as hereinafter
provided in this  Section  7.2,  all Utility  Additions  made to the Premises by
Lessee shall be the property of and owned by Lessor. Unless otherwise instructed
per Section 7.2(b) hereof, all Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.

(b) Removal.  Unless otherwise agreed in writing, Lessor may require that any or
all  Lessee  Owned  Alterations  or  Utility  Installations  be  removed  by the
expiration  or  earlier  termination  of  this  Lease,   notwithstanding   their
installation  may have been consented to by Lessor provided that notice is given
at least six months prior to the  termination of this Lease.  Lessor may require
the removal at any time of all or any part of any Lessee  Owned  Alterations  or
Utility Installations made without the required consent of Lessor.

(c) Surrender/Restoration. Lessee shall surrender the Premises by the end of the
last day of the Lease  term or any  earlier  termination  date,  with all of the
improvements,  parts,  and surfaces thereof clean and free of debris and in good
operating  order,  condition,  and  state  of  repair,  ordinary  wear  and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that  would  have  been  prevented  by good  maintenance  practice  or by Lessee
performing all of its obligations  under this Lease.  Except as otherwise agreed
or specified in writing by Lessor, the Premises,  as surrendered,  shall include
the Utility Installations.  The obligation of Lessee shall include the repair of
any damage  occasioned by the  installation,  maintenance or removal of Lessee's
Trade  Fixtures,   furnishings,   equipment,   and  Alterations  and/or  Utility
Installations,  as well as the removal of any storage  tank  installed by or for
Lessee, and the removal,  replacement,  or remediation of any soil,  material or
ground water  contaminated by Lessee,  all as may then be required by Applicable
Law and/or good  practice.  Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee  subject to its  obligation  to repair and
restore the Premises per this Lease.

7.3  REPAIRS:



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Lessee shall be responsible for the cost of making all routine and extraordinary
repairs and replacements of any  non-structural  nature to the Buildings and the
Premises,  including,  but  not  limited  to,  plumbing,  equipment,  carpeting,
lighting  fixtures,  painting  and the  cost of all  maintenance  on the  leased
Premises.  Repairs and  maintenance  shall  include  work needed to maintain and
preserve all fixtures,  glass,  appurtenances,  plumbing,  electrical,  heating,
ventilating  and other  equipment.  Notwithstanding  the  foregoing or any other
provision  to the  contrary,  Lessee  shall be  responsible  for the cost of any
upgrades,  replacements,  changes,  or  modifications  to the Premises or to the
Buildings,  including  structural items required by any law, ordinance,  code or
regulation  promulgated by any federal, state or local authority and which apply
to the Lessee's  use of the Premises or Buildings  during the term of this Lease
and any  extensions  thereof.  Any repair,  replacement,  maintenance,  upgrade,
change or modification must be done with the prior reasonable  consent of Lessor
in a manner reasonably approved by Lessor and by contractors approved by Lessor.

7.4  COMPLIANCE:

Any work done at the request of or as part of the  responsibility of the Lessee,
including all replacements,  must be completed in compliance with all applicable
codes,  standards  or  regulations.  If Lessee  refuses or  neglects to work on,
repair,  replace,  restore or maintain the Premises or the Buildings as required
hereunder,  or  commence  such work within 60 days after  written  demand by the
Lessor,  Lessor may make such  repairs or undertake  the  required  work without
liability to the Lessee for any loss or damage to Lessee's merchandise, fixtures
or other property,  or to Lessee's business,  by reason of such work, and Lessee
shall on demand reimburse Lessor, upon Lessor providing a bill to Lessee, all of
Lessor's  costs  of such  work.  Late  payments  shall  be  subject  to the same
provisions and penalties as set forth in Section 4.2 above.

                                                       SECTION EIGHT

         LESSOR'S RIGHT TO ENTER: Lessee shall permit Lessor and Lessor's agents
to enter the Premises after reasonable notice to Lessee to inspect the Premises;
to post notices of non-liability for alterations,  additions,  or repairs, or to
place on the Premises any usual or ordinary "For Sale" signs, without any rebate
of Rent to Lessee or damages for any loss of  occupation  or quiet  enjoyment of
the Premises,  provided such entry or activity by Lessor shall not  unreasonably
interfere with or disrupt Lessee's business at the Premises.  Lessor retains the
right to enter the Premises at any time without notice to Lessee in the event of
any  emergency.  Lessor  may,  at any time  within  sixty (60) days prior to the
expiration  of this Lease,  place on the windows and doors of the  Premises  any
usual or ordinary "to Let" or "To Lease" signs.  Lessor and Lessor's agents may,
during the last-mentioned period, enter on the Premises at reasonable hours, and
exhibit  the same to  prospective  tenants,  provided  such entry or activity by
Lessor shall not unreasonably interfere with or disrupt Lessee's business at the
Premises.  This  provision  need only apply so long as Mr. Dean G. Wilson is not
permitted to enter the Premises in his employment with Lessee.

                                                       SECTION NINE

     REMOVAL  OF  LIENS  BY  LESSEE:  Lessee  will not  permit  any  mechanic's,
materialman's, or other liens to stand against the Premises or the Buildings for
work or material contracted for by Lessee. Should any liens be filed against the
Premises or the Buildings arising out of work


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<PAGE>



performed or materials furnished at the request of the Lessee, or because of any
claim against Lessee, Lessee shall cause the same to be canceled within ten (10)
days after  notice by Lessor,  subject  to the terms of Section  7.1(c)  hereof.
Lessee hereby  indemnifies and holds Lessor harmless against all loss,  damages,
expenses and costs, including attorney's fees, on account of claims and/or liens
based on work or material furnished for Lessee or persons claiming under Lessee.
In the event that Lessee fails to have any lien removed, Lessor may satisfy such
lien and Lessee  shall be  responsible  for all costs and  expenses  incurred by
Lessor  in  connection  with  such  lien  satisfaction  and  removal,  including
attorney's fees.

                                                        SECTION TEN

INTENTIONALLY DELETED


                                                      SECTION ELEVEN

CONDEMNATION:  If the Premises or any portion  thereof are taken under the power
of eminent domain or sold under the threat of the exercise of said power (all of
which are herein called  "condemnation"),  this Lease shall  terminate as to the
part so taken as of the date the condemning authority takes title or possession,
whichever first occurs.  If more than ten percent (10%) of the floor area of the
Premises,  or more than twenty-five  percent (25%) of the land area not occupied
by any Buildings,  is taken by condemnation,  Lessee may, at Lessee's option, to
be  exercised in writing  within  ninety (90) days after Lessor shall have given
Lessee written  notice of such taking (or in the absence of such notice,  within
ninety (90) days after the  condemning  authority  shall have taken  possession)
terminate  this  Lease  as of the  date  the  condemning  authority  takes  such
possession.  If Lessee  does not  terminate  this Lease in  accordance  with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the  Premises  remaining,  except  that the Rent  shall be  reduced  in the same
proportion as the rentable  floor area of the Premises  taken bears to the total
rentable floor area of the Buildings located on the Premises.  Any award for the
taking of all or any part of the Premises  under the power of eminent  domain or
any  payment  made under  threat of the  exercise of such power shall be divided
between  Lessor and Lessee in accordance  with  applicable  Utah law;  provided,
however,  that Lessee shall be entitled to any compensation,  separately awarded
to Lessee  for  Lessee's  relocation  expenses  and/or  loss of  Lessee's  Trade
Fixtures.  In the event  that  this  Lease is not  terminated  by reason of such
condemnation,  Lessor shall to the extent of its net severance damages received,
over  and  above  the  legal  and  other  expenses  incurred  by  Lessor  in the
condemnation  matter,   repair  any  damage  to  the  Premises  caused  by  such
condemnation,  except to the extent that Lessee has been reimbursed  therefor by
the condemning  authority.  Lessee shall be  responsible  for the payment of any
amount in excess of such net severance damages required to complete such repair.


                                                      SECTION TWELVE

DAMAGE OR DESTRUCTION.

12.1  DEFINITIONS.



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<PAGE>



(a)  "Premises   Partial  Damage"  shall  mean  damage  or  destruction  to  the
improvements  on the Premises,  other than Lessee Owned  Alterations and Utility
Installations,  the repair cost of which damage or  destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction,  excluding from such  calculation  the value of the land and Lessee
Owned Alterations and Utility Installations.

(b)  "Premises  Total  Destruction"  shall  mean  damage or  destruction  to the
Premises,  other than Lessee Owned  Alterations  and Utility  Installations  the
repair  cost  of  which  damage  or  destruction  is 50%  or  more  of the  then
Replacement  Cost  of  the  Premises   immediately   prior  to  such  damage  or
destruction,  excluding from such  calculation  the value of the land and Lessee
Owned Alterations and Utility Installations.

(c)  "Insured  Loss" shall mean damage or  destruction  to  improvements  on the
Premises,  other than Lessee Owned Alterations and Utility Installations,  which
was caused by an event  required  to be covered by the  insurance  described  in
Section  6.5(c),  irrespective  of any  deductible  amounts or  coverage  limits
involved.

(d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements
owned by  Lessor  at the time of the  occurrence  to  their  condition  existing
immediately prior thereto,  including  demolition,  debris removal and upgrading
required by the operation of applicable building codes,  ordinances or laws, and
without deduction for depreciation.

(e) "Hazardous  Substance Condition" shall mean the occurrence or discovery of a
condition  involving  the  presence  of,  or a  contamination  by,  a  Hazardous
Substance as defined herein in, on, or under the Premises.

   
12.2  PARTIAL  DAMAGE--INSURED  LOSS.  If a Premises  Partial  Damage that is an
Insured Loss occurs,  then Lessor shall  provide  Lessee with written  notice of
Lessor  election to repair and restore or to terminate this Lease within 30 days
after the Insured  Loss,  and Lessor  shall,  at Lessor's  expense,  repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned  Alterations and Utility
Installations) within 60 days of the occurrence and this Lease shall continue in
full force and effect.  Notwithstanding the foregoing, if the required insurance
was not in force or the  insurance  proceeds are not  sufficient  to effect such
repair,  the Insuring Party shall  promptly  contribute the shortage in proceeds
(except  as to the  deductible  which is  Lessee's  responsibility)  as and when
required  to complete  said  repairs.  In the event,  however,  the  shortage in
proceeds  was due to the fact  that,  by  reason  of the  unique  nature  of the
improvements,  full  replacement  cost insurance  coverage was not  commercially
reasonable  and  available,  Lessor  shall  have  no  obligation  to pay for the
shortage in  insurance  proceeds or to fully  restore the unique  aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance  thereof,  within thirty (30) days following receipt of written notice
of such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said thirty (30) day period,  the party responsible for
making the repairs shall  complete them as soon as reasonably  possible and this
Lease  shall  remain in full force and effect.  If Lessor does not receive  such
funds or assurance within said period,  Lessor may nevertheless elect by written
notice to Lessee within thirty (30) days thereafter to make such restoration and
repair  as is  commercially  reasonable  with  Lessor  paying  any  shortage  in
proceeds,  following  the  occurrence  of  the  damage  or  destruction.  Unless
otherwise agreed,  Lessee shall in no event have any right to reimbursement from
Lessor for any funds contributed     


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<PAGE>



by Lessee to repair  any such  damage or  destruction,  provided  such funds are
actually  expended in  reconstruction.  Premises  Partial Damage due to flood or
earthquake   shall  be  subject  to  Section  12.3  rather  than  Section  12.2,
notwithstanding that there may be some insurance coverage,  but the net proceeds
of any such insurance  shall be made available for the repairs if made by either
Lessor or Lessee.

12.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage that is not an
Insured Loss occurs,  unless  caused by a negligent or willful act of Lessee (in
which event  Lessee  shall make the  repairs at Lessee's  expense and this Lease
shall  continue in full force and effect,  but subject to Lessor's  rights under
Section  14),  Lessor  may elect to  repair  such  damage as soon as  reasonably
possible at Lessor's  expense,  in which event this Lease shall continue in full
force and  effect.  Lessor  shall  provide  Lessee  with  written  notice of its
election within 30 days after the occurrence of such Premises Partial Damage.

12.4  TOTAL  DESTRUCTION.  Notwithstanding  any  other  provision  hereof,  if a
Premises Total  Destruction  occurs  (including any destruction  required by any
authorized  public  authority),  this  Lease  shall  terminate  sixty  (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee.  Lessor shall have the election to repair and restore the Premises or to
terminate this Lease in the event of such Premises Total Destruction, and Lessor
shall provide Lessee with written notice of its election  within 30 days of such
Premises Total Destruction.

12.5 DAMAGE  NEAR END OF TERM.  If at any time during the last six (6) months of
the term of this Lease there is damage for which the cost to repair  exceeds one
(1)  month's  Rent,  whether or not an Insured  Loss,  Lessor  may,  at Lessor's
option,  terminate  this Lease  effective  sixty (60) days following the date of
occurrence  of such  damage by  giving  written  notice  to  Lessee of  Lessor's
election to do so within  thirty (30) days after the date of  occurrence of such
damage.  Provided,  however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the  Premises,  then Lessee may  preserve  this
Lease by, within twenty (20) days  following  the  occurrence of the damage,  or
before the  expiration  of the time  provided in such  option for its  exercise,
whichever is earlier  ("Exercise  Period"),  (a) exercising  such option and (b)
providing Lessor with any shortage in insurance  proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said  Exercise  Period and  provides  Lessor with funds (or  adequate  assurance
thereof) to cover any shortage in insurance proceeds,  Lessor shall, at Lessor's
expense,  repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect.  If Lessee fails to exercise  such option and
provide such funds or assurance during said Exercise Period,  then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period  following  the  occurrence  of such damage by giving  written  notice to
Lessee of Lessor's  election to do so within ten (10) days after the  expiration
of the Exercise  Period,  notwithstanding  any term or provision in the grant of
option to the contrary.

         12.6  ABATEMENT OF RENT/LESSEE REMEDIES:

(a) In the event of damage  described in Section 12.2 (Partial  Damage-Insured),
whether or not Lessor or Lessee repairs or restores the Premises, the Rent, Real
Property Taxes, insurance premiums, and other charges, if any, payable by Lessee
hereunder for the period during which such damage, its repair or the restoration
continues, shall be abated in proportion to the degree


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<PAGE>



to which Lessee's use of the Premises is impaired. Except for abatement of Rent,
Real  Property  Taxes,  insurance  premiums,  and  other  charges,  if  any,  as
aforesaid,  all other  obligations  of Lessee  hereunder  shall be  performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such repair or restoration.

(b) If Lessor shall be  obligated  to repair or restore the  Premises  under the
provisions  of this  Section 12 and shall not  commence,  in a  substantial  and
meaningful  way, the repair or  restoration  of the Premises  within ninety (90)
days after such  obligation  shall accrue,  Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's  election to terminate
this Lease on a date not less than sixty (60) days  following the giving of such
notice.  If Lessee  gives such notice to Lessor and such Lenders and such repair
or  restoration  is not commenced  within thirty (30) days after receipt of such
notice,  this Lease shall terminate as of the date specified in said notice.  If
Lessor or a Lender  commences the repair or restoration  of the Premises  within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and  effect.  "Commence"  as used in this  Section  shall mean  either the
unconditional  authorization  of the  preparation of the required  plans, or the
beginning of the actual work on the Premises, whichever first occurs.

12.7  INTENTIONALLY DELETED

12.8  TERMINATION--ADVANCE  PAYMENTS. Upon termination of this Lease pursuant to
this Section 12, an equitable  adjustment shall be made concerning  advance Rent
and any other  advance  payments  made by Lessee to  Lessor.  Lessor  shall,  in
addition, return to Lessee so much of Lessee's Security Deposit as has not been,
or is not then required to be, used by Lessor under the terms of this Lease.

12.9 WAIVE STATUTES.  Lessor and Lessee agree that the terms of this Lease shall
govern the effect of any damage to or  destruction  of the Premises with respect
to the  termination of this Lease and hereby waive the provisions of any present
or future statute to the extent inconsistent herewith.

12.10  LESSEE  RIGHTS.  In the  event of any  destruction  --  whether  partial,
insured,  uninsured,  total or  otherwise  -- in the  event  Lessor is unable to
rebuild or substantially  restore the premises to a tenantable  condition within
one  hundred  twenty  (120) days after the event  giving  rise to such damage or
otherwise  enter into an Agreement to Lessee's  satisfaction  providing  for the
prompt and timely repair and  restoration,  Lessee shall have the absolute right
to  terminate  this Lease and all rights and  obligations  hereunder on not less
than thirty (30) days' written notice to Lessor.

                                                     SECTION THIRTEEN

         ASSIGNMENT AND SUBLETTING.

13.1  CONSENT REQUIRED.

(a) Lessee  shall not  voluntarily  or by  operation  of law  assign,  transfer,
mortgage  or  otherwise  transfer or encumber  (collectively,  "assignment")  or
sublet all or any part of Lessee's interest in


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<PAGE>



this Lease or in the Premises without Lessor's prior written consent given under
and subject to the terms of Section 24.

(b) A change in the control of Lessee shall  constitute an assignment  requiring
Lessor's consent. For purposes of this Lease, a "change of control" shall mean a
majority of the board of directors or other  governing body being elected during
the term hereof  consisting  of directors or members who are not members of such
board of directors  or governing  body at any time for at least 2 years prior to
such  election and who are not  approved by the majority of incumbent  directors
immediately prior to the change.

(c) The  involvement  of Lessee or its assets in any  transaction,  or series of
transactions  (by way of  merger,  sale,  acquisition,  financing,  refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation  of this Lease or Lessee's  assets  occurs,  which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter  defined, by an
amount equal to or greater than  twenty-five  percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of the execution by Lessor of
this  Lease or at the time of the most  recent  assignment  to which  Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting  such reduction,  at whichever time said Net Worth of Lessee was or
is greater,  shall be  considered an assignment of this Lease by Lessee to which
Lessor may reasonably  withhold its consent.  "Net Worth of Lessee" for purposes
of this  Lease  shall be the net  worth of  Lessee  (excluding  any  guarantors)
established under generally accepted accounting principles consistently applied.

(d) An  assignment  or  subletting  of Lessee's  interest in this Lease  without
Lessor's  specific prior written consent shall, at Lessor's option, be a Default
curable after notice per Section  14.1(c),  or a noncurable  Breach  without the
necessity  of any  notice  and  grace  period.  If Lessor  elects to treat  such
unconsented  to assignment or  subletting as a noncurable  Breach,  Lessor shall
have the right to either:  (i)  terminate  this Lease,  or (ii) upon thirty (30)
days'  written  notice  ("Lessor's  Notice"),  increase the monthly Rent to fair
market  rental  value or one  hundred  ten  percent  (110%)  of the Rent then in
effect,  whichever  is  greater.  Pending  determination  of the new fair market
rental  value,  if disputed by Lessee,  Lessee shall pay the amount set forth in
Lessor's Notice,  with any overpayment  credited against the next installment(s)
of Rent coming due, and any  underpayment  for the period  retroactively  to the
effective  date of the  adjustment  being due and payable  immediately  upon the
determination  thereof.  Further,  in the event of such Breach and market  value
adjustment,  (i) the purchase  price of any option to purchase the Premises held
by Lessee shall be subject to similar  adjustment  to the then fair market value
(without  the  Lease  being  considered  an  encumbrance  or any  deduction  for
depreciation  or  obsolescence,  and considering the Premises at its highest and
best use and in good condition),  or one hundred ten percent (110%) of the price
previously in effect,  whichever is greater,  (ii) any index-oriented  rental or
price adjustment  formulas  contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index  applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the  remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Rent in effect  immediately prior to the market value
adjustment.

13.2  TERMS AND CONDITIONS:



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<PAGE>



(a) Regardless of Lessor's  consent,  any assignment or subletting shall not (i)
be  effective  without  the  express  written  assumption  by such  assignee  or
sublessee of the obligations of Lessee under this Lease,  (ii) release Lessee of
any obligations  hereunder,  or (iii) alter the primary  liability of Lessee for
the payment of Rent and other sums due Lessor  hereunder or for the  performance
of any other obligations to be performed by Lessee under this Lease.

(b) Lessor may accept any Rent or performance of Lessee's  obligations  from any
person  other than Lessee  pending  approval or  disapproval  of an  assignment.
Neither  a delay in the  approval  or  disapproval  of such  assignment  nor the
acceptance of any Rent or performance  shall  constitute a waiver or estoppel of
Lessor's  right to exercise  its remedies for the Default or Breach by Lessee of
any of the terms, covenants or conditions of this Lease.

(c) The consent of Lessor to any assignment or subletting shall not constitute a
consent  to  any  subsequent  assignment  or  subletting  by  Lessee  or to  any
subsequent or successive  assignment  of subletting by the  sublessee.  However,
Lessor may consent to subsequent  sublettings and assignments of the sublease or
any amendments or modifications  thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without  obtaining  their consent,  and such
action  shall not  relieve  such  persons  from  liability  under  this Lease or
sublease.

(d) In the event of any  Default or Breach of  Lessee's  obligations  under this
Lease,  Lessor may proceed  directly  against Lessee,  any guarantors or any one
else  responsible  for the  performance of the Lessee's  obligations  under this
Lease,  including the  sublessee,  without first  exhausting  Lessor's  remedies
against  any other  person or entity  responsible  therefor  to  Lessor,  or any
security held by Lessor or Lessee.

(e) Each request for consent to an assignment or subletting shall be in writing,
accompanied  by  information  relevant  to  Lessor's  determination  as  to  the
financial and operational  responsibility  and  appropriateness  of the proposed
assignee or  sublessee,  including,  but not limited to, the intended use and/or
required  modification of the Premises,  if any,  together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Rent, whichever is
greater, as reasonable consideration for Lessor's considering and processing the
request  for  consent.  Lessee  agrees to  provide  Lessor  with  such  other or
additional  information and/or  documentation as may be reasonably  requested by
Lessor.

(f) Any  assignee  of,  or  sublessee  under,  this  Lease  shall,  by reason of
accepting  such  assignment or entering into such sublease,  be deemed,  for the
benefit of Lessor,  to have  assumed  and agreed to conform and comply with each
and every term,  covenant,  condition  and  obligation  herein to be observed or
performed by Lessee during the term of said  assignment or sublease,  other than
such  obligations  as are  contrary to or  inconsistent  with  provisions  of an
assignment or sublease to which Lessor has specifically consented in writing.

(g) The  occurrence  of a  transaction  described in Section  13.1(c) shall give
Lessor the right (but not the  obligation) to require that the Security  Deposit
be  increased to an amount  equal to six (6) times the then  monthly  Rent,  and
Lessor may make the actual receipt by Lessor of the amount required to establish
such Security Deposit a condition to Lessor's consent to such transaction.

(h)  Lessor,  as a  condition  to  giving  its  consent  to  any  assignment  or
subletting,  may require  that the amount and  adjustment  structure of the rent
payable under this Lease be adjusted to what is


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<PAGE>



then the market value and/or  adjustment  structure for property  similar to the
Premises as then constituted.

13.3  Additional  Terms and Conditions  Applicable to Subletting.  The following
terms and conditions  shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed  included in all subleases  under this Lease
whether or not expressly incorporated therein:

(a) Lessee hereby  assigns and  transfers to Lessor all of Lessee's  interest in
all Rent,  rentals,  and income arising from any sublease of all or a portion of
the Premises heretofore or hereafter made by Lessee, and Lessor may collect such
Rent and income and apply same  toward  Lessee's  obligations  under this Lease;
provided,  however, that until a Breach (as defined in Section 13.1) shall occur
in the performance of Lessee's  obligations under this Lease, Lessee may, except
as  otherwise  provided  in this  Lease,  receive,  collect  and enjoy the Rents
accruing under such  sublease.  Lessor shall not, by reason of this or any other
assignment  of such sublease to Lessor,  nor by reason of the  collection of the
Rent from a  sublessee,  be deemed  liable to the  sublessee  for any failure of
Lessee to perform and comply with any of Lessee's  obligations to such sublessee
under such sublease.  Lessee hereby irrevocably  authorizes and directs any such
sublessee,  upon receipt of a written  notice from Lessor  stating that a Breach
exists in the  performance of Lessee's  obligations  under this Lease, to pay to
Lessor  the Rent and other  charges  due and to become  due under the  sublease.
Sublessee  shall rely upon any such  statement and request from Lessor and shall
pay such rents and other  charges to Lessor  without any  obligation or right to
inquire as to whether such Breach exists and  notwithstanding any notice from or
claim from Lessee to the  contrary.  Lessee shall have no right or claim against
said sublessee,  or, until the Breach has been cured,  against  Lessor,  for any
such Rent and other charges so paid by said sublessee to Lessor.

(b) In the event of a Breach by Lessee  in the  performance  of its  obligations
under this Lease, Lessor, at its option and without any obligation to do so, may
require any sublessee to attorn to Lessor, in which event Lessor shall undertake
the  obligations  of the  sublessor  under  such  sublease  from the time of the
exercise of said option to the expiration of such sublease;  provided,  however,
Lessor  shall not be liable for any prepaid  rents or security  deposit  paid by
such  sublessee to such sublessor or for any other prior Defaults or Breaches of
such sublessor under such sublease.

(c) Any matter or thing  requiring the consent of the sublessor under a sublease
shall also require the consent of Lessor herein.

(d) No sublessee  shall further assign or sublet all or any part of the Premises
without Lessor's prior written consent.

(e) Lessor shall  deliver a copy of any notice of Default or Breach by Lessee to
the sublessee, who shall have the right to cure the Default of Lessee within the
grace period, if any, specified in such notice. The sublessee shall have a right
of reimbursement  and offset from and against Lessee for any such Defaults cured
by the sublessee.

                                                     SECTION FOURTEEN



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DEFAULT/BREACH/REMEDIES.

14.1  DEFAULT/BREACH:  A "Default"  is defined as a failure by the Lessee  after
notice  to  observe,  comply  with,  or  perform  any of the  terms,  covenants,
conditions,  or rules  applicable  to Lessee  under this  Lease.  A "Breach"  is
defined as the  occurrence  of any one or more of the following  Defaults,  and,
where a grace period for cure after notice is specified  herein,  the failure by
Lessee to cure such Default  prior to the  expiration  of the  applicable  grace
period,  and shall  entitle  Lessor to pursue the remedies set forth in Sections
14.2 and/or 14.3:

(a) The vacating of the Premises  without the intention to reoccupy same, or the
abandonment of the Premises.

(b) Except as expressly  otherwise provided in this Lease, the failure by Lessee
to make any payment of Rent or any other monetary payment required to be made by
Lessee  hereunder,  whether to Lessor or to a third party,  as and when due, the
failure by Lessee to provide  Lessor with  reasonable  evidence of  insurance or
surety bond required  under this Lease,  or the failure of Lessee to fulfill any
obligation  under this Lease,  where such failure  continues for a period of ten
(10) days for the  payment  of Rent and  thirty  (30) days for any other  Breach
after such performance is due.

(c) Except as expressly  otherwise provided in this Lease, the failure by Lessee
to  provide  Lessor  with any  documentation  or  information  which  Lessor may
reasonably  require  of Lessee  under the  terms of this  Lease,  where any such
failure  continues for a period of thirty (30) days following  written notice by
or on behalf of Lessor to Lessee.

(d) A Default by Lessee as to the terms, covenants,  conditions or provisions of
this Lease that are to be observed,  complied with or performed by Lessee, other
than those described in Sections 14 (a), (b), or (c), above,  where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee;  provided,  however,  that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably  required for its
cure,  then it shall not be  deemed  to be a Breach  of this  Lease by Lessee if
Lessee  commences  such cure within  said thirty (30) day period and  thereafter
diligently prosecutes such cure to completion.

(e) The occurrence of any of the following  events:  (i) the making by Lessee of
any  general  arrangement  or  assignment  for the  benefit of  creditors;  (ii)
Lessee's  becoming a "debtor"  as defined in 11 U.S.C.  ss.101 or any  successor
statute thereto  (unless,  in the case of a petition filed against  Lessee,  the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of  substantially  all of Lessee's assets located at
the  Premises or of Lessee's  interest in this Lease,  where  possession  is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial  seizure of  substantially  all of Lessee's assets located at the
Premises  or of  Lessee's  interest  in this  Lease,  where such  seizure is not
discharged  within thirty (30) days;  provided,  however,  in the event that any
provision  of this  subsection  (e) is  contrary  to any  applicable  law,  such
provision  shall be of no force or effect,  and not affect the  validity  of the
remaining provisions.

(f) The  discovery  by Lessor that any  financial  statement  given to Lessor by
Lessee or any guarantor of Lessee's obligations hereunder was materially false.


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(g) If the performance of Lessee's  obligations  under this Lease is guaranteed:
(i) the death of a guarantor,  (ii) the  termination of a guarantor's  liability
with  respect to this  Lease  other  than in  accordance  with the terms of such
guaranty,  (iii) a guarantor's becoming insolvent or the subject of a bankruptcy
filing, (iv) a guarantor's  refusal to honor the guaranty,  or (v) a guarantor's
breach of its guaranty  obligation on an anticipatory breach basis, and Lessee's
failure,  within  sixty (60) days  following  written  notice by or on behalf of
Lessor to Lessee of any such event,  to provide Lessor with written  alternative
assurance or security,  which, when coupled with the then existing  resources of
Lessee,  equals or exceeds the  combined  financial  resources of Lessee and the
guarantors that existed at the time of execution of this Lease.

14.2 REMEDIES.  If Lessee fails to perform any affirmative duty or obligation of
Lessee under this Lease,  Lessor may at its option (but without obligation to do
so) perform  such duty or  obligation  on Lessee's  behalf,  including,  but not
limited to, the obtaining of reasonably required bonds,  insurance policies,  or
governmental licenses,  permits or approvals. The costs and expenses of any such
performance  by Lessor shall be due and payable by Lessee to Lessor upon invoice
therefor.  If any check  given to Lessor by Lessee  shall not be  honored by the
bank upon which it is drawn,  Lessor,  at its  option,  may  require  all future
payments  to be made  under  this  Lease by Lessee to be made only by  cashier's
check.  In the event of a Breach of this Lease by Lessee,  as defined in Section
14.1, with or without further notice or demand,  and without  limiting Lessor in
the  exercise  of any right or remedy  which  Lessor  may have by reason of such
Breach, Lessor may:

(a) Terminate  Lessee's right to possession of the Premises by any lawful means,
in which case this Lease and the term hereof  shall  terminate  and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee: (i) the worth at the time of the award
of the unpaid  rent which had been earned at the time of  termination;  (ii) the
worth at the time of award of the  amount by which the unpaid  rent which  would
have been earned after termination until the time of award exceeds the amount of
such  rental loss that the Lessee  proves  could have been  reasonably  avoided;
(iii) the worth at the time of award of the amount by which the unpaid  rent for
the  balance  of the term  after the time of award  exceeds  the  amount of such
rental loss that the Lessee  proves could be  reasonably  avoided;  and (iv) any
other amount  necessary to compensate  Lessor for all the detriment  proximately
caused by the Lessee's  failure to perform its  obligations  under this Lease or
which in the  ordinary  course  of things  would be likely to result  therefrom,
including,  but not  limited  to,  the  cost  of  recovering  possession  of the
Premises,  expenses of reletting,  including necessary renovation and alteration
of the Premises,  reasonable  attorneys'  fees,  and that portion of the leasing
commission  paid by Lessor  applicable to the unexpired term of this Lease.  The
worth at the time of award of the amount  referred to in provision  (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the  Federal  Reserve  Bank of San  Francisco  at the time of award  plus one
percent.  Efforts by Lessor to mitigate  damages  caused by Lessee's  Default or
Breach of this Lease shall not waive  Lessor's  right to recover  damages  under
this Section.  If termination of this Lease is obtained  through the provisional
remedy of  unlawful  detainer,  Lessor  shall  have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve  therein the right to recover all or any part thereof in a separate suit
for such rent  and/or  damages.  If a notice  and grace  period  required  under
Section 14.1(b),  (c), or (d) was not previously  given, a notice to pay rent or
quit,  or to  perform  or quit,  as the case may be,  given to Lessee  under any
statute  authorizing  the forfeiture of leases for unlawful  detainer shall also
constitute the applicable notice for grace period


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purposes required by Sections 14.1(b),  (c) or (d). In such case, the applicable
grace period under Sections 14.1(b),  (c) or (d) and under the unlawful detainer
statute shall run  concurrently  after the one such  statutory  notice,  and the
failure of Lessee to cure the  Default  within the greater of the two such grace
periods shall  constitute  both an unlawful  detainer and a Breach of this Lease
entitling  Lessor to the  remedies  provided  for in this  Lease  and/or by said
statute.

(b) Continue the Lease and Lessee's right to possession in effect after Lessee's
Breach and abandonment  and recover the rent as it becomes due,  provided Lessee
has the right to sublet or assign, subject only to reasonable  limitations.  See
Sections 13 and 24 for the  limitations  on  assignment  and  subletting,  which
limitations  Lessee and Lessor  agree are  reasonable.  Acts of  maintenance  or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease shall not constitute a termination
of the Lessee's right to possession.

(c) Pursue any other remedy now or hereafter  available to Lessor under the laws
or judicial decisions of the state wherein the Premises are located.

(d) The  expiration  or  termination  of this Lease  and/or the  termination  of
Lessee's right to possession  shall not relieve Lessee from liability  under any
indemnity  provisions of this Lease as to matters  occurring or accruing  during
the term hereof or by reason of Lessee's occupancy of the Premises.

14.3  INTENTIONALLY DELETED

14.4 LATE  CHARGES:  Lessee hereby  acknowledges  that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated  by this  Lease,  the  exact  amount  of  which  will be  extremely
difficult to ascertain.  Such costs include,  but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any  ground  lease,  mortgage  or trust  deed  covering  the  Premises.
Accordingly,  if any  installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after notice
shall be due, then,  without any requirement for notice to Lessee,  Lessee shall
pay to Lessor a late charge equal to five  percent (5%) of such overdue  amount.
The parties hereby agree that such late charge  represents a fair and reasonable
estimate  of the costs  Lessor  will incur by reason of late  payment by Lessee.
Acceptance  of such late charge by Lessor shall in no event  constitute a waiver
of Lessee's  Default or Breach with respect to such overdue amount,  nor prevent
Lessor from exercising any of the other rights and remedies  granted  hereunder.
In the event that a late charge is payable hereunder,  whether or not collected,
for three (3) consecutive  installments of Rent, then  notwithstanding any other
provision of this Lease to the contrary,  Rent shall, at Lessor's option, become
due and payable quarterly in advance.

  14.5  BREACH BY  LESSOR:  Lessor  shall not be deemed in breach of this  Lease
unless  Lessor  fails  within  a  reasonable  time to  maintain  the  structural
components of the Buildings asrequired under Section 5.3 hereof. For purposes of
this Section 14.5, a reasonable  time shall in no event be less than thirty (30)
days  after  receipt  of notice by  Lessor.  If Lessor  shall not  commence  the
diligent  cure of such roof repair,  after notice is provided for above,  Lessee
shall have the  right,  on not less than ten (10)  days'  notice to  Lessor,  to
itself cure such structural component repairs at


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the  expense  of Lessor and shall  have the  further  right to offset and charge
against any monetary obligation subsequently due hereunder.

                                                      SECTION FIFTEEN

         BROKERS'  FEES:  Both Lessor and Lessee  represent and warranty to each
other that no brokers,  real estate or leasing agents are entitled to any fee or
commission in  connection  with the Premises or this Lease.  Further  Lessor and
Lessee  hereby agree to indemnify  and hold the other  harmless from and against
any claims, damages,  actions,  commissions,  and/or costs (including attorney's
fees)  arising  in  connection  with any claim for a  commission  related to the
Premises and/or this Lease

                                                      SECTION SIXTEEN

         16.      OPTION TO PURCHASE:

         16.1  GRANT OF OPTION.  Lessor  hereby  grants to Lessee the  exclusive
right and  option,  upon the terms and  conditions  hereinafter  set  forth,  to
purchase the Premises from Lessor (the "Option").

   
         16.2 EXERCISE PERIOD. This Option shall be exercisable only as follows:
(1) for a period of one (1) year from the date  hereof at the  Initial  Purchase
Price and for the  balance of the Term of this Lease at the  Appraised  Purchase
Price.  Notwithstanding  any other  provisions set forth in this Agreement,  the
Option shall  automatically  terminate  upon Lessee's  termination of this Lease
pursuant to Section 2.1 hereof or upon any other termination hereof.
    


         16.3  FAILURE TO  EXERCISE  OPTION.  If Lessee does not  exercise  this
Option prior to the  expiration  of the exercise  period  referred to in Section
16.2 hereof, all consideration paid for this Option shall be retained by Lessor,
this Agreement shall, without further act of the parties hereto, become null and
void and of no further force or effect,  and Lessee shall have no further rights
or claims against Lessor or the Premises.

         16.4 EXERCISE OF OPTION.  This Option may be exercised by Lessee at any
time during the  exercise  period  referred to in Section  16.2 above by written
notice to Lessor  delivered or sent in any manner permitted in Section 21 below.
If Lessee so  exercises  this  Option,  then upon and  subject  to the terms and
conditions of this Agreement,  Lessor agrees to sell the Premises to Lessee, and
Lessee agrees to purchase the Premises from Lessor. Said sale and purchase shall
be  effected  by use of a special  warranty  deed  (herein  called the  "Deed"),
subject to the Permitted  Exceptions as hereinafter  defined,  which Deed Lessor
shall execute, acknowledge, and deliver to the Title Company prior to Closing

         16.5  PURCHASE  PRICE.  The purchase  price for the  Premises  shall be
$1,100,000.00  in cash or immediately  available  funds, if Lessee exercises the
Option on or before January 1, 2000 (the "Initial  Purchase  Price").  If Lessee
exercises the Option after January 1, 2000,  the purchase price for the Premises
shall be equal to the  appraised  value of the  Premises in cash or  immediately
available funds, prepared as soon as possible (but within 45 days at the latest)
after such  exercise  of the Option by  Jonathan  L. Cook,  MAI (the  "Appraised
Purchase Price"). If he is


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unwilling or unable to do so, such appraisal  shall be rendered and performed by
J. Philip Cook, MAI in accordance  with this Section 16.5. If he is unwilling or
unable to do so,  Lessor and  Lessee may  mutually  select an MAI  appraiser  to
perform such appraisal  within fifteen (15) days after such exercise.  If Lessor
and Lessee cannot mutually agree on such appraiser within such time,  Lessor and
Lessee shall each select an MAI appraiser,  and the 2 appraisers  shall mutually
select a third  MAI  appraiser  within 10 days  after  they are  appointed.  The
Appraised  Purchase  Price shall then become the average of those 3  appraisals.
The Initial Purchase Price and the Appraised Purchase Price, as appropriate used
and  applied in this  Agreement,  are  sometimes  referred  to as the  "Purchase
Price."

     16.6 PAYMENT OF PURCHASE  PRICE.  Lessee  shall pay the  Purchase  Price in
immediately available funds either by wire or in cash at Closing.

         16.7.  CONDITION TO EXERCISE.  Lessor's right to exercise the Option is
subject to the  following  conditions:  Lessee shall not be in monetary  default
under this Lease,  and Lessee shall not have failed to fully  reimburse  any and
all funds requested by Lessor and spent by Lessor to cure a breach of this Lease
by Lessee.

         16.8 OPENING  TITLE  COMPANY  ACCOUNT.  Within three (3) business  days
after Lessee exercises this Option, Lessor and Lessee shall open an account (the
"Title  Company  Account")  with a title company  selected by Lessor (the "Title
Company") to consummate  the sale and purchase  contemplated  by this  Agreement
(herein  called the  "Closing"),  shall deposit with the Title Company one fully
executed counterpart of this Agreement.

         16.9  CONDITIONS  TO CLOSING.  The Closing  shall not occur  unless and
until each and every of the following  conditions precedent to Closing have been
satisfied;  provided,  how-ever,  that the party  entitled to the benefit of any
such condition may waive the same by written notice to the Title Company and the
other party hereto:

         (a) Upon Closing, the Title Company shall be ready,  willing,  able and
irrevocably committed to issue an American Land Title Association (ALTA) owner's
policy of title insurance, current standard form for extended coverage, insuring
Lessee's  fee simple  ownership  of the  Premises in the amount of the  Purchase
Price,  subject only to the following  Permitted  Exceptions  (herein called the
"Permitted   Exceptions"):   (i)   nondelinquent   taxes;   (ii)  easements  and
rights-of-way;  (iii)  other  non-financial  matters  of  record;  and  (iv) any
exceptions created by Lessee.

         (b) At Closing  Lessor shall  execute,  acknowledge  and deliver to the
Title Company a Non-Foreign Affidavit.

         (c) Between the date of  exercise of this Option and the  Closing,  the
Premises  shall not have been  materially  adversely  affected in any way as the
result  of  any  legislative  or  regulatory  change,  or any  fire,  explosion,
earthquake,   accident,   casualty,   riot,   civil   commotion,   condemnation,
requisition,  embargo,  act of God or of the public enemy or of the armed forces
of the United States, or otherwise, whether or not insured against.

         16.10 BEST  EFFORTS TO FULFILL  CONDITIONS.  Lessor and Lessee agree to
pursue  diligently the  satisfaction of and to use their best efforts to satisfy
each and every of the  conditions to Closing  referred to in Section 16.9 hereof
as soon as reasonably possible and


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further agree to give Title Company and the other party hereto written notice of
the satisfaction,  waiver or failure of each such condition  promptly after such
satisfaction, waiver of failure finally occurs.

         16.11 FAILURE OF CONDITIONS. Should either party hereto receive or give
notice in accordance  with Section  16.10 above,  either before or upon the date
set for Closing, that any of the conditions referred to in Section 16.9 above as
to which such party is entitled to the benefit will not be satisfied, and should
such party choose not to waive such  condition,  such party may, in its sole and
absolute  discretion,  terminate the Title Company Account and this Agreement by
written notice to Title Company and the other party hereto, in which event Title
Company shall return all documents and funds  deposited  pursuant  hereto to the
party  depositing  the same and  neither  party  hereto  shall have any  further
liability to the other hereunder.

         16.12  CLOSING.  The Title Company shall close the sale and purchase of
the Premises  contemplated  hereunder as soon as reasonably  possible  after the
date upon which the last of the  conditions set forth in Section 16.9 hereof has
been finally  satisfied or waived;  provided,  however,  that unless the Closing
shall  occur on or before  the date  which is  thirty  (30)  days  after  Lessee
exercises this Option, the Title Company Account shall terminate without further
acts of the parties  hereto,  and in such event the Title Company shall,  unless
Lessor  refuses to close,  return all  documents  and funds  deposited  pursuant
hereto to the  parties  depositing  the same and  neither  party  shall have any
further liability to the other hereunder, except as otherwise expressly provided
in said Section 16.14 hereof.

         When  the  Title   Company  is  prepared   to  close  the   transaction
contemplated  hereby,  Title Company is authorized  and instructed to record the
Deed in the Office of the County Recorder of Salt Lake County, Utah.

         16.13 PRORATIONS AND COSTS. All property taxes and all other income and
expenses with regard to the Premises shall be prorated between Lessor and Lessee
through the Title  Company  Account as of the date of Closing.  In the event the
transaction  contemplated  by this Agreement does not close for any reason other
than the default of Lessee,  Lessor and Lessee shall  equally  share and pay any
and all cancellation fees charged by the Title Company.

         16.14 REMEDIES. In the event of a default or breach by Lessor or Lessee
hereunder  which  prevents the Closing from taking place in accordance  with the
terms of this Agreement,  the nondefaulting  party shall have all the rights and
remedies  allowed at law or in equity.  Both parties  agree that,  should either
party  default in any of the  covenants  or  agreements  herein  contained,  the
defaulting party shall pay all costs and expenses, including without limitation,
reasonable  attorney's  fees,  which  may  arise or  accrue  from  enforcing  or
terminating  this  Agreement,  or in pursuing any remedy  provided  hereunder or
allowed by applicable law. In the event the Title Company is required to file an
interpleader  action in court to resolve  the  dispute  over the  earnest  money
deposit  referred to herein or  otherwise  in  connection  with this  Agreement,
Lessor and Lessee agree that the defaulting  party shall pay the court costs and
reasonable  attorney's  fees  incurred  by the Title  Company in  bringing  such
action.

         16.15 OPTION NON-TRANSFERABLE: The Option is personal to Lessee and may
not be  transferred,  assigned,  sold,  or  otherwise  conveyed to any entity or
person.



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                                                     SECTION SEVENTEEN

         ATTORNEYS'  FEES.  In the event  that  either  Lessor  or Lessee  shall
institute any action or proceeding  against the other relating to the provisions
of this Lease, or any Default or Breach hereunder,  then, and in that event, the
unsuccessful  party  in such  action  or  proceeding  agrees  to  reimburse  the
successful party for the reasonable expenses of such action including reasonable
attorneys'  fees and  disbursements  incurred  therein by the successful  party.
Further, Lessee shall reimburse Lessor on demand for any and attorney's fees and
costs  incurred in  connection  with any efforts or actions,  whether in suit or
otherwise, taken by Lessor to enforce the terms of this Lease

                                                     SECTION EIGHTEEN

         HOLDING  OVER:  If Lessee holds  possession  of the Premises  after the
Term, as applicable,  Lessee shall become a tenant at will on and subject to the
terms herein specified,  but at the monthly Rent shall automatically increase to
150% of the then current monthly Rent.

                                                     SECTION NINETEEN

                           SUBORDINATION/ATTORNMENT/NON-DISTURBANCE

  19.1 SUBORDINATION:  This Lease and any option granted hereby shall be subject
and  subordinate  to any  ground  lease,  mortgage,  deed  of  trust,  or  other
hypothecation  or security  device  (collectively,  "Security  Device"),  now or
hereafter  placed by Lessor upon the real  property of which the  Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications,  consolidations,  replacements  and  extensions  thereof.  Lessee
agrees that the Lenders  holding any such  Security  Device  shall have no duty,
liability or obligation to perform any of the  obligations  of Lessor under this
Lease,  but that in the  event of  Lessor's  Default  with  respect  to any such
obligation,  Lessee  will  give any  Lender  whose  name and  address  have been
furnished  Lessee in writing for such  purpose  notice of  Lessor's  Default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said Default before  invoking any remedies Lessee may have by reason thereof.
If any Lender  shall elect to have this Lease and/or any option  granted  hereby
superior  to the lien of its  Security  Device  and shall  give  written  notice
thereof to Lessee,  this Lease and such  options  shall be deemed  prior to such
Security  Device,  notwithstanding  the relative dates of the  documentation  or
recordation thereof.

  19.2 ATTORNMENT:  Subject to the  non-disturbance  provisions of Section 19.3,
Lessee agrees to attorn to a Lender or any other party who acquires ownership of
the Premises by reason of a foreclosure  of a Security  Device,  and that in the
event of such  foreclosure,  such new owner shall not: (a) be liable for any act
or omission of any prior  lessor or with  respect to events  occurring  prior to
acquisition of ownership, (b) be subject to any offsets or defenses which Lessee
might have against any prior lessor,  or (c) be bound by prepayment of more than
one month's rent. By complying with this Section 19.2, Lessee does not waive any
claims it may have against Lessor for breaches of this Lease.

  19.3  NON-DISTURBANCE:  With respect to the Security  Devices  entered into by
Lessor after the execution of this Lease,  Lessee's  subordination of this Lease
shall be subject to receiving


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assurance  (a  "non-disturbance   agreement")  from  the  Lender  that  Lessee's
possession  and this Lease,  including  any options to extend the term hereof or
purchase the Premises,  will not be disturbed so long as Lessee is not in Breach
hereof  and  attorns  to the record  owner of the  Premises  and such new Lessor
agrees to be bound by and subject to the terms of this Lease.

  19.4  SELF-EXECUTING:  The  agreements  contained  in this Section 19 shall be
effective  without the execution of any further  documents;  provided,  however,
that,  upon written  request from Lessor or a Lender in connection  with a sale,
financing or refinancing  of the Premises,  Lessee and Lessor shall execute such
further writings as may be reasonably  required to separately  document any such
subordination or non-subordination,  attornment and/or non-disturbance agreement
as is provided for herein.



                                                      SECTION TWENTY

         QUIET ENJOYMENT: Lessor covenants,  warrants and represents that Lessor
has full right and power to execute  this Lease and to grant the estate  demised
herein and, so long as Lessee is not in Default or Breach under any of the terms
and conditions of this Lease,  Lessee shall peaceably hold and quietly enjoy the
Premises,  and  shall  have the  right of  ingress  and  egress  to and from the
Premises.  Lessee will not attach any stereo speakers to ceiling of Premises and
will not play music at an excessively  high volume.  Lessor further  warrants to
Lessee  that it is the  owner in fee  simple  absolute  of the  Premises  leased
hereunder and has good and marketable  title thereto subject to no encumbrances,
restrictions,  covenants or conditions which would materially  interfere with or
restrict Lessee's rights hereunder.  Lessor shall provide to Lessee prior to the
commencement of this Lease a commitment for a lessee's policy of title insurance
evidencing  Lessor's good and marketable  title to the Premises leased hereby at
Lessee's cost.

                                                    SECTION TWENTY-ONE

         NOTICE: All notices under this Lease must be in writing and either hand
delivered or sent by United States mail,  certified receipt  requested,  postage
prepaid,  addressed  as follows,  except  that any party may by written  notice,
given as  aforesaid,  change  its  address  for  subsequent  notice  to be given
hereunder:

                           Lessor:                   Dean G. Wilson
                                            DGW Enterprises, L.C.
                                            5577 West Leo Park Road
                                            West Jordan Utah 84088

                           With a copy to:

                                            Carl W. Barton, Esq.
                                            Prince, Yeates & Geldzahler
                                            175 East 400 South
                                            Suite 900
                                            Salt Lake City, Utah 84111



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<PAGE>



                           Lessee:          Industrial Rubber Products-Utah,Inc.
                                            3804 East 13th Avenue
                                            Hibbing MN 55746
                                            Attn:Daniel O. Burkes

                           With a copy to:
                                            John N. Nys
                                            Johnson, Killen, Thibodeau & Seiler
                                            811 Norwest Center
                                            230 West Superior Street
                                            Duluth, MN 55802

                                                    SECTION TWENTY-TWO

     PARKING:  It is expressly  agreed and acknowledged by Lessee shall have the
exclusive right to use any and all parking located on the Premises.

                                                   SECTION TWENTY-THREE

         23.1 NO WAIVER:  Lessor's acceptance of late rent or failure to enforce
any term of this Lease  shall not be  construed  as a waiver of any of  Lessor's
rights  under  this  Lease.  No  payment  by Lessor or a receipt by Lessor of an
amount less the monthly rent herein  stipulated shall be deemed to be other than
on  account  of the  earliest  stipulated  rent,  nor shall any  endorsement  or
statement of any check or any letter accompanying any check or payment be deemed
by itself as accord  and  satisfaction,  and  Lessor  may  accept  such check or
payment without  prejudice to Lessor's right to recover the balance of such rent
or pursue any other remedy.

     23.2  BINDING  EFFECT:  The terms of this Lease shall apply to and bind the
heirs and assigns of the parties.

         23.3 UNENFORCEABLE  PROVISIONS: If any provision of this Lease shall be
declared invalid or unenforceable,  the remainder of the Lease shall continue in
full force and effect.

         23.4 GOVERNING LAW: This agreement is made in the State of Utah and its
validity  and the rights  and  obligations  to the  parties  hereunder  shall be
determined in accordance with the laws of the State of Utah.

         23.5  HEADINGS:  The section  captions  contained in this Lease are for
convenience   only  and  shall  not  be  considered  in  the   construction   of
interpretation of any provision hereof.

         23.6  SEVERABILITY:  The invalidity of any provision of this Lease,  as
determined  by a court of  competent  jurisdiction,  shall in no way  affect the
validity of any other provision hereof.

         23.7 INTEREST ON PAST-DUE OBLIGATIONS:  Any monetary payment due, other
than late charges, not received by a party within thirty (30) days following the
date on which it was due, shall bear interest from the  thirty-first  (31st) day
after it was due at the rate of 12% per annum,  but not  exceeding  the  maximum
rate allowed by law, in addition to the late charge provided for herein.


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         23.8  TIME OF  ESSENCE:  Time is of the  essence  with  respect  to the
performance of all  obligations to be performed or observed by Lessor and Lessee
under this Lease.

     23.9 RENT DEFINED:  All monetary  obligations of Lessee to Lessor under the
terms of this Lease are deemed to be Rent.

         23.10 NO PRIOR OR OTHER AGREEMENTS:  This Lease contains all agreements
between Lessor and Lessee with respect to any matter  mentioned  herein,  and no
other prior to contemporaneous agreement or understanding shall be effective.

         23.11  CUMULATIVE  REMEDIES:  No remedy or election  hereunder shall be
deemed  exclusive but shall,  wherever  possible,  be cumulative  with all other
remedies at law or in equity.

         23.12  COVENANTS  AND  CONDITIONS:  All  provisions of this Lease to be
observed or performed by Lessee are both covenants and conditions.

         23.13  CHOICE OF LAW:  This Lease  shall be governed by the laws of the
State of Utah.  Any litigation  between the Lessor and Lessee hereto  concerning
this Lease shall be initiated in the county in which the Premises are located.

         23.14 AUCTIONS:  Lessee shall not conduct,  nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent.  Notwithstanding anything to the
contrary in this Lease,  Lessor  shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.

         23.15  TERMINATION/MERGER:  Unless  specifically  stated  otherwise  in
writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the
mutual termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate in
the  Premises;  provided,  however,  Lessor  shall,  in the  event  of any  such
surrender,  termination or cancellation,  have the option to continue any one or
all  of any  existing  subtenancies.  Lessor's  failure  within  ten  (10)  days
following  any such event to make a written  election to the contrary by written
notice to the holder of any such  lesser  interest,  shall  constitute  Lessor's
election to have such event constitute the termination of such interest.

         23.16    INTENTIONALLY DELETED

         23.17  RESERVATIONS.  Lessor reserves to itself the right, from time to
time, to grant, without the consent or joinder of Lessee, such easements, rights
and  dedications  that Lessor deems  necessary,  and to cause the recordation of
parcel maps and restrictions,  so long as such easements,  rights,  dedications,
maps and restrictions do not unreasonably interfere with the use of the Premises
by Lessee.

         23.18 AUTHORITY.  If any party hereto is a corporation,  trust, limited
liability company, or general or limited partnership,  each individual executing
this Lease on behalf of such entity  represents  and warrants  that he or she is
duly authorized to execute and deliver this Lease on its behalf.  If Lessee is a
corporation, limited liability company, trust, or partnership, Lessee shall,


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<PAGE>



within  thirty  (30) days after  request by Lessor,  deliver to Lessor  evidence
satisfactory to Lessor of such authority.

         23.19 AMENDMENTS. This Lease may be modified only in writing, signed by
the parties in interest at the time of the modification. The parties shall amend
this  Lease from time to time to reflect  any  adjustments  that are made to the
Rent or other rent payable under this Lease.  As long as they do not  materially
change  Lessee's  obligations  hereunder,  Lessee agrees to make such reasonable
non-monetary  modifications  to this Lease as may be  reasonably  required by an
institutional,  insurance company, or pension plan Lender in connection with the
obtaining  of normal  financing  or  refinancing  of the  property  of which the
Premises are a part.

         23.20 MULTIPLE PARTIES.  Except as otherwise expressly provided herein,
if more than one person or entity is named herein as Lessee,  the obligations of
such  multiple  parties  shall be the joint and  several  responsibility  of all
persons or entities named herein as such Lessee.

                                                    SECTION TWENTY-FOUR

INTENTIONALLY DELETED


                                                    SECTION TWENTY-FIVE

TENANCY  STATEMENT.  Each party hereto (as "Responding  Party") shall within ten
(10) days after  written  notice  from the other party  hereto (the  "Requesting
Party") execute,  acknowledge and deliver to the Requesting Party a statement in
writing  in form  similar  to the then most  current  "Tenancy  Statement"  form
published  by  the  American  Industrial  Real  Estate  Association,  plus  such
additional  information,  confirmation  and/or  statements  as may be reasonably
requested by the Requesting Party.


                                                    SECTION TWENTY-SIX

GUARANTOR.

26.1 If there are to be any  guarantors of this Lease,  the form of the guaranty
to be  executed  by each  such  guarantor  shall  be in a form  prepared  by and
acceptable to Lessor, and each said guarantor shall have the same obligations as
Lessee  under this  Lease,  including,  but not limited  to, the  obligation  to
provide the Tenancy Statement and information called for by Section 25.

 26.2 It shall  constitute  a Default of the Lessee under this Lease if any such
guarantor  fails or  refuses,  upon  reasonable  request by Lessor to give;  (a)
evidence of the due execution of the guaranty  called for this Lease,  including
the authority of the guarantor (and of the party signing on guarantor's  behalf)
to obligate  such  guarantor on said  guaranty,  and  including in the case of a
corporate guarantor,  a certified copy of a resolution of its board of directors
authorizing  the  making  of  such  guaranty,  together  with a  certificate  of
incumbency  showing  the  signatures  of the persons  authorized  to sign on its
behalf,  (b) current financial  statements of guarantor as may from time to time
be requested by Lessor,  (c) a Tenancy  Statement,  or (d) written  confirmation
that the guaranty is still in effect.


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<PAGE>



                                                   SECTION TWENTY-SEVEN

27.1 Force Majeure.  Lessee shall be excused from the performance of any duty or
obligation  incumbent  upon it under the Lease during any period in which Lessee
shall be prevented from completing or performing such duty by reason of strikes,
walkouts, labor troubles,  restrictive governmental laws or regulations,  riots,
insurrection  or war or other reason of like nature not the fault of Lessee.  If
Lessee  cannot  occupy  substantially  all of the  premises,  there  shall  be a
proportionate  abatement  of all  charges  during  such period of less than full
occupancy.  During  any  period,  all rent and other  charges  will  abate on an
equitable basis in light of the extent to which Lessee can perform.

         27.2 Recording.  Lessor agrees to enter into a short form of this Lease
in recordable form recognizing  Lessee's rights hereunder,  including its rights
to purchase the Premises,  and that Lessee shall be entitled to record a copy of
such short form lease with Lessee to bear the costs of such recording.

IN WITNESS WHEREOF,  the parties have executed this Lease on the date and at the
placed listed opposite their names.

                                                LESSOR
                                                DGW ENTERPRISES, L.C.

                                                By     s/ Dean G. Wilson        
                                                Dean G. Wilson, managing member

                                                LESSEE Industrial Rubber 
                                                Products-Utah, Inc., a Utah 
                                                corporation


                                                 By         s/ Daniel O. Burkes 
                                                 Its Chairman


                                                       EXHIBIT "A"

                                                    Legal Description
Parcel 1:

BEGINNING at a point which lies South 89(degree)46'30" East 61.00 feet and North
0(degree)03' East 110.09 feet and South  89(degree)57'00"  East 183.72 feet from
the  Southwest  corner of Section 1, Township 3 South,  Range 2 West,  Salt Lake
Base and Meridian,  and running thence South  89(degree)57'00"  East 80.29 feet;
thence North 0(degree)03' East 120.00 feet; thence South  27(degree)08'50"  East
366.27 feet to a point on the North line of Leo Park Road; thence  Southwesterly
along a 943.90 foot radius curve to the right (center is North  27(degree)08'50"
West 943.90 feet) 181.72 feet;  thence North  16(degree)07'  West 284.06 feet to
the place of BEGINNING.


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<PAGE>



Parcel 2:

BEGINNING at a point which lies South  89(degree)46'30"  East 61.00 feet,  South
0(degree)03'00"  West  539.71  (South  0(degree)03'00"  East 539.71 feet in some
instruments  of record)  and North  71(degree)44'06"  East  295.70 feet from the
Northwest  corner of Section 12, Township 3 South,  Range 2 West, Salt Lake Base
and Meridian, and running thence North 13(degree)13'00" West 219.38 feet; thence
Easterly  181.79 feet along the arc of a 1003.90  foot radius curve to the left,
long  chord  bears  North   71(degree)35'44'  East  181.55  feet;  thence  South
23(degree)35'32"  East 219.92 feet;  thence South  71(degree)44'06"  West 221.27
feet to the point of BEGINNING.

Parcel 4:

BEGINNING at a point which lies South 89(degree)46'30" East 61.00 feet and South
0(degree)03' West 200.06 feet and Northeasterly along a curve to the left (whose
center is North  0(degree)03'  West 943.90 feet) 448.05 feet from the  Southwest
corner  of  Section  1,  Township  3 South,  Range 2 West,  Salt  Lake  Base and
Meridian;  and running thence  Northeasterly along said curve 95.01 feet; thence
North  57(degree)05'09"  East 85.23 feet;  thence  North  32(degree)54'51"  West
407.89  feet;  thence  South   78(degree)25'  West  101.24  feet;  thence  South
0(degree)03' West 90.00 feet; thence South  27(degree)08'50" East 366.27 feet to
the point of BEGINNING.




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<PAGE>



                                                       EXHIBIT 10(8)

                                                    PURCHASE AGREEMENT
         This Purchase  Agreement (the  "Agreement") is made and entered into on
this 25th day of March 1999 by and between  ILLINOIS TOOL WORKS INC., a Delaware
corporation  (hereinafter  referred to as "ITW" a Seller), and Industrial Rubber
Products, Inc., a Minnesota corporation, or its nominee (hereinafter referred to
as "IRP" or "Purchaser").
                                                        RECITALS:
1. The Seller, through its division, ITW Irathane Systems ("Irathane") is in the
business of  manufacturing  cast  urathane  parts and coatings for equipment and
structural   surfaces  (the   "Business").   2.  Purchaser  wishes  to  purchase
substantially  all of the assets  which are used by the  Seller to  conduct  the
Business  for the  purchase  price set forth  herein and upon and subject to the
terms and conditions  hereinafter set forth. With specified limited  exceptions,
Purchaser shall not assume any liabilities or other obligations of the Seller.
                                                   W I T N E S S E T H:
         NOW,   THEREFORE,   in   consideration  of  the  premises  and  of  the
representations,  warranties,  covenants and agreements  herein  contained,  the
parties hereto agree as follows: SECTION I - PURCHASE AND SALE.
         1.1 Assets.  As of 11:59 p.m.  on March 31,  1999,  Seller  shall sell,
convey, assign,  deliver and transfer to Purchaser,  and Purchaser shall buy and
take  possession  of,  all right,  title and  interest  in and to all  personal,
tangible, intangible, choate, inchoate, contingent and other properties, rights,
interests  and other  assets of any kind owned or held by Seller and used in the
operation  or  administration  of  the  Business  (collectively,  the  "Assets")
including,  but not  limited  to,  the  following  properties,  rights and other
assets,  except for the Excluded Assets (as defined in Section 1.2) and excluded
trademarks (as defined in Schedule 1.1(f):
         (a) Inventories.  All raw materials,  work-in-process,  finished goods,
supplies and parts inventory of the Business ("Inventories").


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<PAGE>



         (b) Personal Property.  The tangible personal property owned or used in
connection with the operation or  administration  of the Business  including all
tools,  dies,  molds,  capital  expenditures   in-process  and  works-in-process
("Tangible Personal Property").
         (c) Accounts Receivable.  All accounts receivable reflected or reserved
against in the Closing Balance Sheet due from unrelated third parties ("Accounts
Receivable").
         (d)  Backlog.  All  outstanding  customer  orders,  commitments,  bids,
proposals and quotations relating to the Business ("Backlog").
         (e) Records.  Copies of assets  ledgers,  inventory  records,  customer
lists,  customer  credit  information,  supplier lists,  technical  data,  sales
literature, correspondence,  computer printouts, books, notes, files and general
operating  records relating to the operation or  administration  of the Business
("Records").
         (f)  Intangible  Rights.  All  patents,  patents  pending,  inventions,
copyrights,  formulas,  licenses,  contract  rights,  trade  secrets,  know-how,
goodwill and similar  intangibles  held,  owned or used in  connection  with the
Business,  including,  without limitation,  all blueprints,  specifications used
other technical documents associated with products  manufactured by the Business
but specifically excluding such trademarks as are listed on Schedule 1.1(f). The
transferred  patents are more fully defined in Schedule A (Patents)  attached to
the patent  assignment.  The  transferred  trademarks  are more fully defined in
Schedule A (Trademarks) attached to the trademark  assignment.  Both assignments
should be incorporated herein.


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<PAGE>



         (g) Contract Rights. All rights of Seller under all contracts, purchase
orders,  agreements,  licenses,  leases and  similar  documents  relating to the
Business.
         (h) The real property used by the Business  located in Sudbury,  Canada
and Englewood, Colorado (the "Owned Real Property").
         1.2 Excluded Assets. Notwithstanding anything to the contrary contained
herein,  the  following  assets  (the  "Excluded  Assets")  shall not be sold to
Purchaser  and shall be retained by Seller:  (i) all tax returns and related tax
records of Seller and all tax refunds,  (ii) all cash and cash equivalents;  and
(iii) any rights  acquired in or use of the Irathane  trademark  in Europe,  the
Middle East and Asia utilizing sprayable potable water compliant products.
         1.2.1 Excluded  Liabilities.  Notwithstanding  anything to the contrary
contained herein, the following  liabilities (the "Excluded  Liabilities") shall
be retained by Seller:  any claims  under the Union  Contracts  (as  hereinafter
defined ) filed prior to the Closing Date.
         1.3 Assumption of Liabilities.  Purchaser shall assume,  pay,  fulfill,
perform or otherwise  discharge the following  liabilities  and  obligations  of
Seller (the "Assumed  Liabilities")  as of the date hereof,  but in any case not
including any obligation or liability not reflected on the Financial  Statements
unless specifically agreed herein and as otherwise set forth in Section 1.4:
         (a) All of the trade and other  accounts  payable  of the  Business  to
unrelated  third parties  reflected or reserved  against on the Closing  Balance
Sheet,  plus additional  liabilities  relating to the order backlog and purchase
orders arising in the usual and ordinary course of the Business  consistent with
past practice.
         (b)  Except as  provided  in Section  1.4,  all  obligations  of Seller
relating  to the  Business  under  contracts,  agreement,  licenses,  leases and
similar  documents  which are to be transferred to Buyer and which are listed on
any Schedule hereto (including, without limitation, the Union Contract, as


                                                            77

<PAGE>



defined  in Section  7.1,) or which are in effect as of the date  hereof and not
required to be so listed under the terms of this Agreement.
         (c) All  liabilities  and  obligations  of Seller to  employees  of the
Business  as set forth in Section 7, except as to  employees  listed on Schedule
1.3(c).
         (d) Those liabilities and obligations of Seller otherwise  specifically
assumed by Buyer in this Agreement.
         1.4  Agreement to Purchase.  In  consideration  for the purchase of the
Assets  set  forth  above,  IRP  will  pay  the  sum of  EIGHT  MILLION  DOLLARS
($8,000,000) at Closing minus TWO HUNDRED AND SIXTY-EIGHT THOUSAND ($268,000) in
estimated  accounts  payable  which  amount  shall be assumed by  Purchaser  and
further  adjusted in accordance with Section 1.5.2 and also minus FORTY THOUSAND
DOLLARS  ($40,000)  representing  a credit for all  accrued  vacation  liability
assumed by Purchaser under Section 7.4.
         1.5.1  Post  Closing  Audit.  Purchaser  and  Seller  acknowledge  that
Purchaser is purchasing  the Assets of the Business as reflected on the Seller's
December 31, 1998 Financial Statements without having the opportunity to conduct
a due diligence  audit as is customary in  transactions  of this nature.  Within
sixty (60) days of the Closing  Date,  Purchaser  shall  conduct a complete  due
diligence  audit of the Business (the "Audit").  Upon completion of the Audit, a
post closing adjustment will be made for changes in Seller's financial condition
from the December 31, 1998 Financial  Statements to the March 31, 1999 Financial
Statements,  including  adjustments  for any  accounts  payable of the  Business
assumed by Purchaser as of the Closing Date.
         If a post closing adjustment to the Purchase Price is required based on
Purchaser's  Audit,  such  adjustment  shall  occur  within  ten  (10)  days  of
completion of the Audit.  In the event that Purchaser and Seller disagree on the
Purchase Price adjustment required based on the Audit, the parties shall appoint


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<PAGE>



a "big five"  accounting firm acceptable to them,  whose expenses will be shared
equally by the Seller and the Purchaser.  The accounting  firm shall as promptly
as possible  determine  whether the Audit fairly states,  in accordance with the
provisions of this Agreement, the values of the items as to which the Seller has
taken issue and, if the  accounting  firm  concludes that it does not do so with
respect to any of such items,  the value which in such firm's  opinion  does so.
The determination of amounts due to Purchaser for post closing adjustments based
on the Audit by such  accounting  firm shall be  conclusive  and  binding on the
parties  hereto.  Within (i) five (5) days of the delivery of such report by the
accounting  firm or the settlement of any dispute,  or (ii) within five (5) days
following  delivery of the Audit report if no dispute  exists,  payment shall be
made by Seller to the Purchaser of the appropriate post closing Audit adjustment
amount.  Seller shall have no  obligation  to refund any amount to Purchaser for
Purchase Price  adjustments  due to the Post Closing Audit  described in Section
1.5.1 until such adjustments total at least FIFTY THOUSAND DOLLARS ($50,000.00).
         1.5.2.   Post Closing Purchase Price Adjustment.  In addition, there 
shall be an adjustment to the Purchase Price to the extent that:
         (a)      net trade accounts receivable are valued at an amount other 
than $1.298 Million as of the Closing Date;
         (b)      Inventory is valued at an amount other than $1.236 Million in 
accordance with Section 3.1.3;
         (c) prepaid  expenses and other current  assets are valued at an amount
other than FIFTY- TWO THOUSAND DOLLARS ($52, 000);
         (d) any property or equipment  used in conducting the Business has been
disposed of since  December  31, 1998 and has not been  replaced  with like kind
property or equipment; and


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<PAGE>



         (e) trade  payable  adjustments  are  valued at an  amount  other  than
$268,000 as deducted from the Purchase  Price at Closing as described in Section
1.4
         Purchase  Price   adjustments   under  Section  1.5.2  shall  be  on  a
dollar-for-dollar basis and will not be subject to a cap or a basket.
         In  connection  with the  foregoing,  the  Purchaser  shall provide the
Seller  with  an  unaudited  schedule  (the  "Schedule")  showing  the  proposed
calculation  of the Purchase  Price  adjustment due and payable to the Purchaser
pursuant to Section  1.5.2 not more than sixty (60) days after the Closing Date.
Within fifteen (15) days of receipt of the Schedule, the Seller shall advise the
Purchaser  in writing if it  disputes  any portion of the  calculation,  setting
forth in full the  respects  in which it fails to be correct and the reasons for
reaching  that  conclusion.  In the event that the parties are unable to resolve
any dispute so raised  within  sixty (60) days after  delivery of the  Schedule,
they shall  appoint a "big  five"  accounting  firm  acceptable  to them,  whose
expenses will be shared equally by the Seller and the Purchaser.  The accounting
firm shall as promptly as possible determine whether the Schedule fairly states,
in accordance with the provision of this  Agreement,  the values of the items as
to which the Seller has taken issue and, if the  accounting  firm concludes that
it does not do so with  respect to any of such  items,  the value  which in such
firm's opinion does so. The  determination  of amounts set forth on the Schedule
by such accounting firm shall be conclusive and binding on the parties hereto.
         Within  (i)  five  (5)  days  after  delivery  of the  report  by  such
accounting  firm or the settlement of any dispute,  or (ii) within five (5) days
following  delivery of the Schedule if no dispute exists,  payment shall be made
by the Seller to the  Purchaser of the  appropriate  Purchase  Price  adjustment
amount, as finally determined under the Schedule. SECTION 2 - CLOSING.


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<PAGE>



         2.1 Closing.  The Closing (the  "Closing")  of the sale and purchase of
the  Assets  shall  take  place on or before  March 31,  1999 at the  offices of
Seller.  The date of the Closing is herein  referred to as the  "Closing  Date".
Closing costs will be allocated  between Seller and Purchaser in accordance with
local law in each of the  jurisdictions  where the assets are  located  and paid
outside of Closing.
         2.2 Items to be Delivered at Closing. At the Closing and subject to the
terms and conditions herein contained:
         (a)      Seller will deliver to Purchaser the following:
                  (i) a general instruments of sale, and conveyance, assignment,
transfer and delivery  with  respect to each  jurisdiction  where the Assets are
located, such instruments to be in the form of Schedule 2.2(a) hereto; and
                  (ii)     transfer documents ready for recordation and all
title documents with respect to the Owned Real Property
         (b)      Purchaser  will  deliver  to  Seller  the  following:  (i) The
                  Purchase Price shall be disbursed by certified check
or wire transfer as directed by Seller.
         2.3 Further Assurances.  Seller from time to time after the Closing, at
Purchaser's  reasonable  request,  will  execute,  acknowledge  and  deliver  to
Purchaser  such other  instruments of conveyance and transfer and will take such
other actions and execute and deliver such other documents,  certifications  and
further  assurances  as Purchaser may  reasonably  request in order to vest more
effectively in Purchaser, or to put Purchaser more fully in possession of any of
the Assets, or to better enable Purchaser to complete,  perform or discharge any
of the obligations with respect to the Assumed Liabilities  specifically assumed
by Purchaser. SECTION 3 - REPRESENTATIONS AND WARRANTIES.


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         3.1 Representations and Warranties of Seller.  Seller hereby represents
and warrants to Purchaser as follows:
         3.1.1 Corporate Existence. Seller a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.  Irathane
is a division of Seller.  Seller has all requisite  power and authority to carry
on its business as it has been and is now being  conducted and to own, lease and
operate the properties used in connection therewith.
         3.1.2 Corporate Power; Authorization;  Enforceable Obligations.  Seller
has the full power,  authority  and legal right to execute,  deliver and perform
this  Agreement.  This  Agreement  constitutes  when executed and delivered will
constitute,  legal, valid and binding  agreements of Seller enforceable  against
Seller in accordance with their  respective  terms,  except as may be limited by
bankruptcy,  insolvency  and other  similar  laws  affecting  creditors'  rights
generally and by general equity principles.
         3.1.3  Inventory.  Except as reserved on the Financial  Statements  all
items of Irathane's inventory and related supplies for the Business reflected on
the Unaudited Financial Statements are merchantable, or suitable and useable for
the production or completion of merchantable  products, for sale in the ordinary
course of business as first quality goods at normal  mark-ups;  are not obsolete
or below  standard  quality  and are  valued  at the  lower of cost or market in
accordance with generally accepted accounting principles consistently applied.
         3.1.4    Existing Condition.  Since January 1, 1999, Seller has not 
with respect to Irathane:
         (a)      sold, assigned or transferred any of its assets or properties 
except in the ordinary course of its business;
         (b) suffered any damage, destruction or loss, whether or not covered by
insurance,  materially and adversely affecting its business, operations, assets,
properties or prospects;


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         (c) suffered any material  adverse change in its business,  operations,
assets, properties or prospects;
         (d) received notice or had knowledge of any actual or threatened  labor
trouble, strike or other occurrence, event or condition of any similar character
which  has  had or  might  have  a  material  adverse  effect  on its  business,
operations, assets, properties or prospects;
         (e) made any capital  expenditure  or capital  addition  or  betterment
except such as may be involved in the ordinary course of business; or
         (f) entered  into any material  transaction  other than in the ordinary
course of its business consistent with past practice.
         3.1.5 Title to Properties.  Seller has good, valid and marketable title
to all of the assets and properties  purchased  hereunder by IRP, free and clear
of all liens, pledges,  security interests,  charges,  claims,  restrictions and
other  encumbrances  and  defects of title of any nature  whatsoever,  except as
disclosed on Schedule 3.1.5 hereto.  Seller has the  unrestricted  right to sell
the Assets as herein  provided.  All Assets used in the conduct of the  Business
are being  transferred  to  Purchaser  pursuant  to the  terms of this  Purchase
Agreement.
         3.1.6  Condition  and  Location  of  Tangible  Assets.  The  machinery,
equipment,  tools and other material items of tangible  personal  property which
are a part of the  Assets  shall on the  Closing  Date be in the good  operating
condition and repair, subject to normal wear and maintenance, and shall conform,
in all material respects, to all applicable laws,  ordinances,  codes, rules and
regulations relating to their construction, use, operation and maintenance.
         3.1.7 Receivables.  The accounts  receivable set forth on the Financial
Statements as adjusted under Section 1.5.2 arose from bona fide  transactions in
the ordinary  course of  Irathane's  business and shall be good and  collectible
within three (3) months of the Closing Date. To the extent such


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receivables have not been collected within three (3) months of the Closing Date,
Purchaser shall be allowed an Indemnified  Loss claim  (hereinafter  defined) to
the extent the uncollected receivables are in excess of any reserve provided for
in  the  Financial   Statements  dated  March  31,  1999  and  such  uncollected
receivables shall be assigned to the Seller for collection.
         3.1.8 Validity of Contemplated  Transactions,  etc. Except as set forth
on Schedule 3.1.8 the execution,  delivery and performance of this Agreement and
the  transactions  contemplated  hereby by Seller will not contravene or violate
(a) any law,  rule or  regulation  of which Seller is aware,  (b) any  judgment,
order,  writ,  injunction,   decree  or  award  of  any  court,   arbitrator  or
governmental  or regulatory  official,  body or authority which is applicable to
Seller,  or (c) the  charter  documents  of Seller or any  securities  issued by
Seller; nor will such execution, delivery or performance violate, be in conflict
with or result in the breach  (with or without  the giving of notice or lapse of
time, or both) of any term, condition or provision of, or require the consent of
any other party,  to, any indenture,  agreement,  contract,  commitment,  lease,
plan,  license,   permit,   authorization  or  other  instrument,   document  or
understanding,  oral or written, to which Seller is a party, by which Seller may
have rights or by which any of the Assets may be bound or affected,  or give any
party with rights  thereunder  the right to  terminate,  modify,  accelerate  or
otherwise change the existing rights or obligations of Seller  thereunder except
in each case for any such item which would not have a material  adverse  effect.
No  authorization,  approval or consent,  and no registration or filing with any
governmental or regulatory official, body or authority is required in connection
with the execution, delivery and performance of this Agreement by Seller.
         3.1.9 Contracts and Commitments. Except as may be disclosed on Schedule
3.1.9,  each of the  agreements,  contracts and commitments of the Business is a
legal,  valid and binding  agreement  enforceable in accordance  with its terms,
except as such enforceability may be limited by bankruptcy,


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<PAGE>



insolvency,  moratorium,  or similar laws now or hereafter in effect relating to
or limiting  creditors'  rights  generally and to the  knowledge of Seller,  the
parties thereto are in compliance with the provisions thereof, no party has made
or received any prepayments or credits with respect thereto, to the knowledge of
Seller, no party is in default in the performance,  observance or fulfillment of
any material  obligation,  covenant or condition  contained therein,  and to the
knowledge of Seller,  no event has occurred  which with or without the giving of
notice or lapse of time, or both, would constitute a default thereunder.
         3.1.10  Patents  and  Trademarks.  To the best of  Seller's  knowledge,
except as set forth on Schedule 3.1.10,  Seller owns (or possesses  adequate and
enforceable  licenses  or other  rights  to use) all  trademarks,  trade  names,
patents,  copyrights,  service marks, service names, inventions,  trade secrets,
know-how,  software  formulas and  processes  and other  proprietary  rights and
corresponding  foreign  counterparts (the "Intellectual  Property") necessary to
the conduct of the Business  and, to its  knowledge,  such use does not conflict
with  the  rights  of  others.  Except  as  disclosed  on  Schedule  3.1.10,  no
proceedings  have been  instituted  or are pending,  or to the  knowledge of the
Seller,  threatened  which challenge the validity of the ownership by the Seller
to such  Intellectual  Property.  The Seller has not entered  into any patent or
trademark license, technology transfer, or non-competition agreement relating to
its  business  except  as set  forth in  Schedule  3.1.10.  The  Seller,  to its
knowledge,  is  not  infringing  upon  or  otherwise  acting  adversely  to  any
Intellectual  Property.  The  Seller,  is  not  in  default  under  any  license
agreement.  The Seller has, to its knowledge  complied and is in compliance with
all applicable registered user laws or regulations.  Neither the Seller, nor, to
its knowledge, any employee of the Seller has disclosed or made available to any
third party any trade secrets of the Seller under  circumstances  constituting a
breach  of  confidentiality.  There  are  no  existing  or,  to  its  knowledge,
threatened  Intellectual  Property related lawsuits by, or against,  the Seller,
nor are


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<PAGE>



there  any  outstanding  notices,  to the  Seller or by the  Seller to  another,
regarding possible patent  infringement of either a Seller-owned or the licensed
patent of a third party.
         3.1.11  Compliance  with  Applicable  Laws.  To the  best  of  Seller's
knowledge, Seller has complied with all laws, regulations,  injunctions, decrees
and orders  applicable to it or to the operation of its business,  including but
not limited to compliance  with all computer  software  licensing  requirements.
Seller has not received written notice of any alleged violation of any such law,
regulation, injunction, decree or order.
         3.1.12  Environmental  Matters.  Except as would not individually or in
the aggregate have a material  adverse effect or except as set forth in Schedule
3.1.12:
         (a) To the knowledge of the Seller,  Seller has not deposited or caused
to be deposited,  on, under or about the property  owned or leased by the Seller
identified on Schedule  3.1.12 (the "Real  Property") any solvents,  pollutants,
chemicals,  flammables,  contaminants,  gasoline, petroleum products, crude oil,
explosives,  radioactive  materials,  substances,  or wastes, or polychlorinated
biphenyls or related or similar materials,  asbestos or any material  containing
asbestos,  (collectively,  the  "Hazardous  Substances")  in  violation  of  any
Environmental Law, as defined below in (b).
         (b) To the  knowledge  of the Seller,  the Seller has not used the Real
Property to generate,  manufacture,  refine,  transport,  treat, store,  handle,
dispose,  transfer,  produce,  process  or in any  manner  deal  with  Hazardous
Substances,  except in  compliance  in all  material  respects  with  applicable
Environmental Laws, as defined herein,  including, any applicable federal, state
or local governmental law, rule,  regulation or ordinance dealing with Hazardous
Substances,  including,  without  limitation,  the  Comprehensive  Environmental
Response,  Compensation,  and  Liability  Act of 1980,  as  amended  (42  U.S.C.
Sections 9601, et seq.), the Hazardous Materials  Transportation Act, as amended
(49 U.S.C. Section 1801, et. seq.), the Resource  Conservation and Recovery Act,
as amended (42 U.S.C. Section


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<PAGE>



6901, et. seq.), the Federal Water Pollution  Control Act, as amended (33 U.S.C.
Sections  1251,  et.  seq.),  the Clean Air Act, as amended (42 U.S.C.  Sections
7401,  et.  seq.),  the Toxic  Substances  Control  Act,  as amended  (15 U.S.C.
Sections  2601, et. seq.),  the Clean Water Act, as amended (33 U.S.C.  Sections
1251,  et.  seq.),  in each  case as in  effect  on the date of this  Agreement,
(collectively  all such laws,  rules,  ordinances or regulations  called herein,
"Environmental Laws");
         (c) To the  knowledge  of the  Seller,  the  Seller  has  obtained  all
required  registrations,   permits,  licenses,  and  other  authorizations  (the
"Environmental  Permits")  which are required under all  Environmental  Laws and
including all laws relating to emissions,  discharges,  releases,  or threatened
releases of Hazardous Substances from the Real Property or otherwise relating to
the manufacture,  processing,  distribution,  use, treatment, storage, disposal,
transport or handling of Hazardous Substances at or from the Real Property;
         (d) To the knowledge of the Seller,  the Seller is in compliance in all
respects with all terms and conditions of the Environmental Permits;
         (e)  There is no  civil,  criminal,  or  administrative  action,  suit,
demand, claim, hearing, notice of violation, investigation, order, decree, plan,
judgement,  injunction,  proceeding, notice or demand letter pending, or, to the
knowledge of the Seller,  threatened  against the Seller  relating in any way to
(i) the Environmental Laws, or (ii) relating to the release into the environment
by the Seller of any  Hazardous  Substances  whether or not occurring at or on a
site owned, leased or operated by the Seller.
         (f) To the  knowledge  of  Seller,  the  Seller  has  timely  filed all
reports, obtained all required approvals,  generated and maintained all required
data,  documentation  and  records  required  by the  Environmental  Laws or any
regulation,  code, plan, order, decree,  judgement injunction,  notice or demand
letter issued, entered, promulgated or approved thereunder.


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<PAGE>



         3.1.13 Tax Liabilities.  Seller has filed all federal,  state,  county,
local and foreign income, excise, property, sales and other tax returns relating
to the  Business  which are  required to be filed up to and  including  the date
hereof and has paid all taxes which have become due, or any assessment which has
become payable.
         3.1.14 Insurance. There are no claims for insurable losses in excess of
$25,000  per  occurrence  filed by the Seller in  connection  with the  Business
during the three-year period immediately preceding the Closing.
         3.1.15  Balance  Sheets Seller has delivered to Purchaser (i) unaudited
financial statements of the Business for the period ended December 31, 1998 (the
"Unaudited  Financial  Statements"  or the "Financial  Statements")  including a
balance sheet and statements of income. The Unaudited Financial  Statements have
been  prepared in all material  respects on a basis  consistent  with  generally
accepted


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<PAGE>



accounting  principles  except that the Financial  Statements  may be subject to
normal audit adjustments,  which in the aggregate are not material.  The balance
sheets  included in the Financial  Statements do not include any material assets
or  liabilities  not intended to  constitute  part of the Business or the Assets
after giving effect to the transactions  contemplated hereby, and present fairly
the  financial  condition  of the  Business as at their  respective  dates.  The
statements  of income  included in the  Financial  Statements do not reflect the
operations  of any entity or business not  intended to  constitute a part of the
Business  after giving effect to all such  transactions  and present  fairly the
results of operations of the Business for the periods indicated.
         3.1.16  Proceedings  Regarding  Employee  Benefit  Plans.  ITW  is  not
transferring  to IRP and IRP is not assuming any  liability for any Pension Plan
as defined in Section 3(2) of the  Employee  Retirement  Income  Security Act of
1974, as amended,  or any Profit Sharing Plan qualified  under Section 401(a) of
the Internal Revenue Code of 1986, as amended.
         3.1.16.1  Regarding Pension Plan for U.S. Union Employees.  The 
Irathane Systems, Inc. Retirement Income Plan (the "Union Pension Plan"):
         3.1.16.2  has a  "favorable  Letter" as that term is defined in IRS Rev
         Proc 98-22  3.1.16.3 does not have pending any  operational  compliance
         failures which would result in
disqualification or sanctions;
         3.1.16.4 does not have any accumulated  funding deficiency with respect
to the funding  standard  account  described  in section  412(a) of the Internal
Revenue Code of 1986 (whether or not waived);
         3.1.16.5  has not had a complete or partial  termination;  3.1.16.6 has
         not had a reportable event as such term is defined in the
Employee Retirement  Income  Security  Act of 1974,  as amended  ("ERISA");  and
         3.1.16.7 has not had a "fiduciary" or "party in interest" or
"disqualified  person"  enter into and  "prohibited  transaction"  as defined in
ERISA.


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<PAGE>



         3.1.17 Labor Relations Warranties.  Seller warrants and represents that
there are no pending,  threatened, or rumored grievances,  unfair labor practice
charges, claims, or suits arising out of or related to the collective bargaining
agreement  described  in Section  7.1 or arising  out of or related to the labor
relations between Seller and the union described in Section 7.1.
         3.1.18 Litigation.  Except as disclosed on Schedule 3.1.18, there is no
claim,  legal action,  suit,  arbitration,  governmental  investigation or other
legal or  administrative  proceeding,  nor any  order,  decree  or  judgment  in
progress, pending or in effect, or to the knowledge of Seller threatened against
or  relating  to Seller  which  would  materially  affect the  Business,  or the
transactions contemplated by this Agreement.
         3.2  Representations  and  Warranties  of Purchaser.  Purchaser  hereby
represents and warrants to Seller as follows:
         3.2.1 Corporate  Existence.  Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
         3.2.2  Corporate Power and  Authorization.  Purchaser has the corporate
power, authority and legal right to execute, deliver and perform this Agreement.
The execution,  delivery and  performance of this Agreement by Purchaser and any
document to be delivered at Closing have been duly  authorized  by all necessary
corporate  action.  This Agreement has been, and any document to be delivered at
Closing will be, duly executed and delivered by Purchaser  and  constitutes  the
legal,  valid and  binding  agreement  of  Purchaser  enforceable  against it in
accordance  with its terms,  except as may be limited by bankruptcy,  insolvency
and other  similar laws  affecting  creditors'  rights  generally and by general
equity principles.
         3.2.3.  Validity of  Contemplated  Transactions,  etc.  The  execution,
delivery and  performance  of this Agreement by Purchaser will not contravene or
violate (a) any law, rule or regulation to which  Purchaser is subject,  (b) any
judgment,  order, writ, injunction,  decree or award of any court, arbitrator or
governmental or regulatory official, body or authority which is applicable to


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<PAGE>



Purchaser,  or  (c)  the  charter  documents  or  By-Laws  of  Purchaser  or any
securities issued by Purchaser; nor will such execution, delivery or performance
violate, be in conflict with or result in the breach (with or without the giving
of notice or lapse of time, or both) of any term,  condition or provision of, or
require the consent of any other party, to, any indenture,  agreement, contract,
commitment,  lease, plan,  license,  permit,  authorization or other instrument,
document or  understanding,  oral or written,  to which Purchaser is a party, by
which  Purchaser  may have  rights or by which any of the Assets may be bound or
affected,  or give any party  with  rights  thereunder  the right to  terminate,
modify,  accelerate or otherwise  change the existing  rights or  obligations of
Purchaser thereunder. No authorization, approval or consent, and no registration
or filing with any  governmental  or regulatory  official,  body or authority is
required in connection  with the  execution,  delivery and  performance  of this
Agreement by  Purchaser  except in each case for any item which would not have a
material adverse effect.
         3.3 Survival of Representations and Warranties. All representations and
warranties  made  by the  parties  to  this  Agreement  or in  any  certificate,
schedule,  document or instrument  furnished hereunder or in connection with the
execution  and  performance  of this  Agreement  shall survive the Closing for a
period of two years. Notwithstanding any investigation or audit conducted before
or after the Closing  Date or the decision of any party to complete the Closing,
each  party  shall be  entitled  to rely upon the  representations,  warranties,
covenants and agreements set forth herein.  SECTION 4 - CONDITIONS  PRECEDENT TO
THE CLOSING.
         4.1. Conditions Precedent to Purchaser's  Obligations.  All obligations
of  Purchaser   under  this   Agreement  are  subject  to  the   fulfillment  or
satisfaction,  prior to or at the Closing,  of each of the following  conditions
precedent:
         4.1.1  Compliance with this Agreement.  Seller shall have performed and
complied in all material respects,  with all agreements and conditions  required
by this Agreement to be performed by it prior to or at the Closing.


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<PAGE>



         4.1.2 No  Threatened  or Pending  Litigation.  On the Closing  Date, no
suit,  action or other  proceeding,  or  injunction or final  judgment  relating
thereto,  shall be threatened or be pending before any court or  governmental or
regulatory  official,  body or  authority  in which it is sought to  restrain or
prohibit or to obtain damages or other relief in connection  with this Agreement
or  the  consummation  of  the   transactions   contemplated   hereby,   and  no
investigation  that might result in any such suit, action or proceeding shall be
pending or threatened.
         4.1.3 No Material Damage;  etc. Neither the Assets nor the inventory of
Seller  shall have been or shall be damaged or  destroyed  (other  than sales of
inventory in the ordinary course of business).
         4.1.4  Covenants  Not To Compete.  For a period of five (5) years after
the  Closing  Date  Seller  shall not carry on or be engaged  in or control  any
business  which  competes  with the Irathane  business as conducted  immediately
prior to Closing in the jurisdictions  where the Irathane business is carried on
at Closing. Nothing in clause 4.1.5 shall prevent Seller from acquiring and then
being  engaged  in or  carrying  on the  whole  or any part of a  business  that
includes  activities the carrying on of which would otherwise amount to a breach
of the  undertaking  contained  in clause  4.1.4 if the annual  turnover of such
activities  does not amount to ten (10) percent or more of the aggregate  annual
turnover of the business  concerned.  In the event of the purchase of a Business
during  the five (5) year time  period  referred  to  above,  the  Seller  shall
promptly  notify  Purchaser of said  purchase.  Within  thirty (30) days of said
notification, Purchaser may elect to purchase said Business by written notice to
Seller.  The Purchase Price for the Business shall be the Purchase Price paid by
Seller for said  Business,  together  with all costs and  expenses  incurred  in
connection  with said  purchase.  To the extent the parties  cannot agree upon a
Purchase Price within thirty (30) days of  Purchaser's  election of its purchase
right,  then the Chicago office of a big five public accounting firm selected by
the parties shall be employed as arbitrator  hereunder to determine the Purchase
Price due and payable for the Business.


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<PAGE>



The arbitrating accountant's  determination with respect to any dispute shall be
in writing and shall be final and binding upon the parties hereto.
         4.1.5 Facility  Lease.  Seller will assign to Purchaser all of Seller's
right,  title and interest under that certain lease  agreement  dated January 1,
1997 by and between Mesaba Realty Company, as landlord ("Landlord") and Illinois
Tool Works Inc. as tenant. Seller will use its best efforts to obtain Landlord's
written  consent to such  assignment.  If Seller is unable to obtain  Landlord's
consent to an assignment  or sublease as of the Closing  Date,  Seller shall pay
Purchaser  for its direct  costs of  relocation  up to amount of FIFTY  THOUSAND
DOLLARS ($50,000).
         4.1.6 Supply and Secrecy  Agreement.  Seller and  Purchaser  shall have
entered  into a supply  agreement  and  secrecy and supply  agreement  as of the
Closing  Date,  relating to  Purchaser's  purchase of adhesives  from Seller and
Seller's purchase of automotive components from Purchaser.
         4.2 Conditions  Precedent to Seller's  Obligations.  All obligations of
Seller under this  Agreement  are subject to the  fulfillment  or  satisfaction,
prior to or at the Closing, of each of the following conditions precedent:
         4.2.1  Compliance with this  Agreement.  Purchaser shall have performed
and  complied in all  material  respects,  with all  agreements  and  conditions
required by this Agreement to be performed by it prior to or at the Closing.
         4.2.2 No  Threatened  or Pending  Litigation.  On the Closing  Date, no
suit,  action or other  proceeding , or  injunction or final  judgment  relating
thereto,  shall be threatened or be pending before any court or  governmental or
regulatory  official,  body or  authority  in which it is sought to  restrain or
prohibit or to obtain damages or other relief in connection  with this Agreement
or  the  consummation  of  the   transactions   contemplated   hereby,   and  no
investigation  that might result in any such suit, action or proceeding shall be
pending or threatened. SECTION 5 - INDEMNIFICATION.


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<PAGE>



         5.1 General Indemnification Obligation of Seller. Seller will indemnify
and hold  harmless  Purchaser,  and its  officers,  directors  and  shareholders
against and in respect of:
         (a) any and all actions,  suits and claims,  or legal,  administrative,
arbitration,  governmental or other proceedings or investigations against Seller
that relate to Seller, the Business or the Assets and which result from or arise
out of any event, occurrence, action, inaction or transaction occurring prior to
the Closing Date;
         (b) any and all damages,  losses,  settlement  payments,  deficiencies,
liabilities,  costs and expenses suffered, sustained, incurred or required to be
paid by Seller  because of or that  result  from,  relate to or arise out of the
untruth, inaccuracy or breach of, or the failure to fulfill, any representation,
warranty,  agreement,  covenant or  statement  (i) of Seller  contained  in this
Agreement,  or  (ii)  contained  in  any  certificate,   schedule,  document  or
instrument furnished to the Purchaser by or on behalf of Seller at the Closing;
         (c) Seller agrees to indemnify  Purchaser against  (including,  without
limitation,  reasonable attorney's fees, disbursements, and court costs incurred
by  Purchaser)  and hold it  harmless  from any  product  liability  claims made
against Purchaser arising out of or relating to any product manufactured or sold
by Seller at any time before the Closing;
         (d) any and all actions,  suits, claims,  proceedings,  investigations,
demands,  audits,  assessments,  fines,  judgments,  costs  and  other  expenses
(including, without limitation,  reasonable legal fees and expenses) incident to
any of the foregoing or to the enforcement of this Section 5.1.
         Seller   shall  have  no   liability   under  this   Section   5.1  for
indemnification of Purchaser until the aggregate of all claims which have become
final  totals  $25,000 and then only for the amount by which such claims  exceed
$25,000.   Seller   shall  have  no   liability   under  this  Section  5.1  for
indemnification  of  Purchaser  in excess of the  Purchase  Price as  defined in
Section  1.4  hereof.  An amount  for which  Purchaser  is  entitled  to receive
indemnification  under  this  Section,  after  giving  effect  to the  foregoing
deductible  and cap as limitations on liability is an  "Indemnified  Loss".  The
foregoing deductibles shall


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not apply to post-closing  adjustments  pursuant to Section 1.5 hereof or in the
event Purchaser has a claim for accounts  receivables not collected within three
(3)  months of closing  in  accordance  with the  provisions  of Section  3.1.17
hereof.
         The  indemnities  under  this  Section  5 are the  sole  and  exclusive
remedies  of  Purchaser  on account  of, or with  respect to, any of the matters
covered  by this  Section 5 or any other  action or claim  based upon any of the
representations,  warranties  or  covenants  set forth in, or arising out of any
transaction  contemplated by, this Agreement,  and is intended by the parties to
this Agreement to bar and preclude the assertion of any other rights or remedies
by the party under or related to this Agreement or the transaction  contemplated
by this  Agreement.  The  Seller's  indemnification  under this  Section 5 shall
expire two (2) years from the Closing date except the  Seller's  indemnification
of  Purchaser  with respect to claims  brought by third  parties  under  Section
5.1(a)(b)(c)(d) shall survive for the applicable statute of limitations plus six
(6) months.
         Purchaser shall promptly notify Seller,  of the existence of any matter
to which the obligations set forth in this paragraph shall apply, and shall give
Seller  reasonable  opportunity  to defend  any claim or  litigation  at its own
expense,  with counsel of its own selection  approved by Purchaser  (which shall
not be unreasonably  withheld);  provided that Purchaser shall also at all times
have the right  fully to  participate  in such  defense at its own  expense.  If
Seller shall fail,  within a reasonable  time after such notice,  to defend such
claim or  litigation,  Purchaser or any  successor to the business and assets of
Purchaser shall have the right, but not the obligation, to defend, compromise or
settle any such claim or litigation.
         5.2 General  Indemnification  Obligation  of  Purchaser.  Except to the
extent Seller has agreed to be liable to Purchaser, Purchaser will indemnify and
hold harmless Seller, and its officers,  directors, and shareholders against and
in respect of:
         (a)  any and all  actions,  suits,  claims  or  legal,  administrative,
arbitration,  governmental  or  other  proceedings  or  investigations,  against
Purchaser that relate to Purchaser, the business or the


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Assets  and which  result  from or arise out of any event,  occurrence,  action,
inaction or transaction occurring after the Closing Date;
         (b) any and all damages,  losses,  settlement  payments,  deficiencies,
liabilities,  costs and expenses suffered, sustained, incurred or required to be
paid by Purchaser  because of or that result from, relate to or arise out of the
untruth, inaccuracy or breach of, or the failure to fulfill, any representation,
warranty,  agreement,  covenant or statement (i) of Purchaser  contained in this
Agreement;  or  (ii)  contained  in  any  certificate,   schedule,  document  or
instrument furnished to Seller by or on behalf of Purchaser at the Closing;
         (c) Purchaser  agrees to indemnify Seller against  (including,  without
limitation,  reasonable attorney's fees, disbursements, and court costs incurred
by Seller) and hold it harmless from any product  liability  claims made against
Seller  arising  out of or  relating  to any  product  manufactured  or  sold by
Purchaser after the Closing Date; and
         (d) any and all actions,  suits,  claims,  proceedings,  investigation,
demands,  assessments,  audits,  fines,  judgments,  costs  and  other  expenses
(including, without limitation,  reasonable legal fees and expenses) incident to
any of the  foregoing or to the  enforcement  of this Section 5.2.  Seller shall
promptly  notify  Purchaser  of  the  existence  of  any  matter  to  which  the
obligations  set forth in this paragraph  shall apply,  and shall give Purchaser
reasonable  opportunity  to defend any claim or  litigation  at his own expense,
with  counsel  of his own  selection  approved  by  Seller  (which  shall not be
unreasonably  withheld);  provided  that Seller shall also at all times have the
right fully to  participate  in such  defense at its own  expense.  If Purchaser
shall fail,  within a reasonable time after such notice, to defend such claim or
litigation,  Seller,  or any  successor to the business and assets of Purchaser,
shall have the right,  but not the obligation,  to defend,  compromise or settle
any such claim or litigation.
         The  indemnities  under  this  Section  5 are the  sole  and  exclusive
remedies of Seller on account of, or with respect to, any of the matters covered
by  this  Section  5 or  any  other  action  or  claim  based  upon  any  of the
representations,  warranties  or  covenants  set forth in, or arising out of any
transaction


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contemplated  by,  this  Agreement,  and is  intended  by the  parties  to  this
Agreement to bar and  preclude the  assertion of any other rights or remedies by
the party under or related to this Agreement or the transaction  contemplated by
this Agreement. SECTION 6 - COVENANTS OF THE PARTIES.
         Seller will  conduct  the  Business  prior to the  Closing  Date in the
normal  course  and  will  use  reasonable  efforts  to  preserve  the  business
organization  of Seller intact and retain the services of its present  officers,
employees and agents to the end that it may retain its goodwill and preserve its
business relationships with customers, suppliers and others.
         (a)      In addition, Seller covenants that, from the date hereof until
 the Closing:
                  (i) the Business  will be conducted in the ordinary 
course, and none of its properties or assets will be sold or otherwise disposed 
of, mortgaged, pledged or otherwise hypothecated, except in the ordinary course 
of business;
                  (ii) no general  increase  in excess of four  percent  (4%) or
individual  increase in excess of ten percent (10%) has occurred  since December
31, 1998 except as disclosed  on the  Financial  Statements  will be made in the
compensation  payable  or to  become  payable  by  Seller  to of  the  officers,
employees or agents of the Business;
                  (iii) no contract,  obligation or  commitment  will be entered
into or assumed by or on behalf of the  Business  extending  beyond the Closing,
except normal commitments for the purchase of raw materials,  supplies, licenses
and other assets used in the ordinary course of business;
                  (iv) no  change,  other than those  required  in the  ordinary
course of business, will be made affecting personnel or agents of the Business;
                  (v) Seller will  maintain  the Real  Property and the tangible
personal  property in the same operating  condition and repair as of the date of
the Agreement, using its customary standards of maintenance, reasonable wear and
tear excepted;


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                  (vi)     Seller will continue until the Closing to carry 
insurance in the forms and in the amounts now carried; and
                  (vii) Seller will permit Purchaser to have access to its books
and records with respect to the assets,  the business,  and other aspects of the
Business;
         SECTION 7 - EMPLOYEE MATTERS 
         7.1 Employment of Union Employees.  Effective March 25, 1999, Purchaser
shall recognize The International Brotherhood of Painters and Allied Trade Local
1904 as the exclusive bargaining agent for the bargaining unit of employees (the
"Union Employees") in Canada and the Carpenters Midwestern Industrial Council as
the exclusive  bargaining  agent for the  bargaining  unit of employees  ("Union
Employees") in Minnesota.  Subject to the  concurrence of said union,  Purchaser
shall assume, honor, and abide by said collective bargaining agreement,  and all
obligations and liabilities thereunder,  for the balance of its term. Subject to
the  concurrence  of  said  union,   Purchaser  shall  execute  the  appropriate
documentation  substituting  Purchaser  in the  place and stead of Seller as the
contracting employer under said collective bargaining agreement.
         7.1(a)  Purchaser shall assume the Union Pension Plan as of the Closing
Date and shall  thereafter be responsible for the  continuation  thereof and for
all future contributions thereto;  provided that the Seller shall be responsible
for funding the maximum  deductible  contribution to said plan for the 1998 plan
year  (determined  using the actuarial  methods and assumptions set forth in the
plan  actuary's  valuation  report dated March 12, 1998) and one quarter of said
amount for the first quarter of 1999.
         7.2 Employment of Non-Union Employees. Effective as of the date hereof,
Purchaser  shall offer  immediate  employment to all non-union  employees of the
Business as listed on Schedule 7.2 (the "Non-Union Employees"), except for those
individuals listed on Schedule 7.1, on the following terms and conditions:


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         (a) Salary and other remuneration which are substantially equivalent to
those  which  are  provided  by  Seller  for  each of such  Non-Union  Employees
individually as of the date hereof; and
         (b) Retirement,  welfare, and other employee benefits under Purchaser's
retirement,  welfare,  and other benefit  plans or  arrangements  which,  in the
aggregate,  have a value which is  substantially  equivalent to those offered by
Seller to such  Non-Union  Employees.  (All such Union  Employees  and Non-Union
Employees who accept  employment  with  Purchaser are herein  referred to as the
"Transferees".)
         7.3 Assumption of Union Pension Plan.  Purchaser shall assume the Union
Pension Plan as of the Closing Date and shall  thereafter be responsible for the
continuation thereof and for all future contributions thereto; provided that the
Seller shall be responsible for funding the maximum  deductible  contribution to
said plan for the 1998 plan year  (determined  using the  actuarial  methods and
assumptions  set forth in the plan  actuary's  valuation  report dated March 12,
1998) and one quarter of said amount for the first  quarter of 1999.  Seller and
Purchaser shall jointly review the investment  policy for the Union Pension Plan
and shall consult with the plan's actuary on the implications any change in such
policy  would  have on the  interest  assumption  used  for the 1999  plan  year
actuarial valuation. To the extent that after changes in investment policy leave
the Union  Pension  Plan with any  unfunded  accrued  liability as of January 1,
1999,  Seller  agrees to pay to Purchaser  the amount of such  unfunded  accrued
liability.
         7.3      Accrued Vacation Pay, Holiday Pay and Severance Pay.
                  (a) As of the  date  hereof,  Purchaser  shall be  liable  and
responsible  for the payment of accrued but unpaid  vacation pay and holiday pay
for the  Transferees,  as determined in  accordance  with Seller's  vacation and
holiday pay policies in effect as of the date hereof for the Transferees, and as
reflected on the records.
                  (b) Purchaser  shall be liable and responsible for the payment
of accrued but unpaid  severance pay (accrued on the basis of one week severance
pay for each eligible year of employment)


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as determined in accordance with Seller's severance pay policies in effect as of
the date hereof for the Non-Union  Transferees who Buyer terminated in the first
twelve (12) months following the Closing Date, other than for cause.
         7.4  Third-Party  Beneficiaries.  This Agreement is between the parties
hereto only, and nothing herein shall establish any enforceable rights, legal or
equitable, in any person other than Purchaser and Seller, including any employee
of the Business. Any claim, including claims for benefits asserted by any person
with  respect to his or her  employment  with  Purchaser  after the date hereof,
shall be governed  solely by  applicable  employment  policies  and such benefit
plans  which  Purchaser  shall  maintain  for  its  employees,  construed  under
applicable law.  Nothing in this Agreement shall be deemed to restrict the right
of Buyer to deal with the Transferees as employees at will in the same manner as
it would be free to deal with such employee in the absence of this Agreement and
to  terminate  the  employment  of such  Transferees  at any time after the date
hereof.
         7.5  Seller's  Obligations.   Seller  shall  be  responsible  for,  and
indemnify Purchaser against,  any claim by any employee of the Business employed
by  Seller  on or  prior to the date  hereof  with  respect  to  rights  of such
employees  arising under any profit sharing or pension plan other than the Union
Pension  Plan,  group  insurance  or  retirement  plans  or  any  other  benefit
agreement, plan, policy or arrangement of Seller applicable to such employees of
the Business,  it being understood and agreed that Purchaser shall not be liable
or responsible for the payment of any employee  benefits offered by Seller as of
the date hereof (with the exception of the parties' express  agreement set forth
in Sections 7.1, 7.2, 7.3 and 7.4 or other Sections of this Agreement).  SECTION
8 - POST CLOSING MATTERS.
         8.1 Access to Records and  Persons.  Seller and  Purchaser  agree that,
both before and after the Closing,  each will have access, upon prior reasonable
written  request and at any reasonable time during normal business hours, to the
other's  officers  and  employees  and to its books and records  relating to the
assets,  properties and  operations of Seller,  and each shall have the right to
make copies


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of such books and records;  provided,  however, that such access shall be solely
for the purpose of enabling such party to prepare  financial  statements and tax
returns, and any litigation,  claims,  collection or arbitration matters and for
such other  business  purposes as Seller and Purchaser may agree,  but Purchaser
shall not have access to Seller's trade secrets until the successful  completion
of Closing. SECTION 9 - TERMINATION OF AGREEMENT.
         This Agreement may be terminated at any time:
         (a)      by mutual consent of the parties;
         (b) by either party if the Closing shall not have occurred by April 30,
1999 and the party seeking  termination is ready,  willing and able to close and
not in material default of its obligations under this Agreement;
         (c)  by   either   party  if  there   shall   have   been  a   material
misrepresentation  or breach of warranty  or a breach of a material  covenant on
the part of the other party in the  representations  and warranties or covenants
set forth herein or in any Schedule,  Exhibit or other  instrument  delivered in
connection herewith, which misrepresentation or breach is not cured prior to the
Closing;
         (d) by either party if any material claim,  investigation or litigation
relating to the assets of the business or the  transaction  is pending as of the
date of termination. SECTION 10 - DISPUTE RESOLUTION.
         10.1.1 Any dispute  arising out of or relating to this Agreement or any
document  delivered  at  Closing,  including,  but not  limited  to,  claims for
indemnification  pursuant to Section 5 shall be resolved in accordance  with the
procedures  specified in this Section 10, which shall be the sole and  exclusive
procedures for the resolution of any such disputes.
         10.1.2 The parties  shall  attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between the
appointed  representative  of the Seller and  executives  of  Purchaser  who, if
possible, are at a higher level of management than the persons with


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direct  responsibility for administration of this Agreement.  Any party may give
the other party written  notice of any dispute not resolved in the normal course
of business.  Within  fifteen days after  delivery of the notice,  the receiving
party  shall  submit to the other a written  response.  The notice and  response
shall  include (a) a statement  of each party's  position,  and (b) the name and
title of the executive who will  accompany  the  representative.  Within 30 days
after delivery of the disputing party's notice,  the executives of Purchaser and
Seller shall meet at a mutually  acceptable  time and place,  and  thereafter as
often as they reasonably  deem necessary to attempt to resolve the dispute.  All
reasonable  requests  for  information  made by one party to the  other  will be
honored.
         10.1.3 If the matter has not been resolved by these  persons  within 60
days of the disputing  party's notice,  or if the parties fail to meet within 30
days, either party may initiate mediation as provided.
         10.1.4 All  negotiations,  agreements and  mediations  pursuant to this
clause  are  confidential  and shall be  treated as  compromise  and  settlement
negotiations  for  purposes of the Federal  Rules of Evidence and State Rules of
Evidence.
         10.1.5 If the dispute has not been resolved by  negotiation as provided
herein,  the parties shall endeavor to settle the dispute by mediation under the
then current Center for Public  Resources  ("CPR") Model Procedure for Mediation
of  Business  Disputes.  The neutral  third party will be selected  from the CPR
Panels of  Neutrals,  with the  assistance  of CPR,  unless  the  parties  agree
otherwise.
         10.1.6 If the dispute has not been resolved by non-binding mediation as
provided herein within 90 days of the initiation of such procedure, either party
may  initiate  litigation  (upon 30 days  written  notice to the  other  party);
provided, however, that if one party has requested the other to participate in a
non-binding  procedure and the other has failed to  participate,  the requesting
party may initiate litigation before expiration of the above period.


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         10.1.7  Nothing  herein  shall be  construed  to prevent any party from
seeking  equitable relief in any court of competent  jurisdiction to restrain or
prohibit  any breach or  threatened  breach of any  covenant  of the parties set
forth in this Agreement. SECTION 11 - MISCELLANEOUS.
         11.1 Brokers' and Finders' Fees. The Seller and the Purchaser represent
and warrant to each other that neither of them has  employed any broker,  finder
or  intermediary  in  connection  with  the  transactions  contemplated  by this
Agreement who might be entitled to a fee or commission upon the  consummation of
the transaction contemplated hereby.
         11.2  Expenses.  The  parties  hereto  shall pay  their  own  expenses,
including  without  limitation their legal fees and expenses,  incidental to the
preparation  of this  Agreement,  the  carrying  out of the  provisions  of this
Agreement and the consummation of the transactions contemplated hereby.
         11.3 Contents of Agreement;  Parties in Interest;  etc. This  Agreement
sets forth the entire  understanding  of the parties  hereto with respect to the
transactions  contemplated hereby. It shall not be amended or modified except by
written  instrument  duly  executed by each of the parties  hereto.  Any and all
previous  agreements and  understandings  between or among the parties regarding
the subject  matter  hereof,  whether  written or oral,  are  superseded by this
Agreement.
         11.4 Assignment and Binding Effect.  All of the terms and provisions of
this  Agreement  shall be  binding  upon  and  inure  to the  benefit  of and be
enforceable by the successors and assigns of Seller and Purchaser.  No party may
assign its rights hereunder,  except Purchaser may assign its rights to a wholly
owned subsidiary if it unconditionally  guarantees such subsidiaries' obligation
hereunder.
         11.5 Waiver.  Any term or provision of this  Agreement may be waived at
any time by the party or parties  entitled to the benefit  thereof but only by a
written instrument duly executed by such party or parties.


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         11.6 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered  personally or sent by registered or
certified mail, postage prepaid, as follows:
         If to Purchaser:                   Industrial Rubber Products
                                            3804 East 13th Avenue
                                            P.O. Box 782
                                            Hibbing, Minnesota 55746

         If to Seller:                      Illinois Tool Works Inc.
                                            3600 West Lake Avenue
                                            Glenview, IL  60025
                                            Attn:  Corporate Secretary

or to such other address as the  addressee  may have  specified in a notice duly
given to the sender as provided herein. Such notice,  request,  demand,  waiver,
consent, approval or other communication will be deemed to have been given as of
the date so delivered, facsimiled or mailed.
         11.7 No Benefit to Others. The representations,  warranties,  covenants
and  agreements  contained  in this  Agreement  are for the sole  benefit of the
parties hereto and their successors and assigns, and they shall not be construed
as conferring any rights on any other persons.
         11.8  Schedules  and Exhibits.  All Exhibits and Schedules  referred to
herein  are  intended  to be and  hereby  are  specifically  made a part of this
Agreement.  If a document or matter is  disclosed  in any Exhibit or Schedule of
this  Agreement,  it shall be deemed to be  disclosed  for all  purposes of this
Agreement without the necessity of specific repetition or cross-reference.
         11.9 Severability.  Any provision of this Agreement which is invalid or
unenforceable  in any  jurisdiction  shall be  ineffective to the extent of such
invalidity or unenforceability  without invalidating or rendering  unenforceable
the remaining  provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render  unenforceable such provision in
any other jurisdiction.
         11.10  Cooperation.  Each party to this Agreement  shall  cooperate and
take such action as may be  reasonably  requested by any other party in order to
carry out the provisions and purposes of this Agreement.


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         11.11  Counterparts.  This  Agreement  may be executed in any number of
counterparts,  any party hereto may execute any such counterpart,  each of which
when executed and  delivered  shall be deemed to be an original and all of which
counterparts  taken together shall  constitute but one and the same  instrument.
This Agreement shall become binding when one or more counterparts taken together
shall been executed and  delivered by the parties.  It shall not be necessary in
making proof of this Agreement or any  counterpart  hereof to produce or account
for any of the other  counterparts.  Signatures  delivered by facsimile for this
Agreement  or any  document  delivered  at Closing  shall be binding to the same
extent as an original.
         11.12    Governing Law.  This Agreement shall be governed by the laws 
of the State of Minnesota.
         IN  WITNESS  WHEREOF,  the  parties  hereto  have  duly  executed  this
Agreement on the date first written.

Attest:                                  INDUSTRIAL RUBBER PRODUCTS, INC.

       s/ John M. Kokotovich             By:         s/ Daniel O. Burkes 
 Corporate Secretary
                                         Title:          President              


                                         ITW IRATHANE a division of
                                         ILLINOIS TOOL WORKS INC.

                                         By:           s/ Richard J. Budweg     
                                         Title:          General Manager ITW-PRC




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                                                  SCHEDULES AND EXHIBITS

Any schedules  called for in this Purchase  Agreement and not provided are to be
provided at Closing.


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