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                                                                       Exhibit B

                             MASTER LEASE AGREEMENT
                             ----------------------
                                  #79-0512001
                                  -----------

This Master Lease Agreement ("Agreement") is made as of May 12, 1997 between
Real Lease, Inc., ("Lessor") having its principal place of business at 20 N.
Main St., Pittsford, NY, and Magnetic Technologies Corporation ("Lessee")
Corporation having its principal place of business at 770 Linden Avenue,
Rochester, NY 14625.

1.   LEASE: Subject to the terms and conditions contained herein, Lessor
     hereby leases to Lessee and Lessee leases from Lessor, various items of
     personal property (collectively the "Equipment") or individually an "Item"
     described in one or more Equipment Schedules to be executed substantially
     in the form attached hereto. The terms "Equipment" and "Item" include, as
     applicable, any associated software systems and programming. Each
     Equipment Schedule incorporates the terms and conditions of this
     Agreement, and shall constitute separate, distinct and independent lease
     and contractual relationship between Lessor and Lessee. The term "Lease"
     shall mean the applicable Equipment Schedule which incorporates the terms
     and conditions of this Agreement and this Agreement. The term "Subsidiary"
     means any corporation, the majority of the shares of voting stock of which
     at any time outstanding is owned directly or indirectly by Lessee or by
     one or more of its other subsidiaries or by Lessee in conjunction with one
     or more of its other subsidiaries. By execution of this Agreement, the
     parties hereto agree to the terms and conditions pursuant to which
     Equipment may be leased from time to time by Lessor to Lessee.

2.   TERMS AND RENTAL PAYMENTS: The terms of this Agreement shall
     commence on the date set forth above and shall continue in effect
     thereafter so long as any "Lease" remains in effect. The term of each
     Equipment Schedule as to all or any item of Equipment designated on any
     Equipment Schedule shall commence on the first day of the month next
     succeeding the Acceptance Date, ("The Acceptance Date" is defined as the
     date the Lessee executes the Certificate of Acceptance for such
     equipment); and shall continue for a period ending that number of months
     from the date the first periodic rental payment is due as specified on the
     applicable Equipment Schedule. Lessee shall pay to LESSOR as BASIC RENT
     ("BASIC RENT") for each item the following:

     (i) On the ACCEPTANCE DATE, an amount equal to the MONTHLY RENT (as
     defined in the EQUIPMENT SCHEDULE) multiplied by a fraction, the numerator
     of which is the number of days remaining in the month of acceptance
     including the ACCEPTANCE DATE and the denominator of which is the actual
     number of days in that month. (ii) On the first day of the month next
     succeeding the ACCEPTANCE DATE and on the first of each month thereafter,
     an amount equal to the MONTHLY RENT for the item. If the ACCEPTANCE DATE
     occurs on the first of the month, BASIC RENT under (i) shall be due on the
     ACCEPTANCE DATE and MONTHLY RENT under this (iii) shall commence on the
     first of the next succeeding month.

     Rent shall be specified and payable in accordance with the terms as set
     forth in the Equipment Schedule. All payments shall be made at the office
     of Lessor at 20 N. Main St., Pittsford, NY or as otherwise directed by
     Lessor in writing.

     If Lessee fails to pay any periodic rent payment or other sum to be paid to
     Lessor after ten days of the due date, then, upon demand, Lessee shall pay
     a late charge of five cents per dollar on, and in addition to, the amount
     of such payment but not exceeding the maximum amount, if any, permitted by
     law ("late Charge").

3.   NET LEASE: This Lease is a net lease, it being the intention of the
     parties that all costs, expenses and liability associated with the
     Equipment or its lease shall be borne by Lessee unless expressly agreed to
     the contrary in the Lease. Lessee's agreement to pay all obligations
     hereunder, including by not limited to rent, shall be absolute and
     unconditional and such agreement is for the benefit of Lessor and its
     assignees. Lessee's obligations shall not be subject to any abatement,
     determent, reduction, setoff, defense, counterclaim or recoupment for any
     reason whatsoever. Except as may be otherwise expressly provided herein,
     the Lease shall not terminate, nor shall such obligations of Lessee be
     affected, by reason of any defect in or damage to, or any loss or
     destruction of, or obsolescence of, the Equipment or any Unit thereof from
     any cause whatsoever, or the interference with the use thereof by any
     private person, corporation or governmental authority, or as a result of
     any war, riot, insurrection or Act of God. It is the express intention of
     Lessor and Lessee that all rent and other sums payable by Lessee hereunder
     shall be, and continue to be, payable in all events throughout the term
     hereof. The Lease shall be binding upon the Lessee, its successors and
     assignees and shall inure to the benefit of Lessor and its successors and
     assignees, and all references to the Lessor shall include such successors
     and assignees.

4.   LOCATION AND USE OF EQUIPMENT: Lessee shall be solely responsible to
     install the Equipment or have it installed, to inspect the Equipment
     during installation, upon completion of installation to test the Equipment
     and to accept it pursuant to the terms of this Lease. The full risk of
     loss arising out of or in connection with delays, partial performance or
     non performance by supplier(s) shall be on Lessee, and Lessor shall not be
     liable for specific performance of this Lease or for damages if, for any
     reason, any supplier delays or fails to fill or improperly fills an order.
     During the term of this Lease, the Equipment shall be located at the
     address specified in the Equipment Schedule and shall not be removed from
     that address without the prior written consent of the Lessor. Lessee
     covenants and warrants that during the period any Equipment is leased to
     Lessee, or its successors or assigns, the Equipment will at all times be
     used and operated in compliance with the laws of the jurisdiction in which
     it is located, and in compliance with all acts, rules, regulations, and
     orders of any commission, board or other legislative, administrative, or
     judicial body or officer having power to regulate or supervise the use or
     operation of the Equipment. Lessee shall not install or use the Equipment
     in such a manner or in such circumstances that any part of the Equipment
     is deemed to be an accession to other personal property or deemed to be
     real property or a fixture thereon.


5.   ERRORS IN ESTIMATED COST: As used herein, "Total Cost" means the
     cost to Lessor of purchasing and delivering the Equipment to Lessee,
     including taxes and transportation and other charges. The amount of each
     rental payment set forth on the Equipment Schedule is based on the Total
     Cost initially set forth which is an estimate, and each shall be adjusted
     proportionally if the actual cost of the Equipment differs from said
     estimate. Lessee hereby authorizes Lessor to correct the figures set forth
     on the Equipment Schedule(s) when the actual cost is known, and to add to
     the amount of each rental payment any sales, use or other tax that may be
     imposed on or measured by rental payments. If the actual cost of the 
     Equipment differs from the estimated cost by more than twenty percent (20%)
     however, either party at its option may terminate the Lease with respect to
     the Equipment as to subsequent obligations by giving written notice to the
     other party within fifteen (15) days after receiving notice of the actual
     cost or the corrected rentals and Lessee shall reimburse and indemnify
     Lessor for any existing obligation and/or expenses incurred by Lessor such
     as but not limited to, open purchase orders and progress payments made to
     supplier(s). In this event all equipment and items shall be returned at
     Lessee's expense.

6.   INSPECTION: Lessee shall, whenever requested, advise Lessor of the
     exact location and condition of the Equipment and shall give Lessor
     immediate notice of any attachment or other judicial processes, liens or
     encumbrances affecting the Equipment and indemnify and save Lessor
     harmless from any loss or damage caused thereby. Lessor may for the
     purpose of inspection, at all reasonable business hours, enter any
     building or place where the Equipment is located. Lessor shall be entitled
     to review Lessee's maintenance records relating to the Equipment.

7.   PRESERVATION OF LESSEE'S EXISTENCE AND BUSINESS: (a) Lessee will
     preserve and keep in full force and effect Lessee's existence, rights,
     licenses and franchises and those of any Subsidiaries, necessary and
     material to Lessee's and Subsidiaries' operations taken as a whole. (b)
     Lessee will not make or permit to be made any material change in the
     character of Lessee's business or operations.

8.   FINANCIAL INFORMATION AND REPORTING: (a) Prior to and during the
     term of the Lease, Lessee will furnish Lessor, when reasonably available,
     with Lessee's audited financial statements. If Lessee is a subsidiary of
     another company, Lessee shall supply such parent's financial statements
     and guarantees as are acceptable to Lessor. Lessee shall also provide
     Lessor with such other statements and information concerning the Lessee's
     business condition, property, assets, including the Equipment, as Lessor
     may, from time to time, reasonably request. This obligation on the part of
     the Lessee includes litigation, claims of creditors, governmental claims
     and the like.


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     (b) Lessee will at all times maintain true and complete records and books
     of accounts including, without limiting the generality of the foregoing,
     appropriate reserves for possible losses and liabilities, all in accordance
     with generally accepted accounting principles consistently applied.

     (c) Lessee shall permit, and cause any Subsidiary to permit,
     representatives of Lessor (i) to visit and inspect any of the properties of
     Lessee or any Subsidiary (ii) to examine its or their corporate or
     partnership books and records, (iii) to make extracts or copies of such
     books and records, and (iv) to discuss its or their affairs, finances with
     its or their officers or partners, as applicable. The foregoing may be done
     at any time within regular business hours.

     (d) Lessee will at all times maintain true and complete records and books
     of account including, without limiting the generality of the foregoing,
     appropriate reserves for possible losses and liabilities, all in accordance
     with generally accepted accounting principles consistently applied.

     (e) Lessee shall permit, and cause any Subsidiary to permit,
     representatives of Lessor (i) to visit and inspect any of the properties of
     Lessee or any subsidiary (ii) to examine its or their corporate or
     partnership books and records, (iii) to make extracts or copies of such
     books and records, and (iv) to discuss its or their affairs, finances and
     accounts with its or their officers or partners, as applicable. The
     foregoing may be done at any time within regular business hours.

     (f) Lessee will promptly notify Lessor in writing of the commencement
     of any litigation to which Lessee or any of its affiliates may be a party
     (except for litigation in which Lessee's (or the affiliate's) contingent
     liability is fully covered by insurance) which if decided adversely to
     Lessee would adversely affect or impair the title of Lessor to the
     equipment of which, if decided adversely to Lessee would materially
     adversely affect the business operations or financial condition of Lessee.
     In addition, Lessee will immediately notify Lessor, in writing, of any
     judgment against Lessee, if such judgment would have the effect described
     in the preceding sentence.


9.   PAYMENT OF TAXES, DEBTS AND OBLIGATIONS: (a) Lessee shall pay all
     taxes, assessments, fees, charges, penalties and fines imposed upon the
     Equipment and/or arising out of the lease, use, possession or operation
     thereof and whether levied or assessed against Lessee or against Lessor.
     All Taxes, fees and similar charges imposed on the ownership, possession
     or use of the Equipment during the term of this Lease shall be paid by the
     Lessee. In case of failure of Lessee to pay said taxes, fees and similar
     charges, Lessor may pay the same, and the amount thereof shall be payable
     by Lessee as additional rent with the next rental payment.

     (b) Lessee will cause to be paid and discharged all its obligations
     when due and all lawful taxes, assessments and governmental charges or
     levies imposed upon Lessee or any Subsidiary, or upon any property, real,
     personal or mixed, belonging to Lessee or any Subsidiaries, or upon any
     part thereof, before the same shall become in default, as well as all
     lawful claims for labor, materials supplies which, if unpaid, might become
     a lien or charge upon the property or any part of it or the equipment.
     Notwithstanding the previous sentence, neither Lessee, if permitted by
     law, nor any Subsidiary shall be required to cause to be paid and
     discharged and obligation, tax assessment, charge, levy or claim so long
     as its validity is contested in the normal course of business and in good
     faith by appropriate and timely proceedings and Lessee or any Subsidiary,
     as the case may be, sets aside on its books adequate reserves in the
     amount of the contested tax or charge with respect to each tax,
     assessment, charge, levy or claim so contested, nor shall Lessee nor any
     Subsidiary be required to pay or discharge any trade indebtedness which is
     not past its stated due date by more than thirty (30) days.

10.  MAINTENANCE: Lessee shall enter into and maintain in force
     throughout the term of this Lease a maintenance agreement with the
     equipment manufacturer(s), or such other qualified maintenance
     organization as Lessee may select, covering maintenance of the Equipment.
     Lessee will cause the Equipment to be kept in good working order, repair
     and maintenance in accordance with the provisions of each maintenance
     agreement and will make all necessary adjustments and repairs to the
     Equipment. Any parts installed or replacements made by Lessee to any item
     pursuant to Lessee's obligation to maintain the Equipment shall be
     considered accessions and title thereto shall immediately vest in Lessor.
     Each manufacturer or service organization is hereby authorized to accept
     the directions of Lessee with respect thereto. Lessee shall allow the
     manufacturer(s) or service organization full and free access to the
     Equipment. All maintenance and service charges, whether under a
     maintenance agreement or otherwise, shall be borne by Lessee, including
     the expense, if any, of a manufacturer's or service organization's
     customer engineer charged in connection with maintenance and repair
     services. Lessee covenants that the Equipment will at all times be used and
     operated in accordance with each manufacturer's instructions and in
     compliance with any restriction contained in each manufacturer's
     warranties regarding the Equipment.


11.  ALTERATIONS AND ATTACHMENTS: Upon prior written notice to Lessor,
     Lessee may, at its own expense, make alterations in or add attachments to
     the Equipment provided any alteration or attachment shall not interfere
     with the normal operation of the Equipment or diminish the value of the
     collateral or result in a loss of manufacturer's warranty of the
     Equipment. The manufacturer may incorporate engineering changes or make
     temporary alterations to the Equipment upon request by Lessee. All such
     alterations and attachments, unless Lessor shall otherwise agree in
     writing, shall be removed by Lessee and the Equipment restored to its
     original condition, reasonable wear and tear excepted, upon termination of
     this Lease. If the alteration or attachment interferes with the normal and
     satisfactory operation or maintenance of the Equipment in a manner as to
     increase the cost of the Equipment, or create a safety hazard. Lessee
     shall promptly remove the alteration or attachment and restore the
     Equipment to its normal condition.

12.  INSURANCE: NOTICE OF ACCIDENT: (a) At its sole expense, Lessee shall secure
     and maintain in full force and effect throughout the term of all Equipment
     Schedules and any extension or renewals thereof, insurance against all
     risks including, but not limited to, theft, damage, or destruction of the
     Equipment in an amount equal to the aggregate Total Cost of all Equipment
     Schedules written in the broadest form available on usual commercial terms 
     and with carriers acceptable to Lessor. Lessee shall also maintain public
     liability insurance satisfactory to Lessor and with at least the minimum
     limits as set forth in the Equipment Schedule.

     (b) Upon execution of the Certificate of Acceptance, Lessee shall deliver
     the policy or policies or duplicates or certificates thereof, to Lessor.
     Lessee shall maintain a loss payable endorsement on all such policies
     in favor of Lessor and its successors and assigns and shall afford to
     Lessor and its successors and assigns such additional protection as Lessor
     and its successors and assigns shall reasonably require. All such insurance
     policies shall name Lessor, its successors and assigns, as additional
     insured and expressly provide that any obligations imposed upon the insured
     (including, without limitation, the obligation to pay premiums) shall be
     the obligation solely of Lessee and not the obligations of Lessor, its
     successors and assigns. Each policy shall expressly provide that (1) the
     insurance as to Lessor and its successors and assigns shall not be
     invalidated by any act, omission or neglect of Lessee, (2) the same may not
     be canceled, modified or allowed to lapse (for failure to renew or
     otherwise, without at least thirty (30) days prior written notice to Lessor
     or its successors and assigns), and (3) the insurance shall be primary,
     without right or contribution of any other insurance carried by or on
     behalf of Lessor with respect to its interests.

     In the event that any policies insuring against liability risks described
     above shall now or hereafter provide coverage on a "claim made" basis.
     Lessee shall continue to maintain such policies in effect for a period of
     not less than three years after the expiration of the Lease term of any
     Equipment Schedule.

     (c) Lessor and its successors and assigns may apply the proceeds of
     insurance to replace or repair the Equipment and/or to satisfy Lessee's
     obligation hereunder, as determined in Lessors's sole discretion. If Lessee
     fails to pay when due any insurance premium for any policy written
     hereunder, then Lessor may make such premium payment and add the amount
     thereof to the next rent payment, and such premium amounts shall become
     rent. Lessee appoints Lessor as Lessee's attorney-in-fact to make any claim
     for, to receive payment for and to execute and endorse in the name of the
     Lessee any documents, checks or other instruments in payment for loss,
     theft or damage under any such insurance policy. Lessor shall be under no
     duty to ascertain the existence of any insurance coverage or to examine any
     certificate of insurance or other evidence of insurance coverage or to
     advise Lessee in the event the insurance coverage does not comply with the
     requirements of this Agreement.

     (d) Lessee will maintain, and cause any Subsidiaries to maintain,
     insurance from duly licensed and responsible insurers on all property of
     Lessee and any Subsidiaries to its full insurable value, except to the
     extent limited by applicable insurance law. This insurance shall be
     against risks of fire and all other risks as fall within "extended
     coverage" as that term is generally understood in the insurance industry.
     Lessee shall also maintain, and cause any Subsidiaries to




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     maintain, additional insurance in such amounts and against such risks,
     including, without limitation product liability, personal injury, property 
     damage, and workers compensation, as is usually carried by owners of
     similar businesses of similar size and profits or as Lessor may reasonably
     require.

     Lessee will promptly notify the appropriate insurer, Lessor and any
     assignee, of any accident or occurrence which may become the basis of a
     claim against the insured. In connection with any claim against Lessor
     and/or Lessee arising out of the ownership, operation, maintenance and
     use of the Equipment. Lessee agrees to cooperate with Lessor in defending
     against such claims, including making Lessee's employees available to
     Lessor without charge.

13.  INDEMNIFICATION: To the fullest extent permitted by law, Lessor, its
     officers, employees, agents, successors and assigns, shall not be liable
     to Lessee for, and Lessee shall and does indemnify and hold Lessor, its
     officers, employees, agents, successors and assigns, harmless with respect
     to any third party from any liability (including liability for Lessee
     negligence), claim, loss, damage or expense (including litigation expense)
     of any kind or nature arising out of this Lease, or the transactions
     contemplated in this Lease, including, but not limited to: (a) the
     inadequacy of any item of Equipment for any purpose; (b) any deficiency or
     defect of any item of Equipment; (c) the use or performance or maintenance
     of any item of Equipment; (d) any interruption or loss of service, use or
     performance of any item of Equipment or (e) any loss of business or other
     consequential damage whether or not resulting from any of the foregoing. 
     IN PARTICULAR, LESSOR AND ITS SUCCESSORS AND ASSIGNS SHALL NOT
     BE LIABLE FOR INJURIES TO PERSONS OR DAMAGE TO ANY ITEM OF EQUIPMENT OR
     OTHER PROPERTY UNDER ANY THEORY INCLUDING STRICT LIABILITY, AND LESSEE
     SHALL INDEMNIFY AND SAVE LESSOR AND ITS SUCCESSORS AND ASSIGNS HARMLESS
     FROM ANY SUCH LIABILITY AND ALL COSTS AND EXPENSES IN DEFENDING THE SAME.
     This obligation to indemnify shall apply from the date of the execution of
     the Equipment Schedule out of which the claim arises, notwithstanding
     that the lease term may not have commenced. All of Lessor's and its
     successors' and assigns' rights under this section shall survive the
     termination of this Lease. However Lessee shall not be required to
     indemnify Lessor or its successors or assigns for claims arising from
     events which occur after the Equipment has been redelivered to Lessor, its
     successors or assigns.

14.  RISK OF LOSS: (a) Lessee hereby assumes and shall bear the entire risk of
     loss, theft, damage and destruction of the Equipment, whether partial or
     complete, from any cause whatsoever. No loss, theft, damage or destruction
     of Equipment shall relieve Lessee of the obligation to pay rent or any
     other obligation of this Lease, and, except as provided below, this Lease
     shall remain in full force and effect. Lessee shall promptly notify lessor
     in writing of any such loss, theft, damage or destruction of the
     Equipment. Lessor shall not be liable to lessee for any loss, damage or
     expense of any kind or nature, caused directly or indirectly by any item
     of Equipment or by the use, maintenance, repair, failure, destruction or
     damage of any Equipment.

     (b) In the event of damage of any kind whatsoever to the Equipment (unless
     the same is damaged beyond repair), Lessee, at the option of Lessor, shall
     at Lessee's expense (i) place the same in good repair, condition and
     working order, or (ii) replace the same with like Equipment of the same or
     a later model, and in good repair, condition and working order and
     provide Lessor good and valid title thereto.

     (c) In the event that the Equipment is lost, stolen, destroyed or damaged
     beyond repair (any such event is referred to as an "Event of Loss"),
     Lessee, at the option of Lessor, shall (i) at Lessee's expense replace the
     same with like Equipment of the same or later model, in good repair,       
     condition and working order and provide Lessor good and valid title
     thereto or (ii) pay to Lessor an amount equal to the unpaid balance of the
     rent and any other sums then due or past due, (plus the Stipulated Loss 
     Value attributable to the Equipment as set forth on Attachment 1 to the
     Equipment Schedule) calculated on the rental payment date immediately
     preceding the date of the loss (this option shall only be applicable if a
     Stipulated Loss Value table is referenced in the Equipment Schedule) or
     (iii) pay to Lessor an amount equal to the unpaid balance of the rent and
     any other sums then due plus, the balance of any remaining rents
     (discounted at the rate of six (6) percent per annum) attributable to the
     Equipment during the term and extension thereof, if any, of this Lease.
     Upon such payment Lessee's obligation to pay further rent for such
     Equipment shall cease, and Lessee thereupon shall become entitled to the
     Equipment paid for "as-is-where-is", without recourse or warranty, express
     or implied, with respect to any matter whatsoever.

     (d) To the extent of Lessee's expense actually incurred to repair or
     replace the Equipment or of Lessee's payment to Lessor for the loss,
     theft, damage or destruction of any item of Equipment, Lessee shall then
     be entitled to receive from Lessor any insurance or recovery received by
     Lessor in connection with such loss, theft, damage or destruction, and any
     amount of insurance or recovery received by Lessor in excess of Lessee's
     expenses actually incurred or paid to Lessor shall belong to Lessor.
     Lessor shall not be obligated to deliver to Lessee any insurance or
     recovery received by Lessor in connection with any loss, theft, damage or
     destruction until Lessee has provided Lessor with such documents as Lessor
     shall deem necessary or desirable for purposes of evidencing that the
     Equipment has been repaired or replaced in accordance with this Section
     14.

15.  OWNERSHIP OF EQUIPMENT: The Equipment shall at all times remain personal 
     property, and title thereto shall remain solely in Lessor or Lessor's
     Assignee. The Equipment may be removed by Lessor at any time after
     termination of this Lease. Lessee shall affix tags, decals or plates to   
     the Equipment indicating Lessor's ownership, which type of tag, decal or
     plate and location may be specified by Lessor, and Lessee shall not permit
     their removal or concealment. Lessee shall cause each item of Equipment to
     be kept numbered with the serial number specified in the Certificate of
     Acceptance. Lessee shall, at its own expense, protect and defend Lessor's
     title in the Equipment against all claims and liens of Lessee's creditors
     and keep the Equipment free and clear of all claims, liens and
     encumbrances except those resulting from the agreements or acts of Lessor.
     At Lessor's request Lessee shall obtain and record such instruments and
     take such steps as may be necessary to prevent any entity from acquiring
     any rights in the Equipment by reason of the Equipment being claimed as or
     deemed as real property.

     In the event this Agreement or any Equipment Schedule thereto shall be
     adjudged or determined to be a Lease, the Lessor's retention of title to
     the Equipment shall be construed to be, and Lessee does hereby grant to
     lessor, a security interest in the Equipment, insurance covering the
     Equipment and all of the proceeds of the foregoing.

16.  ASSIGNMENT: Neither this Lease nor Lessee's rights hereunder shall be
     assignable in whole or in part by Lessee except with Lessor's prior
     written consent, and the provisions hereof shall bind any permitted
     successors and assigns of Lessee. Lessor shall have the right to assign
     this Lease or any part thereof. If Lessor assigns the rental reserved
     herein or all or any of Lessor's other rights hereunder, or amounts
     equal thereto, the right of the Assignee to receive the rentals as well as
     any other right of the Assignee shall not be subject to any defense,
     setoff, counterclaim, or recoupment which may arise out of any breach or
     obligation of Lessor in connection herewith or by reason of any other
     indebtedness or liability at any time owing by Lessor to Lessee. All
     rentals due hereunder shall be payable to the Assignee by Lessee whether
     or not this Lease is terminated by operation of Law or otherwise,
     including without limitation, termination arising out of bankruptcy,
     reorganization or similar proceeding involving Lessor. On receipt of
     notification of such assignment, Lessee, subject to its rights hereunder,
     shall become the pledgeholder of the Equipment for and on behalf of the
     Assignee and will relinquish possession thereof only to the Assignee or
     pursuant to its written order. Lessee, on receiving notice of any such
     assignment, shall abide thereby and make payment as may herein be
     directed. Following any such assignment the term "Lessor shall be deemed
     to include or refer to Lessor's Assignee, provided that no such Assignee
     shall be deemed to assume any obligation or duty imposed upon Lessor
     hereunder, and Lessee shall look only to Lessor for performance thereof.

     Lessee is further directed that after assignment of a Lease only Assignee  
     shall have the right or power to compromise, settle, extend or otherwise
     negotiate the terms of payment under that Lease.

17.  SECURITY INTEREST: Where appropriate, Lessor shall file all necessary
     documents, including UCC financing statement, in connection with this Lease
     so as to perfect Lessor's security interest under the Lease. Lessee shall
     execute and deliver to Lessor such documents (including UCC financing
     statements) as Lessor shall deem necessary or desirable for purposes of
     evidencing, protecting or recording the rights and interest of Lessor in
     the Equipment or this Lease and in furtherance of the performance of the
     terms and conditions of this Lease. All reasonable expenses (including UCC
     search and filing fees) related thereto shall be paid by Lessee. Lessee
     hereby irrevocably appoints Lessor and Lessor's assignee as its lawful
     attorney and agent to execute UCC financing statements on Lessee's behalf
     and hereby authorizes Lessor and Lessor's  assignee to file, at Lessee's
     expense, such UCC financing statements in any appropriate public office.

18.  EVENTS OF DEFAULT AND LESSOR'S REMEDIES: (a) Each of the following
     events shall constitute an event of default ("Event of Default")   
     hereunder: (i) Lessee fails to pay any rent or other amount due hereunder
     within ten (10) days after the same is due and payable; or (iii) Lessee
     fails to perform any other

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     obligation or observe any condition of this Lease required to be performed
     or observed by Lessee; or (iii) any representation, warranty or statement
     made to Lessor by Lessee (or any guarantor of Lessee's obligation under
     this Agreement) in connection with the transactions contemplated under this
     Lease shall have been false in any material respect when made; or (iv)
     Lessee attempts to sell, transfer, encumber, part with possession of,
     assign or sublet or move (except as expressly permitted by the provisions
     hereof) any item of Equipment; or (v) Lessee fails to insure (pursuant to
     Section 12 hereof) any item of Equipment; or (vi) Lessee fails to deliver
     to Lessor any documents required by Lessor under the Lease; or (vii)
     Lessee (or any guarantor of Lessee's obligations under this Agreement) is
     in default under any other agreement with Lessor, Lessor's Assignee or any
     of its affiliates; or (viii) Lessee ceases doing business as a going
     concern; or (ix) Lessee (or any guarantor of Lessee's obligations under
     this Agreement) shall consolidate with or merge into any other entity, or
     convey, transfer or lease substantially all of its assets to any other
     entity; or (x) the corporate existence of Lessee (or any guarantor of
     Lessee's obligations under this agreement) shall terminate; or (xi) any of
     Lessee's issued and outstanding shares of capital stock are sold,
     assigned, pledged, transferred, exchanged in a corporate reorganization or
     otherwise disposed of or new shares of such stock are issued and such
     sale, assignment, pledge, transfer, exchange, issuance or other disposition
     results in vesting the "control" of such corporation in a person (or
     persons) not presently having control and not approved by Lessor in
     writing prior to such vesting (except for involuntary transfers of such
     stock by operation of law.) "Control" shall be deemed vested in the person
     or persons owning more than fifty percent (50%) of the number of issued
     and outstanding shares of such stock, however designated, or holding more
     than fifty percent (50%) of the voting power for the election of members
     of the Board of Directors of the Lessee; or (xii) Lessee (a) incurs any
     accumulated funding deficiency within the meaning of the Employee
     Retirement Income Security Act of 1974, as amended from time to time and
     the regulations thereunder, equal to 5% of Consolidated Tangible Net Worth
     of Lessee or (b) incurs any liability of comparable size to the Pension
     Benefit Guaranty Corporation; or (xiii) Lessee or any subsidiary fails to
     comply with the provisions of the Fair Labor Standard Act of 1938, as
     amended; or (xiv) Lessee is, or permits any subsidiary to be, in violation
     of any law or regulation, order, writ, injunction or decree of any court
     of governmental instrumentality or is in breach of any agreement or
     instrument to which Lessee or any Subsidiary is subject or is in default
     thereunder; or (xv) Lessee (or any guarantor or Lessee's obligations under
     this Agreement) applies for or consents to the appointment of a receiver,  
     trustee, assignee, custodian or liquidator of its business or any
     substantial part of its property; or (xvi) Lessee (or any guarantor of
     Lessee's obligations under this Agreement) fails to pay its debts
     generally as they become due; or (xvii) Lessee (or any guarantor of
     Lessee's obligations under this Agreement) makes a general assignment for
     the benefit of creditors; or (xviii) Lessee (or guarantor of Lessee's
     obligations under this Agreement) falls within sixty (60) days to lift any
     execution, garnishment or attachment of such consequences as will impair
     its ability to carry on its operations under this Lease; or (xix) Lessee
     (or guarantor of Lessee obligations under this Agreement) commences (as
     the debtor) a case in bankruptcy (including a petition for reorganization
     or arrangement) under the United States Bankruptcy Code or a proceeding
     under any state or federal insolvency law; or (xx) a case in
     bankruptcy or any other proceeding (including a petition for
     reorganization or arrangement) under the United States Bankruptcy Code or
     any case or proceeding under any other insolvency law shall be commenced
     against Lessee (or guarantor of Lessee's obligations under this
     Agreement), (as the debtor) involuntarily or a decree or order for relief
     against Lessee (or guarantor of Lessee's obligations under this Agreement)
     (as the debtor) shall be entered in any court of competent jurisdiction,
     and such case, proceeding or decree or order is not dismissed within forty
     (40) days after such commencement or entry, or Lessee (or guarantor of
     Lessee's obligations under this Agreement) shall consent to or admit the
     material allegations against it in any such case or proceeding; or (xxi) a
     trustee, assignee, receiver, custodian or agent (however named) is
     appointed or authorized to take charge of any substantial part of Lessee's
     for any guarantor of Lessee's obligations under this Agreement) property.

     (b) Upon the occurrence of any event of Default, Lessor may declare the
     Lessee in default. At its option, Lessor may declare a default in all
     Leases and any other agreement between Lessor, or any affiliate of Lessor
     and Lessee except as specifically exempted therefrom by Lessor in such
     declaration. In the case of an Event of Default, Lessor or its agents
     shall have the right, at their option, to exercise any or all of the
     rights and remedies available to a secured party under the Uniform
     Commercial Code and, in addition, to do any or all of the following: (i)
     to declare immediately due and payable without notice or demand to Lessee
     an amount equal to the balance of unpaid rent and any other sums then due
     plus the balance of the rent and any other sums to become due      
     (discounted at a rate of four (4) percent per annum) during the term and
     extension thereof, if any, of this Lease and/or (ii) to sue for and
     recover from Lessee an amount equal to the unpaid balance of rent and any
     other sums then due plus the balance of rents and any other sums to become
     due (discounted at a rate of four (4) percent per annum), during the term
     and extension thereof, if any, of this Lease (hereinafter "Unpaid Rent");
     and/or (iii) to take possession of any or all item(s) of Equipment without
     demand or notice wherever the same may be located without any court order
     or other process of law. Upon taking possession of any or all Item(s) of
     Equipment, Lessor at its option may (i) lease the repossessed Equipment to
     any third party on such terms and conditions as Lessor may determine, or
     (ii) sell the Equipment or any part thereof at public auction or at
     private sale. In the event Lessor re-lets the repossessed Equipment, then
     Lessor shall credit against the Unpaid Rent the present value of the
     aggregate of the rent to be received from the re-lease during the
     remaining term of the applicable Equipment Schedules (discounted at a rate
     equal to the sum of the prime interest rate in effect at OnBank & Trust
     Co., on the date such re-lease is entered into plus 2%). In the event
     Lessor sells the repossessed Equipment, then Lessor shall credit all
     amounts received from the sale, less expenses incurred in connection
     therewith, to the Unpaid Rent due. Lessee hereby agrees to peaceably
     deliver the Equipment to Lessor upon demand after an Event of Default is
     declared by Lessor; Lessee waives any and all damages occasioned by such
     taking possession. Any such taking of possession shall not constitute a
     termination of this Lease and shall not relieve Lessee of its original
     obligation hereunder unless Lessor expressly so notifies Lessee in
     writing. 

     (c) Should any proceeding be instituted by Lessor to recover any monies
     due and/or to become due hereunder and/or for the possession of the
     Equipment, Lessee shall pay a reasonable sum as attorneys fees and
     collection agency fees, court costs and repossession expenses.

     The exercise, or the beginning of exercising by the Lessor of any one or
     more of such remedies described above shall not constitute the exclusive
     election of such remedies and shall not preclude the simultaneous or later
     exercise by Lessor of any or all of such other remedies.
                               
19.  LESSEE'S AND LESSOR'S WARRANTIES: (a) Lessee hereby warrants and represents
     to Lessor, its successors and assigns that: (i) Lessee's execution and
     performance of this Lease has been duly authorized by all necessary
     corporate action and is not now and will not be in conflict with Lessee's
     charter or by-laws, or with any indenture, contract, or agreement by which
     it is bound, or with any statute, judgment, decree, rule or regulation
     binding upon it; (ii) no consent or approval of any trustee or holder of
     any indebtedness or obligation of Lessee, and no consent or approval of any
     governmental authority, is necessary for Lessee's execution of performance
     of this lease; (iii) there is no litigation or other proceeding pending, or
     to the best of the Lessee's knowledge, threatened against or affecting
     Lessee which, if decided adversely to Lessee would adversely affect or
     impair the title of Lessor to the Equipment or which, if decided adversely
     to Lessee would materially adversely affect the business operations or
     financial condition of Lessee; (iv) all balance sheets, statements of
     profits and loss and other financial data that have been delivered to
     Lessor with respect to Lessee are complete and correct in all material
     respects, fairly present the financial condition of the Lessee on the dates
     for which, and the results of its operations for the periods for which, the
     same have been furnished and have been prepared in accordance with
     generally accepted accounting principles consistently applied; (v) there
     has been no material adverse change in the condition of Lessee, financial
     or otherwise, since the data of the most recent financial statements
     delivered to Lessor (vi) this Lease is valid and binding and enforceable
     against Lessee in accordance with its terms, subject to enforcement
     limitations imposed by rules of equity or by terms, subject to enforcement
     limitations imposed by rules of equity or by bankruptcy or similar laws.
     Upon Lessor's request, Lessee shall submit to Lessor an opinion of Lessee's
     counsel that the above warranties and representations are true. These
     warranties will be considered as renewed with the execution of such new
     Equipment Schedule.

     (b) Lessor hereby warrants and represents to Lessee, its successors and
     assigns that: (i) Lessor's execution and performance of this Lease has
     been duly authorized by all necessary corporate action and is not now and
     will not be in conflict with Lessor's charter and by-laws, or with any
     indenture, contract or agreement by which it is bound, or with any statute,
     judgment, decree, rule or regulation binding upon it; (ii) no consent or
     approval of any trustee or holder of any indebtedness or obligation of
     Lessor, and no consent or approval of any government authority, is 
     necessary for Lessor's execution or performance of this Lease and (iii)
     this Lease is valid and binding and enforceable against Lessor in
     accordance with its terms, subject to enforcement limitations imposed by
     rules of equity or by Bankruptcy or similar laws. These warranties will be
     considered as renewed with the execution of each new Equipment Schedule.

20.  JOINT AND SEVERAL LIABILITY; AUTHORITY TO SIGN; SUBSIDIARIES; PURCHASE OF
     EQUIPMENT: If more than one party executes this Lease as Lessee, each such
     party shall be jointly and severally bound by the terms and provisions of
     this Lease. Any person who signs as an officer or agent for a corporation,
     partnership or other entity warrants that the signer has authority for
     such corporation, partnership or other entity to enter into this Lease on
     its behalf. A violation of this warranty will mean personal liability of
     the person so signing. Each Item of Equipment delivered pursuant to this
     Lease by Lessor to a subsidiary of Lessee or to any entity or person
     designated by Lessee, whether at the request of Lessee or such subsidiary, 
     entity or person shall be Equipment for all purposes of this Lease, and
     Lessee shall be and remain primarily liable for its obligations under this
     Lease with respect to such Equipment. Lessor shall not be obligated to
     purchase and deliver any Item of Equipment unless Lessor has executed an
     Equipment Schedule covering the Equipment.



<PAGE>   5
21.  MODIFICATION: No change, modification, or alteration of, and no additions
     to, the terms of this Lease shall be effective or binding on Lessor unless
     the same is in writing and signed by Lessor. In the event of conflict
     between the terms of this Lease and the Equipment Schedule, the Equipment
     Schedule shall govern. Any additional terms contained in the Equipment
     Schedule shall become part hereof.

22.  NOTICES: (a) Lessee will immediately notify Lessor in writing with full
     details if (i) any event occurs or any condition exists which constitutes,
     or which but for a requirement of lapse of time or notice or both would
     constitute and Event of Default under Section 18, or which might materially
     and adversely affect the financial condition or operations of Lessee or of
     any Subsidiary or (ii) any representation or warranty made in this Master
     Lease Agreement or in any writing related to it may for any reason cease in
     any material respect to be true and complete.

     (b) All notices relating to this Lease, shall be in writing and shall be
     deemed given when delivered or when deposited in the U.S. mail, certified,
     postage prepaid and addressed with the full name and address of the
     appropriate party set forth above, or to such other address as may have
     been furnished by written notice from the party to whom notice is sent.

23.  TIME OF ESSENCE; ENTIRE AGREEMENT; WAIVER; SURVIVAL OF TERMS: Time is of
     the essence of this Lease. Except as herein provided, this lease
     constitutes the entire agreement between parties and shall be binding upon
     the parties and their respective successors or assigns, and shall only be
     amended by a written instrument signed by Lessor and Lessee. Any waiver of
     the performance of any of the terms, conditions or covenants hereof by
     either party shall not be construed as thereafter waiving any such terms,
     conditions or covenants, but the same shall remain in full force and
     effect, as if no such waiver has occurred. Lessee's obligations and
     liabilities under this Lease shall not be affected by the expiration or
     earlier termination of this Lease.

24.  APPLICABLE LAW:  This Lease shall be governed by and in accordance with the
     laws of the State of New York. At Lessor's option, any action or proceeding
     relating directly or indirectly to this Lease shall be tried without a jury
     in a court of competent jurisdiction located in the State of New York.
     Lessee hereby consents to jurisdiction of any court of competent
     jurisdiction chosen by Lessor. This Lease shall be deemed to have been made
     in the State of New York, regardless of the order in which it was executed.
     Lessee consents to venue as being in Onondaga County, New York.

25.  HEADINGS: The Headings of each numbered paragraph are for reference only
     and constitute no substantive part of this Lease.

26.  ACKNOWLEDGEMENT AND WARRANTIES: Lessee acknowledges that it has selected
     both (a) the Equipment and (b) the manufacturer(s) and/or supplier(s) from
     whom Lessor is to purchase the Equipment. LESSOR MAKES NO WARRANTY, EXPRESS
     OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE
     EQUIPMENT, ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND,
     AS TO LESSEE, LESSOR LEASES THE EQUIPMENT AS IS, NO DEFECT OR UNFITNESS OF
     THE EQUIPMENT SHALL RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR OF ANY
     OBLIGATION UNDER THIS LEASE. LESSOR WARRANTS TO LESSEE THAT, SO LONG AS NO
     EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, LESSOR WILL NOT INTERFERE
     WITH THE LESSEE'S USE AND POSSESSION OF THE EQUIPMENT.

     If the Equipment is unsatisfactory for any reason, Lessee's remedy shall be
     to make any claim on account thereof solely against the manufacturer or
     supplier. Lessor hereby agrees to assign to Lessee, solely for the purpose
     of making and prosecuting any such claim, all of the rights which Lessor
     has against such manufacturer or supplier for breach of warranty or other
     representation respecting the Equipment to the extent the same are
     assignable.

27.  LESSOR'S RIGHT TO CURE: Upon Lessee's failure to perform any of its duties
     under a Lease, Lessor may, but shall not be obligated to, perform any or
     all such duties, and Lessee shall pay an amount equal to the expenses
     thereof to Lessor forthwith upon demand by Lessor or such amount shall be  
     due as additional rent with the next rental payment. No such performance
     of any or all such duties by Lessor shall be deemed to cure any Event of
     Default of Lessee.

28.  ADDITIONAL ASSURANCES:  If Lessor shall request, Lessee shall execute and
     deliver to Lessor such documents as Lessor shall reasonably deem   
     necessary, or desirable.

     Lessee hereby authorizes Lessor to make corrections, if necessary to the
     description of Equipment, quantities, model numbers and/or serial numbers
     on the Equipment Schedule, Certificate of Acceptance, UCC-1 financing
     statements covering the Equipment and all other related documents. Lessor
     will provide Lessee with a copy of the corrected documents.

29.  MODIFICATIONS/ADDITIONAL PROVISIONS: See attached Addendum, if there are
     any modifications or additions thereto.

30.  DELIVERY OF DOCUMENTS: Lessee agrees that upon request and without any
     undue delay, Lessee will deliver to Lessor such documents as Lessor may
     request to secure and/or complete Lease and/or complete any aspects of the
     financing of this or any Lease including but not limited to a Certificate
     of Delivery and Acceptance for the Equipment, an Incumbency Certificate,
     and Opinion of Counsel on a matter Lessor may decide is reasonably
     required, and Board of Director's Resolution Authorizing the transactions
     contemplated by this Master lease, and if Lessee's publicly audited
     financial statements are not available, or if the Lessor deems advisable, a
     Guarantee of Performance by the Parent Corporation of Lessee or some other
     acceptable Guarantee. If a request is made for any such documentation prior
     to the delivery of any of Equipment, receipt by Lessor of such
     documentation shall be a condition precedent to Lessor's obligation to
     deliver said Equipment.

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

IN WITNESS WHEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE DULY EXECUTED
AS OF THE DATE FIRST ABOVE WRITTEN

LESSOR: Real Lease, Inc.          LESSEE: Magnetic Technologies Corporation
       ------------------------          --------------------------------------
BY: /s/ Paul Masiek               BY: /s/ Gordon H. McNeil
   ----------------------------      ------------------------------------------

TITLE:  EVP                       TITLE: President & C.E.O.
      -------------------------         ---------------------------------------

THIS IS COUNTERPART NO. 1 OF 2 SERIALLY NUMBERED, MANUALLY EXECUTED
COUNTERPARTS.
<PAGE>   6
                             PURCHASE OPTION RIDER

                  TO MASTER LEASE AGREEMENT DATED MAY 12, 1997

                                    BETWEEN

                          REAL LEASE, INC. ("LESSOR")

                                      AND

                  MAGNETIC TECHNOLOGIES CORPORATION ("LESSEE")

                            MASTER LEASE #79-0512001

                                     UNDER

                    EQUIPMENT SCHEDULE 01 DATED MAY 12, 1997

                              ADDITIONAL PROVISION
                              --------------------

The following provision is hereby agreed upon and made a part of the referenced
lease:

Provided the Lessee has faithfully performed and carried out the terms and
conditions of the Lease, on its part to be kept and performed, and pursuant to
the terms of the "Purchase Option" section of the above referenced Equipment
Lease.

1. PURCHASE. At the end of the initial lease term, or at the end of any
subsequent renewal term, Lessee may purchase from Lessor, not less than all of
the Equipment leased hereunder "As-Is, Where-Is", without recourse or warranty
for a cash consideration ("Purchase Price") of $1.00 (One dollar), together
with any applicable sales tax.

2. TITLE. All of Lessor's rights, title and interest in and to the Equipment
shall pass to Lessee upon receipt by Lessor of the Purchase Price in full. This
Lease will automatically renew on a month to month basis and Lessee shall
continue making regular monthly lease payments to Lessor if purchase price is
not paid in full.

LESSOR: Real Lease, Inc.                     LESSEE: Magnetic Technologies  
                                                        Corporation

BY: /s/ Paul Masiek                          BY: /s/ Gordon H. McNeil
   -------------------------                    -------------------------------
TITLE: EVP                                   TITLE: President & CEO
      ----------------------                       ----------------------------
DATE: May 12, 1997                           DATE: May 12, 1997