INTERCREDITOR AGREEMENT

         This  Agreement is made as of April 22, 1999 by and between WELLS FARGO
BUSINESS  CREDIT,  INC.,  f/k/a Norwest Business  Credit,  Inc.  ("WFBCI"),  and
WebBank Corporation ("WebBank").

         WHEREAS,  WFBCI has made and may in the future make  advances and grant
other financial accommodations to Naco Industries, Inc., a Utah corporation (the
"Borrower")   including   without   limitation   advances  and  other  financial
accommodations  made in  accordance  with a Credit and  Security  Agreement  and
certain documents executed in connection  therewith,  each dated as of April 22,
1999  between the  Borrower  and WFBCI,  as the same may  hereafter  be amended,
supplemented or restated from time to time (the "WFBCI Credit Agreement"); and

         WHEREAS,  in connection with the WFBCI Credit  Agreement,  the Borrower
has granted to WFBCI a security  interest  (the "WFBCI  Security  Interest")  in
substantially all of the Borrower's assets,  including but not limited to all of
the Borrower's accounts receivable,  equipment,  inventory, general intangibles,
and all proceeds and products of the foregoing (collectively, the "Collateral").
Collateral  as used herein  specifically  excludes  real  property  owned by the
Borrower; and

         WHEREAS,  WebBank  intends to provide the  Borrower  with a loan in the
amount of $1,100,000 (the "WebBank Loan") secured by certain  equipment and real
property as set forth on Exhibit A attached hereto and incorporated  herein (the
"WebBank  Collateral")  and in  connection  with such loan,  WebBank  desires to
acquire a security  interest in the WebBank  Collateral  (the "WebBank  Security
Interest"); and

         WHEREAS,  in accordance with the WFBCI Credit Agreement and the WebBank
Loan,  the  Borrower  is  proscribed  from  borrowing  money  from any person or
granting  to any person a security  interest  in any of its assets  without  the
consent of WFBCI or  WebBank,  as the case may be, and breach of such  covenants
would cause a default under the WFBCI Credit  Agreement and the WebBank Loan, as
the case may be; and

         WHEREAS,  WFBCI is willing to consent to the WebBank Loan and the grant
by the  Borrower  of the  WebBank  Security  Interest  and WebBank is willing to
consent to the WFBCI Credit Agreement and the grant by the Borrower of the WFBCI
Security Interest, on the terms and subject to the conditions hereof;

         NOW THEREFORE,  in  consideration  of the mutual promises and covenants
hereinafter set forth, and in  consideration  of the recitals,  which are hereby
made a part of this Agreement, it is hereby agreed by the parties that:

         1.  Priorities.  At all  times,  whether  before,  during  or after the
pendency of any bankruptcy,  reorganization or other insolvency proceeding,  and
notwithstanding the actual priority of the perfected security  interests,  liens

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or other  encumbrances  of the  respective  parties,  which any such party would
otherwise  obtain  over and by  virtue  of a prior  filing  or  obtaining  prior
possession  of any  collateral  pledged by the Borrower in  connection  with the
WFBCI Credit  Agreement or the WebBank Loan (if any such liens are  perfected by
possession),  the priority  with respect to such  security  interests,  liens or
other encumbrances will be as follows:

                  (a)  As  to  the  WebBank  Collateral,  the  WebBank  Security
Interest  shall have  priority  over the WFBCI  Security  Interest and the WFBCI
Security Interest is hereby expressly subordinated thereto.

                  (b)  As  to  the   Collateral   (exclusive   of  the   WebBank
Collateral),  the WFBCI  Security  Interest shall have priority over the WebBank
Security  Interest  and  the  WebBank  Security  Interest  is  hereby  expressly
subordinated thereto.

                  (c) WFBCI specifically  disclaims any right,  title,  security
interest, lien or encumbrance on any of the real property owned by the Borrower.

The subordinations and relative priority  agreements set forth in this paragraph
1 are  expressly  conditioned  upon the  non-voidability  and  perfection of the
security  interests  described herein. If the security interest to which another
interest is  subordinated  is not perfected or is voidable for any reason,  then
the  subordination  provided  for  herein  shall  not be  effective  as to  that
particular part of the Collateral.

         2.  Collections.  None of the  parties  hereto  will (i)  exercise  any
collection rights with respect to any of the Collateral to the extent such party
has subordinated its interest in such Collateral pursuant to paragraph 1 hereof;
(ii)  take  possession  of,  sell or  dispose  of, or  otherwise  deal with such
Collateral;  or (iii)  exercise  or  enforce  any right or  remedy  which may be
available to such party with respect to such  Collateral  upon default,  without
the prior  written  consent of the party holding a senior  security  interest in
such Collateral pursuant to paragraph 1 above.

         3.  Perfection and  Possession. Neither WFBCI nor WebBank (i) makes any
representation or warranty concerning the Collateral or the validity, perfection
or (except as to the  subordination  effected  hereby)  priority of any security
interest therein,  or (ii) shall have any duty to preserve,  protect,  care for,
insure, take possession of, collect, dispose of or otherwise realize upon any of
the Collateral.

         4.       License to Use IP Collateral.

                  (a) Grant of Limited Non-Exclusive License to Sell Collateral.
WebBank  hereby  grants to WFBCI a limited  non-exclusive  license to use the IP
Collateral  (as defined in Exhibit A hereto) upon the occurrence of any Event of
Default (as defined in the WFBCI Credit  Agreement) for the exclusive purpose of
selling any of the Collateral.  The license  granted  pursuant to this paragraph
4(a) shall  expire 180 days after the date upon which all of the  following  are
satisfied:  (a) WFBCI has completed  manufacture of and taken  possession of all

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<PAGE>


Products,  (b) any outstanding stay,  injunction or other court order or process
has been lifted or  terminated  so that WFBCI has the legal  ability to sell and
convey title of any and all Products,  and (c) all steps  necessary  under WFBCI
Credit  Agreement  or law have been  completed  so that WFBCI has the  immediate
right to sell and convey title to any and all Products.

                  (b) Grant of Limited  Non-Exclusive  License to Use  Equipment
and to Manufacture. Upon and conditioned upon the payment to WebBank of the rent
pursuant to paragraph  7(b) hereof,  WebBank  agrees to grant to WFBCI a limited
non-exclusive  license to use the IP Collateral to manufacture products produced
by the Borrower (the  "Products")  and to exercise all rights which the Borrower
or WebBank has in the IP Collateral, including without limitation, the rights to
complete  the  manufacture  of any  partially  completed  Products.  The license
granted pursuant to this paragraph 4(b) shall expire upon WFBCI's termination of
rent  payments to WebBank  pursuant  to  paragraph  7(b) hereof or upon  WFBCI's
failure to pay such rental payments when due.

         5.       Application of Proceeds of Collateral.

                  (a) Subject to the terms of the WFBCI Credit Agreement, in the
event of the repossession,  sale,  collection or other disposition of any of the
Collateral  other than the WebBank  Collateral,  the proceeds  thereof  shall be
first applied in  satisfaction  of any  indebtedness  owing from the Borrower to
WFBCI that is secured by such Collateral, whether for principal, interest, fees,
expenses or otherwise;  and when all such indebtedness owing to WFBCI shall have
been paid in full, any remaining  proceeds of such Collateral shall be delivered
to WebBank to be applied  against any  indebtedness  owing from the  Borrower to
WebBank that is secured by such Collateral.

                  (b) Subject to the terms of the WebBank  Loan, in the event of
the  repossession,  sale,  collection or other disposition of any of the WebBank
Collateral,  the proceeds  thereof shall be first applied in satisfaction of any
indebtedness  owing from the  Borrower to WebBank that is secured by the WebBank
Collateral,  whether for principal,  interest,  fees, expenses or otherwise; and
when all such  indebtedness  owing to WebBank shall have been paid in full,  any
remaining  proceeds of the WebBank  Collateral shall be delivered to WFBCI to be
applied  against  any  indebtedness  owing  from the  Borrower  to WFBCI that is
secured by such WebBank Collateral.

         6.       Adjustment of Insurance Proceeds.

                  In the event of any occurrence of any casualty with respect to
any  Collateral,  the parties  hereto agree that the party holding the first and
prior security  interest pursuant to the terms of this  Intercreditor  Agreement
with respect to that portion of the  Collateral  affected by the casualty  shall
have the exclusive right to adjust,  compromise or settle any such loss with the
insurer  thereof,  and to collect and receive the proceeds from such insurer and
to hold such  proceeds  subject  to the  terms of the  security  agreement  with
respect thereto and to the terms of this  Intercreditor  Agreement.  Any insurer
shall  be fully  protected  if it acts in  reliance  on the  provisions  of this
paragraph.

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<PAGE>




         7.       Occupation of the Borrower's Premises.

                  (a) General. In the event that WFBCI and WebBank occupy any of
the Borrower's premises for the purpose of the repossession, sale, collection or
other  disposition  of any of the  Collateral,  WFBCI and WebBank  shall in good
faith cooperate to maximize the combined value of the Collateral and to minimize
the costs incident  thereto,  provided that,  neither WFBCI nor WebBank shall be
required to cooperate in any action which such party  reasonably  believes  will
reduce the value of its collateral. The time during which such occupation occurs
shall be called herein the "Occupation Period."

                  (b) Use of  Equipment  to Finish  WIP.  Without  limiting  the
foregoing,  during the Occupation Period, upon written request by WFBCI, WebBank
shall  allow  WFBCI  to use  any  equipment  located  at such  premises  that is
necessary to finish any  work-in-process  inventory  for a reasonable  period of
time (the "WIP Finish Period"). During the WIP Finish Period, WFBCI shall pay to
WebBank monthly rent equal to the payment due from the Borrower to WebBank under
the WebBank Loan and related promissory note;  provided that WFBCI may terminate
such rental payments upon not less than 30 days' prior written notice to WebBank
of the end of the WIP Finish Period.  During the WIP Finish Period,  WebBank may
appraise such equipment and take other actions in  preparation  for sale of such
equipment  provided that (i) no such actions  interfere  materially with WFBCI's
ability  to use such  equipment  to finish  work-in-process  inventory  and (ii)
WebBank  gives  WFBCI  30 days'  prior  written  notice  of any sale of any such
equipment.

                  (c) Payment of Rent.  In the event that only one party  hereto
is  occupying  a given  premises,  such party  shall be solely  responsible  for
payment of Rent for such  premises.  As used in this  agreement,  "Rent" for any
premises  shall mean rent and  related  payments to be paid to the owner of such
premises  as  required  by  law  or by  agreement.  In the  event  both  parties
simultaneously  occupy a given leased  premises,  other than a premises owned by
the Borrower,  each party shall be  responsible  for payment of one-half of Rent
for such  premises.  To the extent a party has actually  paid Rent for which the
other party is responsible as set forth in this paragraph, the party responsible
for such payment shall promptly reimburse the other party for the amount of such
Rent. For the purpose of this paragraph 7(c), no party shall be deemed to occupy
a  premises  simply by making  periodic  visits to such  premises  to inspect or
appraise such party's collateral located on the premises.

                  (d) Damage to  Premises.  If any  premises  is damaged  during
occupation of such  premises by both parties  hereto and payment for such damage
must be made to the owner of such  premises by either  party,  the parties shall
make a  good-faith  effort to  determine  which party (or which  party's  agent)
caused such damage.  If after such good-faith effort no party can be shown to be
clearly at fault,  each party  shall pay  one-half  of the cost of such  damage;
otherwise, the party determined to be at fault shall pay all of the cost of such
damage.  If any premises are damaged  during  occupation of such premises by one
party and payment  for such  damage must be made to the owner of such  premises,
such party shall pay the entire cost of such damage.

                                        4


<PAGE>




         8.       Continuing  Agreement.  The  subordinations,  agreements,  and
priorities  set  forth  hereinabove  shall  remain  in  full  force  and  effect
regardless of whether either party hereto in the future seeks to rescind, amend,
terminate,  or reform,  by  litigation  or otherwise,  its  agreements  with the
Borrower.

         9.       Miscellaneous.

                  (a) This  Agreement  shall be  binding  upon and  inure to the
benefit of the  successors  and assigns of the parties  hereto,  but neither the
Borrower  nor any other  secured  party  shall be entitled to rely on or enforce
this  Agreement and the parties  hereto warrant that any purchaser or transferee
of, or successor to, any security  interest of any of the parties  hereto in any
or  all  of  the  Collateral  will  be  given  detailed  written  notice  of the
subordination  accomplished hereby,  prior to the time of purchase,  transfer or
succession.

                  (b) Either  party may at any time and from time to  time amend
its agreement with the Borrower  without notice to or consent of the other party
and without affecting or impairing the subordination affected hereby.

                  (c) The  parties  hereto  hereby  agree to execute any and all
other further  documents,  agreements or instruments or to take such other steps
as from time to time are  necessary in order to  effectuate  the purposes of the
foregoing.

                  (d) All  notices,  requests,  consents  and demands  hereunder
shall be in writing and telexed, telecopied, telegraphed, cabled or delivered to
the  intended  recipient at its address or telex  number  specified  beneath its
signature hereto or at such other telex number or address as shall be designated
by any party in a notice to each  other  party.  Except  as  otherwise  provided
herein, all notices and other  communications  hereunder shall be deemed to have
been duly  given  when  transmitted  by telex or  telecopier,  delivered  to the
telegraph or cable office or  personally  delivered  or, in the case of a mailed
notice,  seven days after the date deposited in the mails,  postage prepaid,  in
each case given or addressed as aforesaid.

                  (e) This    Agreement   may  be  executed  in  any  number  of
counterparts or by facsimile, each of which when so executed and delivered shall
be an original, but such counterparts shall together constitute one and the same
instrument.

                  (f) This  Agreement  is made  and  executed  under  and in all
respects is to be governed and construed in accordance with the internal laws of
the State of Utah.

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<PAGE>



         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the date and year first above written.

WELLS FARGO BUSINESS CREDIT, INC., f/k/a Norwest Business Credit, Inc.

By:
Its: Vice President
1740 Broadway
Denver, Colorado  80274-8625
Att.:  Kim Carmichael
Phone:  (303) 863-5335
Fax:  (303) 863-4904

WEBBANK CORPORATION


By:
Its:
136 Heber Avenue, Suite 209
P.O. Box 1831
Park City, Utah  84060-1831
Att.:  __________________
Phone:  (435) 658-0930
Fax:  (435) 658-0931

ACKNOWLEDGED BY:

Naco Industries, Inc.


By:
Its: President

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<PAGE>


                                    Exhibit A

                             INTERCREDITOR AGREEMENT
                        DESCRIPTION OF WEBBANK COLLATERAL

         The  WebBank  Collateral  is  all  of  Naco  Industries,   Inc.'s  (the
"Borrower") interest in the Equipment, IP Collateral,  Proceeds,  Escrow Account
and Fixtures,  all as defined below,  whether now owned or existing or hereafter
acquired  or  arising,   together  with  any  and  all  additions   thereto  and
replacements therefor and proceeds and products thereof:

         a.  Equipment:  All presently owned and hereafter  acquired  equipment,
whether or not  affixed  to realty,  including,  without  limitation,  machines,
computers,   trucks,  trailers,  goods,   accessories,   handling  and  delivery
equipment,  fixtures,  improvements,  office machines,  restaurant equipment and
furniture, and all accessions,  accessories,  replacements and the rights of the
Borrower  under any  manufacturer's  warranties  relating to the foregoing  (the
"Equipment");

         b.  Intellectual Property:All presently owned and hereafter acquired IP
Collateral (as defined below) and all general  intangibles  directly  related to
the IP Collateral,  the Equipment or the manufacturing  process of the Borrower,
including,  without limitation,  an "general intangible" as that term is defined
in the Uniform Commercial Code. For the purpose of this Agreement, IP Collateral
means any and all patents,  patent applications and related filings,  trademarks
(both registered and unregistered),  trademark applications and related filings,
service marks (both registered and unregistered),  service mark applications and
related filings, trade names, know-how and trade secrets, copyrights,  copyright
registrations and related filings,  computer software,  programs and technology,
and all other intellectual property and proprietary rights;

         c.  Proceeds: All presently  owned and hereafter  acquired  proceeds as
that term is  defined in the  Uniform  Commercial  Code,  of the  Equipment,  IP
Collateral,  Escrow  Agreement  and  Fixtures,  including,  without  limitation,
whatever is received upon the use, lease, sale, exchange,  collection, any other
utilization or any  disposition of any of the Equipment,  IP Collateral,  Escrow
Account or Fixtures, whether cash or non-cash;

         d.  Escrow Account:All of the Borrower's interest in and to the deposit
and escrow account  established and maintained  pursuant to that certain Deposit
and Escrow Agreement between WebBank,  Escrow Agent and Borrower dated as of the
date hereof (the "Escrow Account"); and

         e.  Fixtures: All presently owned and hereafter acquired  fixtures,  as
that term is defined in the UCC, and all accessions,  accessories,  replacements
and the rights of the Borrower under any manufacturer's  warranties  relating to
the foregoing (the "Fixtures").

         Any of the foregoing terms which are defined in the Uniform  Commercial
Code as adopted in Utah (the "UCC")  shall have the meaning  provided in the UCC
as supplemented and expanded by the foregoing.

                                        7


<PAGE>



                                    GUARANTY

                                                                Denver, Colorado
                                                                  April 22, 1999

                  This  Guaranty,  dated as of April  22,  1999 is made by Verne
Bray (the  "Guarantor")  for the benefit of Wells Fargo Business  Credit,  Inc.,
f/k/a  Norwest  Business  Credit,  Inc.,  a  Minnesota   corporation  (with  its
participants, successors and assigns, the "Lender").

                  The Lender and Naco Industries,  Inc., a Utah corporation (the
"Borrower"),  are  parties  to a Credit  and  Security  Agreement  of even  date
herewith  pursuant  to which the  Lender  may make  advances  and  extend  other
financial accommodations to the Borrower.

                  As a condition to extending  such credit to the Borrower,  the
Lender has required the execution and delivery of this Guaranty.

                  ACCORDINGLY,  the Guarantor,  in consideration of the premises
and other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, hereby agrees as follows:

                  1.  Definitions.All terms defined in the Credit Agreement that
are not  otherwise  defined  herein  shall have the  meanings  given them in the
Credit Agreement.

                  2.  Indebtedness  Guaranteed.  The Guarantor hereby absolutely
and  unconditionally  guarantees to the Lender the full and prompt  payment when
due,  whether at maturity or earlier by reason of acceleration or otherwise,  of
(i) the  Obligations and (ii) each and every other sum now or hereafter owing to
the Lender by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts,  purchases of property or other transactions with the Borrower or for
the Borrower's  account or out of any other  transaction  or event,  owed to the
Lender or owed to others by reason of  participations  granted  to or  interests
acquired or created for or sold to them by the Lender,  in each case whether now
existing or hereafter  arising,  whether  arising  directly in a transaction  or
event involving the Lender or acquired by the Lender from another by purchase or
assignment  or as collateral  security,  whether owed by the Borrower as drawer,
maker,  endorser,  accommodation  party,  guarantor,  principal,  surety or as a
member  of any  partnership,  syndicate,  association  or group or in any  other
capacity,  whether  absolute  or  contingent,  direct or  indirect,  primary  or
secondary,  sole, joint, several or joint and several, secured or unsecured, due
or not due,  contractual,  tortious or statutory,  liquidated  or  unliquidated,
arising by  agreement  or imposed  by law or  otherwise  (all of said sums being
hereinafter called the "Indebtedness").

                  3.  Unconditional  Guaranty.  No act or  thing  need  occur to
establish the liability of the Guarantor hereunder,  and no act or thing, except
full  payment  and  discharge  of all  of the  Indebtedness,  shall  in any  way
exonerate  the  Guarantor  hereunder  or modify,  reduce,  limit or release  the
Guarantor's  liability  hereunder.  This  is  an  absolute,   unconditional  and
continuing  guaranty of payment of the  Indebtedness and shall continue to be in

                                       -1-


<PAGE>



force and be binding upon the Guarantor,  whether or not all of the Indebtedness
is paid in full,  until  this  Guaranty  is revoked  prospectively  as to future
transactions,  by written  notice  actually  received  by the  Lender,  and such
revocation  shall not be effective as to the amount of Indebtedness  existing or
committed for at the time of actual receipt of such notice by the Lender,  or as
to any renewals,  extensions,  refinancings or refundings thereof.  The death or
incompetence of the Guarantor shall not revoke this Guaranty, except upon actual
receipt of written  notice thereof by the Lender and only  prospectively,  as to
future transactions, as herein set forth.

                  4.  Death or Insolvency of  Guarantor. If the Guarantor  shall
die or shall be or become  insolvent  (however  defined),  then the Lender shall
have the right to declare  immediately  due and payable,  and the Guarantor will
forthwith pay to the Lender, the full amount of all of the Indebtedness  whether
due and payable or unmatured. If the Guarantor voluntarily commences or there is
commenced  involuntarily  against the  Guarantor a case under the United  States
Bankruptcy  Code,  the full amount of all of the  Indebtedness,  whether due and
payable or unmatured,  shall be  immediately  due and payable  without demand or
notice thereof.

                  5.  Subrogation,  etc. The Guarantor  hereby waives all rights
that the Guarantor may now have or hereafter  acquire,  whether by  subrogation,
contribution,  reimbursement,  recourse, exoneration,  contract or otherwise, to
recover  from the  Borrower or from any  property of the  Borrower any sums paid
under this  Guaranty.  The  Guarantor  will not exercise or enforce any right of
contribution  to recover any such sums from any person who is a co-obligor  with
the Borrower or a guarantor or surety of the  Indebtedness  or from any property
of any such person until all of the Indebtedness  shall have been fully paid and
discharged.

                  6.  Enforcement  Expenses. The Guarantor will pay or reimburse
the Lender for all costs,  expenses and attorneys'  fees paid or incurred by the
Lender in endeavoring to collect and enforce the  Indebtedness  and in enforcing
this Guaranty.

                  7.  Lender's  Rights.  The Lender  shall not be  obligated  by
reason of its acceptance of this Guaranty to engage in any transactions  with or
for the Borrower. Whether or not any existing relationship between the Guarantor
and the Borrower has been changed or ended and whether or not this  Guaranty has
been revoked,  the Lender may enter into transactions  resulting in the creation
or continuance of the Indebtedness and may otherwise agree, consent to or suffer
the creation or continuance of any of the  Indebtedness,  without any consent or
approval by the  Guarantor  and without  any prior or  subsequent  notice to the
Guarantor. The Guarantor's liability shall not be affected or impaired by any of
the following  acts or things  (which the Lender is expressly  authorized to do,
omit or suffer  from time to time,  both  before  and after  revocation  of this
Guaranty,  without consent or approval by or notice to the  Guarantor):  (i) any
acceptance of collateral security, guarantors, accommodation parties or sureties
for any or all of the  Indebtedness;  (ii) one or more extensions or renewals of
the  Indebtedness  (whether or not for longer than the  original  period) or any
modification of the interest  rates,  maturities,  if any, or other  contractual
terms  applicable to any of the Indebtedness or any amendment or modification of
any of the terms or provisions of any loan  agreement or other  agreement  under

                                       -2-


<PAGE>



which the Indebtedness or any part thereof arose; (iii) any waiver or indulgence
granted to the Borrower,  any delay or lack of diligence in the  enforcement  of
the Indebtedness or any failure to institute proceedings, file a claim, give any
required notices or otherwise protect any of the Indebtedness;  (iv) any full or
partial release of,  compromise or settlement with, or agreement not to sue, the
Borrower  or any  guarantor  or other  person  liable in  respect  of any of the
Indebtedness; (v) any release, surrender, cancellation or other discharge of any
evidence of the  Indebtedness  or the acceptance of any instrument in renewal or
substitution therefor; (vi) any failure to obtain collateral security (including
rights of setoff) for the  Indebtedness,  or to see to the proper or  sufficient
creation and perfection  thereof,  or to establish the priority  thereof,  or to
preserve,  protect,  insure,  care  for,  exercise  or  enforce  any  collateral
security; or any modification,  alteration,  substitution,  exchange, surrender,
cancellation, termination, release or other change, impairment, limitation, loss
or discharge of any collateral  security;  (vii) any collection,  sale, lease or
disposition  of, or any other  foreclosure or enforcement of or realization  on,
any collateral security; (viii) any assignment,  pledge or other transfer of any
of the Indebtedness or any evidence thereof; (ix) any manner, order or method of
application  of any  payments  or  credits  upon the  Indebtedness;  and (x) any
election by the Lender under  Section  1111(b) of the United  States  Bankruptcy
Code. The Guarantor  waives any and all defenses and  discharges  available to a
surety, guarantor or accommodation co- obligor.

                  8.  Waivers by  Guarantor.  The  Guarantor  waives any and all
defenses,  claims, setoffs and discharges of the Borrower, or any other obligor,
pertaining  to the  Indebtedness,  except the defense of discharge by payment in
full.  Without limiting the generality of the foregoing,  the Guarantor will not
assert,  plead or enforce  against  the Lender any  defense of waiver,  release,
discharge or disallowance in bankruptcy,  statute of limitations,  res judicata,
statute of frauds, anti- deficiency statute, fraud, incapacity, minority, usury,
illegality  or  unenforceability  which may be  available to the Borrower or any
other  person  liable  in  respect  of any of the  Indebtedness,  or any  setoff
available  against the Lender to the Borrower or any other such person,  whether
or not on account of a related transaction.  The Guarantor expressly agrees that
the Guarantor  shall be and remain  liable for any  deficiency  remaining  after
foreclosure  of any mortgage or security  interest  securing  the  Indebtedness,
whether or not the  liability  of the  Borrower  or any other  obligor  for such
deficiency is discharged pursuant to statute or judicial decision. The liability
of the  Guarantor  shall  not be  affected  or  impaired  by  any  voluntary  or
involuntary  liquidation,  dissolution,  sale  or  other  disposition  of all or
substantially   all  the  assets,   marshalling   of  assets  and   liabilities,
receivership,  insolvency,  bankruptcy, assignment for the benefit of creditors,
reorganization,  arrangement,  composition or readjustment  of, or other similar
event or proceeding affecting,  the Borrower or any of its assets. The Guarantor
will not  assert,  plead or enforce  against  the  Lender any claim,  defense or
setoff  available to the Guarantor  against the Borrower.  The Guarantor  waives
presentment, demand for payment, notice of dishonor or nonpayment and protest of
any  instrument  evidencing the  Indebtedness.  The Lender shall not be required
first to  resort  for  payment  of the  Indebtedness  to the  Borrower  or other
persons, or their properties,  or first to enforce,  realize upon or exhaust any
collateral security for the Indebtedness, before enforcing this Guaranty.

                  9.  If Payments Set Aside, etc. If any payment  applied by the
Lender to the  Indebtedness  is thereafter  set aside,  recovered,  rescinded or

                                       -3-


<PAGE>



required to be  returned  for any reason  (including,  without  limitation,  the
bankruptcy,  insolvency or reorganization of the Borrower or any other obligor),
the Indebtedness to which such payment was applied shall for the purpose of this
Guaranty  be  deemed  to  have  continued  in  existence,  notwithstanding  such
application,  and this Guaranty shall be enforceable as to such  Indebtedness as
fully as if such application had never been made.

                  10. Additional  Obligation  of  Guarantor.    The  Guarantor's
liability under this Guaranty is in addition to and shall be cumulative with all
other liabilities of the Guarantor to the Lender as guarantor, surety, endorser,
accommodation  co-obligor or otherwise of any of the  Indebtedness or obligation
of the Borrower,  without any limitation as to amount,  unless the instrument or
agreement evidencing or creating such other liability  specifically  provides to
the contrary.

                  11. Financial  Information.  The Guarantor will provide to the
Lender  annually a personal  financial  statement  prepared  as of  December  31
listing all assets,  liabilities  and net worth of the Guarantor.  The statement
will be signed  and  dated and will be  forwarded  with the tax  returns  to the
Lender not later than April 30th of each year.  The Guarantor  acknowledges  and
agrees that the Lender may at any time and from time to time  without  notice to
the  Guarantor,  investigate  the  Guarantor's  background,  personal and credit
history  and  perform  other due  diligence  concerning  the  Guarantor  and his
creditworthiness.

                  12. No Duties Owed by Lender.  The Guarantor  acknowledges and
agrees that the Lender (i) has not made any  representations  or warranties with
respect to, (ii) does not assume any  responsibility  to the Guarantor  for, and
(iii)  has no  duty to  provide  information  to the  Guarantor  regarding,  the
enforceability  of any of the  Indebtedness  or the  financial  condition of the
Borrower or any  guarantor.  The  Guarantor  has  independently  determined  the
creditworthiness  of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will  independently  and without reliance
on the Lender continue to make such determinations.

                  13. Miscellaneous.   This  Guaranty  shall be  effective  upon
delivery to the Lender,  without  further act,  condition or  acceptance  by the
Lender,  shall be binding  upon the  Guarantor  and the heirs,  representatives,
successors  and assigns of the  Guarantor  and shall inure to the benefit of the
Lender  and  its  participants,   successors  and  assigns.  Any  invalidity  or
unenforceability  of any provision or  application  of this  Guaranty  shall not
affect other lawful  provisions  and  application  thereof,  and to this end the
provisions of this Guaranty are declared to be severable.  This Guaranty may not
be waived, modified, amended,  terminated,  released or otherwise changed except
by a writing  signed by the  Guarantor and the Lender.  This  Guaranty  shall be
governed by and construed in accordance  with the  substantive  laws (other than
conflict  laws) of the State of Colorado.  The Guarantor  hereby (i) consents to
the personal  jurisdiction  of the state and federal courts located in the State
of Colorado in connection  with any controversy  related to this Guaranty;  (ii)
waives any argument that venue in any such forum is not convenient, (iii) agrees
that any litigation  initiated by the Lender or the Guarantor in connection with
this  Guaranty  shall be  venued in either  the  District  Court of the City and
County of Denver, Colorado, or the United States District Court for the District

                                       -4-


<PAGE>


of Colorado;  and (iv) agrees that a final judgment in any such suit,  action or
proceeding  shall be conclusive  and may be enforced in other  jurisdictions  by
suit on the judgment or in any other manner provided by law.

                  14. Waiver of Jury Trial. THE UNDERSIGNED  HEREBY  IRREVOCABLY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY  ACTION,  PROCEEDING  OR  COUNTERCLAIM
ARISING OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.

                  IN WITNESS  WHEREOF,  this  Guaranty has been duly executed by
the Guarantor as of the date first written above.

                                               /s/Verne Bray
                                               -------------
                                               Verne Bray

                                               Address:
                                               c/o Naco Industries, Inc.
                                               395 West 1400 North
                                               Logan, Utah  84341
STATE OF UTAH                       )
                                    )
COUNTY OF SALT LAKE                 )

                  The foregoing  instrument was acknowledged  before me the ____
day of April, 1999, by Verne Bray.



                                               Notary Public

                                       -5-


<PAGE>



                            CERTIFICATE OF AUTHORITY

                  I, Jeff Kirby,  do hereby  certify that I am Secretary of Naco
Industries,  Inc., a corporation  organized under the laws of the State of Utah;
that the  following is a true,  complete and correct  copy of  resolutions  duly
adopted (check one):

         |_|      at a meeting  of the board of  directors  of said  corporation
                  duly and  properly  called  and held on the ____ day of April,
                  1999, at which a quorum was present and acting throughout;

         |_|      by  unanimous   written   action  duly  and  lawfully   taken,
                  subscribed by all the directors of said corporation;

and I further certify that said resolutions are now in full force and effect:

                                First Resolution

         RESOLVED that the President,  each Vice President,  the Secretary,  the
         Treasurer and each other officer and agent of this corporation,  acting
         alone or acting with others, be and each of them hereby is authorized:

                  i)  To borrow  money and  obtain  other  credit  or  financial
                  accommodations,  in any  amount,  from  Wells  Fargo  Business
                  Credit,  Inc., f/k/a Norwest Business  Credit,  Inc.  (herein,
                  with its  participants,  successors  and  assigns  called  the
                  "Lender")  for  and on  behalf  of and in  the  name  of  this
                  corporation;

                  ii) To sign,  execute and deliver  loan or credit  agreements,
                  promissory   notes,   acceptances   or  other   evidences   of
                  indebtedness  therefor, or in renewal or amendment thereof, in
                  such amounts and for such time,  at such rates of interest and
                  upon such  terms as such  officer or agent may  approve,  such
                  approval  to be  conclusively  evidenced  by such  officer  or
                  agent's signature thereon;

                  iii) To discount, sell, assign, transfer,  mortgage, or pledge
                  to the  Lender,  or create  security  interests  in,  the real
                  property, goods, instruments,  documents of title, securities,
                  chattel paper, accounts,  contract rights or other intangibles
                  or  any  other  property  now  or  hereafter   owned  by  this
                  corporation,  either absolutely, with or without recourse, for
                  such  consideration  as such  officer  or agent may deem to be
                  appropriate  or as security for the payment or  performance of
                  any debts, liabilities or obligations owed to the Lender;

                  iv)  To do  such  other  acts  and  things,  make  such  other
                  agreements  and execute and deliver  such other  contracts  or
                  writings as such  officer or agent may deem to be  appropriate
                  in connection with any of the foregoing.

                                       -1-


<PAGE>



                                Second Resolution

         RESOLVED FURTHER that (without limiting the generality of the foregoing
         resolution)  each  officer  and  agent  referred  to in  the  foregoing
         resolution,  acting  alone or  acting  with  others,  be and is  hereby
         authorized  and directed to execute,  deliver and perform the following
         instruments and agreements:

                  (a) Credit  and  Security  Agreement,   by  and  between  this
         corporation and the Lender,  in the form finally  approved and executed
         by any of the officers authorized above.

                  (b) All other Loan  Documents  (as  defined in said Credit and
         Security  Agreement),  in the form finally approved and executed by any
         of the officers authorized above.

                                Third Resolution

         RESOLVED  FURTHER that the  Secretary or an Assistant  Secretary  shall
         certify to the  Lender  the names and  signatures  of the  persons  who
         presently  are duly  elected,  qualified  and acting as the officers or
         agents referred to in the foregoing  resolutions,  and the Secretary or
         an Assistant Secretary shall from time to time hereafter, upon a change
         in the facts so certified,  immediately certify to the Lender the names
         and  signatures  of the persons then  authorized to sign or to act; the
         Lender shall be fully protected in relying on such  certificates and on
         the  obligation of the Secretary or an Assistant  Secretary  (set forth
         above)  immediately to certify to the Lender any change in any facts so
         certified;  and the Lender shall be  indemnified  and saved harmless by
         this corporation  from any claims,  demands,  expenses,  loss or damage
         resulting  from or growing out of honoring or relying on the  signature
         or other  authority  (whether or not  properly  used) of any officer or
         person whose name and signature was so certified,  or refusing to honor
         any signature or authority not so certified.

                                Fourth Resolution

         RESOLVED FURTHER that the foregoing resolutions are in addition to, and
         do not limit and shall not be limited by, any resolutions heretofore or
         hereafter  adopted by this corporation for the conduct of business with
         the Lender; and the foregoing resolutions shall continue in force until
         express written notice of their prospective rescission or modification,
         as to future  transactions  not then  undertaken or committed  for, has
         been received by the Lender.

                                       -2-


<PAGE>



                                Fifth Resolution

         RESOLVED  FURTHER that any and all transactions by or on behalf of this
         corporation with the Lender prior to the adoption of these  resolutions
         be and the same  hereby  are in all  respects  ratified,  approved  and
         confirmed.

                  I  further  certify  that  the  board  of  directors  of  said
corporation  has, and at the time of adoption of the foregoing  resolutions had,
full power and lawful authority to adopt the foregoing resolutions and to confer
the powers therein  granted to the persons named and that such persons have full
power and  authority  to exercise  same. I further  certify that the  signatures
appearing  below are the authentic  and official  signatures of the officers and
agents referred to in the foregoing resolutions, that the persons named below as
officers have been duly elected to and now hold the offices in said  corporation
set forth opposite their respective  names, and that the persons named as agents
below have been duly authorized to sign and to act on behalf of said corporation
pursuant to the foregoing resolutions:

             Name            Title                        Sample Signature

          Verne Bray       President                      /s/Verne Bray
                                                          -------------
          Jeff Kirby       Secretary                      /s/Jeff Kirby
                                                          -------------



                  I further certify (check one):

         |_|      that the  foregoing  resolutions  were  duly  approved  by the
                  shareholders  of  said  corporation  at  a  meeting  duly  and
                  properly  called and held on the _____ day of April,  1999, at
                  which a quorum was present and acting throughout, or otherwise
                  as permitted by law;

         |_|      that the  foregoing  resolutions  are effective and binding on
                  said corporation without approval by its shareholders.

                  I  further  certify  that the  forms of  Credit  and  Security
Agreement and the other Loan Documents, and any other writings identified in the
Second Resolution set forth above, executed on behalf of said corporation by its
President and delivered to the Lender are the agreements  and writings  referred
to in and approved by the Second Resolution set forth above.

                  I further  certify that  attached  hereto as Exhibits A and B,
respectively,  are  true,  correct  and  complete  copies  of  the  articles  of
incorporation and bylaws of said  corporation,  which articles and bylaws are in

                                       -3-


<PAGE>



full force and effect and have not been altered,  amended or revised.  I further
certify that attached  hereto as Exhibit C is a Certificate  of Good Standing of
the Company not more than ten days old.

                  IN WITNESS  WHEREOF,  I have hereunto  subscribed my name this
22nd day of April, 1999.

                                                 Secretary

Attest by One Other Officer

President

                                       -4-


<PAGE>



                                            Exhibit A to Secretary's Certificate

                            ARTICLES OF INCORPORATION
                          [TO BE PROVIDED BY BORROWER]

                                       A-1

<PAGE>



                                            Exhibit B to Secretary's Certificate

                                     BYLAWS

                          [TO BE PROVIDED BY BORROWER]

                                       B-1

<PAGE>


                                            Exhibit C to Secretary's Certificate

                          CERTIFICATE OF GOOD STANDING
                          [TO BE PROVIDED BY BORROWER]

                                       C-1

<PAGE>



                     PATENT AND TRADEMARK SECURITY AGREEMENT

                  This  Agreement,  dated as of April 22,  1999,  is made by and
between Naco Industries,  Inc., a Utah  corporation  whose address and principal
place of business is 395 West 1400 North,  Logan, UT 84341 (the  "Debtor"),  and
WELLS FARGO  BUSINESS  CREDIT,  INC.,  f/k/a Norwest  Business  Credit,  Inc., a
Minnesota  corporation  whose  address and  principal  place of business is 1740
Broadway, Denver, CO 80274-8625 (the "Secured Party").

                                    Recitals

                  The Debtor and the Secured  Party have  entered  into a Credit
and  Security  Agreement  of even date  herewith  (as the same may  hereafter be
amended,  supplemented  or restated from time to time,  the "Credit  Agreement")
setting  forth the terms on which the Secured  Party may now or  hereafter  make
certain  loans or other  financial  accommodations  to or for the account of the
Debtor.

                  As a further  condition to making any loan or other  financial
accommodation  under the Credit  Agreement or  otherwise,  the Secured Party has
required the execution and delivery of this Agreement by the Debtor.

                  ACCORDINGLY,   in   consideration   of  the  mutual  covenants
contained  in the Credit  Agreement  and  herein,  the parties  hereby  agree as
follows:

                  1. Definitions. All terms defined in the Recitals hereto or in
the  Credit  Agreement  that are not  otherwise  defined  herein  shall have the
meanings  given to them  therein.  In  addition,  the  following  terms have the
meanings set forth below:

                  "Obligations"  means  each  and  every  debt,   liability  and
         obligation of every type and description arising under or in connection
         with any Loan Document (as defined in the Credit  Agreement)  which the
         Debtor  may now or at any  time  hereafter  owe to the  Secured  Party,
         whether such debt,  liability or obligation  now exists or is hereafter
         created or incurred and whether it is or may be direct or indirect, due
         or to  become  due,  absolute  or  contingent,  primary  or  secondary,
         liquidated or unliquidated,  independent,  joint,  several or joint and
         several,   and  including   specifically,   but  not  limited  to,  the
         Obligations (as defined in the Credit Agreement).

                  "Patents" means all of the Debtor's right,  title and interest
         in and to patents or applications  for patents,  fees or royalties with
         respect to each, and including without  limitation the right to sue for
         past infringement and damages therefor, and licenses thereunder, all as
         presently existing or hereafter arising or acquired,  including without
         limitation the patents listed on Exhibit A.

                  "Trademarks"  means  all  of the  Debtor's  right,  title  and
         interest in and to  trademarks,  service marks,  collective  membership

                                       -1-


<PAGE>



         marks,  the  respective  goodwill  associated  with each,  and licenses
         thereunder, all as presently existing or hereafter arising or acquired,
         including, without limitation, the marks listed on Exhibit B.

                  2. Security Interest.  The Debtor hereby  irrevocably  pledges
and assigns to, and grants the Secured Party a security interest,  with power of
sale to the extent  permitted by law (the "Security  Interest"),  in the Patents
and in the Trademarks to secure payment of the Obligations.

                  3. Representations,  Warranties  and  Agreements.  The Debtor
hereby represents, warrants and agrees as follows:

                  (a) Existence;  Authority. The Debtor is a corporation, having
         full power to and  authority  to make and deliver this  Agreement.  The
         execution,  delivery and  performance  of this  Agreement by the Debtor
         have been duly authorized by all necessary action of the Debtor's board
         of directors,  and if necessary its  stockholders,  and do not and will
         not violate the  provisions  of, or  constitute  a default  under,  any
         presently  applicable law or its articles of incorporation or bylaws or
         any  agreement  presently  binding on it. This  Agreement has been duly
         executed  and  delivered  by the Debtor and  constitutes  the  Debtor's
         lawful, binding and legally enforceable obligation. The correct name of
         the  Debtor is Naco  Industries,  Inc.  The  authorization,  execution,
         delivery and performance of this Agreement do not require  notification
         to, registration with, or consent or approval by, any federal, state or
         local regulatory body or administrative agency.

                  (b) Patents.  Exhibit A accurately  lists all Patents owned or
         controlled by the Debtor as of the date hereof and accurately  reflects
         the existence and status of registrations  pertaining to the Patents as
         of the date hereof.

                  (c) Trademarks.   Exhibit B  accurately  lists all  Trademarks
         owned or controlled by the Debtor as of the date hereof and  accurately
         reflects the existence and status of Trademarks  and all  registrations
         pertaining thereto as of the date hereof.

                  (d) Title.  The Debtor has  absolute  title to each Patent and
         each  Trademark  listed  on  Exhibits  A and B,  free and  clear of all
         security  interests,  liens  and  encumbrances,   except  the  Security
         Interest and the security interest of WebBank  Corporation.  The Debtor
         (i) will have, at the time the Debtor acquires any rights in Patents or
         Trademarks  hereafter  arising,  absolute  title to each such Patent or
         Trademark  free  and  clear  of  all  security  interests,   liens  and
         encumbrances,  except  the  Security  Interest,  and (ii) will keep all
         Patents and Trademarks free and clear of all security interests,  liens
         and encumbrances except the Security Interest.

                  (e) No Sale. The Debtor will not sell or otherwise  dispose of
         the Patents or Trademarks, or any interest therein, without the Secured
         Party's prior written consent.


                                       -2-


<PAGE>



                  (f) Defense. The Debtor will at its own expense, and using its
         best efforts, protect and defend the Patents and Trademarks against all
         claims or demands of all persons other than the Secured Party.

                  (g) Maintenance.   The Debtor will at its own expense maintain
         the Patents and the  Trademarks to the extent  reasonably  advisable in
         its business including,  but not limited to, filing all applications to
         register  and all  affidavits  and  renewals  possible  with respect to
         issued registrations. The Debtor covenants that it will not abandon nor
         fail to pay any  maintenance  fee or  annuity  due and  payable  on any
         Patent or Trademark, nor fail to file any required affidavit in support
         thereof,  without first  providing the Secured  Party:  (i)  sufficient
         written  notice,  as  provided  in the Credit  Agreement,  to allow the
         Secured Party to timely pay any such  maintenance fees or annuity which
         may become due on any of said  Patents  or  Trademarks,  or to file any
         affidavit with respect  thereto,  and (ii) a separate  written power of
         attorney  or  other  authorization  to pay  such  maintenance  fees  or
         annuities,  or to file such  affidavit,  should  such be  necessary  or
         desirable.

                  (h) Secured Party's Right to Take Action.  If the Debtor fails
         to perform or observe any of its covenants or  agreements  set forth in
         this Section 3, and if such failure  continues for a period of ten (10)
         calendar days after the Secured Party gives the Debtor  written  notice
         thereof (or, in the case of the agreements contained in subsection (g),
         immediately  upon the  occurrence  of such failure,  without  notice or
         lapse of time),  or if the Debtor  notifies  the Secured  Party that it
         intends to abandon a Patent or  Trademark,  the Secured  Party may (but
         need not) perform or observe  such  covenant or agreement on behalf and
         in the name,  place and stead of the Debtor (or, at the Secured Party's
         option,  in the  Secured  Party's own name) and may (but need not) take
         any and all other actions which the Secured Party may  reasonably  deem
         necessary to cure or correct such failure.

                  (i) Costs and  Expenses.  Except to the extent that the effect
         of such  payment  would be to render any loan or  forbearance  of money
         usurious or  otherwise  illegal  under any  applicable  law, the Debtor
         shall pay the Secured Party on demand the amount of all moneys expended
         and all costs  and  expenses  (including  reasonable  attorneys'  fees)
         incurred by the Secured Party in connection  with or as a result of the
         Secured  Party's  taking action under  subsection (h) or exercising its
         rights under Section 6,  together  with interest  thereon from the date
         expended  or incurred  by the  Secured  Party at the highest  rate then
         applicable to any of the Obligations.

                  (j) Power of  Attorney.  To  facilitate  the  Secured  Party's
         taking  action under  subsection  (h) and  exercising  its rights under
         Section 6, the Debtor hereby irrevocably appoints (which appointment is
         coupled with an interest) the Secured  Party,  or its delegate,  as the
         attorney-in-fact  of the Debtor  with the right (but not the duty) from
         time to time to create, prepare, complete, execute, deliver, endorse or
         file, in the name and on behalf of the Debtor, any and all instruments,
         documents, applications, financing statements, and other agreements and

                                       -3-


<PAGE>



         writings  required to be obtained,  executed,  delivered or endorsed by
         the Debtor under this Section 3, or,  necessary for the Secured  Party,
         after an Event of Default,  to enforce or use the Patents or Trademarks
         or to grant or issue any exclusive or  non-exclusive  license under the
         Patents or Trademarks to any third party, or to sell, assign, transfer,
         pledge,  encumber  or  otherwise  transfer  title in or  dispose of the
         Patents or  Trademarks to any third party.  The Debtor hereby  ratifies
         all that such attorney  shall lawfully do or cause to be done by virtue
         hereof.  The power of attorney  granted herein shall terminate upon the
         termination of the Credit Agreement as provided therein and the payment
         and performance of all Obligations (as defined therein).

                  4.  Debtor's  Use of the  Patents and  Trademarks.  The Debtor
shall be permitted to control and manage the Patents and  Trademarks,  including
the right to exclude  others from making,  using or selling items covered by the
Patents and Trademarks and any licenses thereunder,  in the same manner and with
the same effect as if this  Agreement  had not been entered  into, so long as no
Event of Default occurs and remains uncured.

                  5.  Events of Default. Each of the following occurrences shall
constitute an event of default  under this  Agreement  (herein  called "Event of
Default"):  (a) an Event of Default,  as defined in the Credit Agreement,  shall
occur;  or (b) the Debtor shall fail promptly to observe or perform any covenant
or  agreement  herein  binding  on it;  or (c)  any  of the  representations  or
warranties  contained  in Section 3 shall  prove to have been  incorrect  in any
material respect when made.

                  6.  Remedies.Upon the occurrence of an Event of Default and at
any time  thereafter,  the Secured Party may, at its option,  take any or all of
the following actions:

                  (a) The  Secured  Party  may  exercise   any or  all  remedies
         available under the Credit Agreement.

                  (b) The  Secured  Party may sell,  assign,  transfer,  pledge,
         encumber or otherwise dispose of the Patents and Trademarks.

                  (c) The Secured  Party may enforce the Patents and  Trademarks
         and any licenses  thereunder,  and if Secured Party shall  commence any
         suit for such enforcement,  the Debtor shall, at the request of Secured
         Party,  do any and all  lawful  acts  and  execute  any and all  proper
         documents required by Secured Party in aid of such enforcement.

                  7.  Miscellaneous.  This  Agreement  has been duly and validly
authorized by all necessary action,  corporate or otherwise.  This Agreement can
be  waived,  modified,  amended,  terminated  or  discharged,  and the  Security
Interest can be released,  only  explicitly  in a writing  signed by the Secured
Party.  A waiver  signed by the  Secured  Party shall be  effective  only in the
specific  instance and for the specific purpose given.  Mere delay or failure to
act shall not preclude the exercise or enforcement of any of the Secured Party's
rights or  remedies.  All rights and  remedies  of the  Secured  Party  shall be

                                       -4-


<PAGE>



cumulative  and may be  exercised  singularly  or  concurrently,  at the Secured
Party's option,  and the exercise or enforcement of any one such right or remedy
shall  neither be a  condition  to nor bar the  exercise or  enforcement  of any
other.  The Secured  Party  shall not be  obligated  to preserve  any rights the
Debtor may have against prior parties,  to realize on the Patents and Trademarks
at all or in any  particular  manner or order,  or to apply any cash proceeds of
Patents and Trademarks in any particular  order of  application.  This Agreement
shall be binding  upon and inure to the  benefit  of the Debtor and the  Secured
Party and their respective  participants,  successors and assigns and shall take
effect when signed by the Debtor and  delivered  to the Secured  Party,  and the
Debtor waives notice of the Secured Party's acceptance hereof. The Secured Party
may execute this  Agreement if  appropriate  for the purpose of filing,  but the
failure of the  Secured  Party to  execute  this  Agreement  shall not affect or
impair the validity or effectiveness of this Agreement.  A carbon,  photographic
or other reproduction of this Agreement or of any financing  statement signed by
the Debtor shall have the same force and effect as the original for all purposes
of a financing  statement.  This Agreement shall be governed by the internal law
of Colorado  without regard to conflicts of law provisions.  If any provision or
application of this Agreement is held unlawful or  unenforceable in any respect,
such  illegality  or  unenforceability  shall not  affect  other  provisions  or
applications  which can be given effect and this Agreement shall be construed as
if the  unlawful  or  unenforceable  provision  or  application  had never  been
contained  herein or  prescribed  hereby.  All  representations  and  warranties
contained  in  this  Agreement   shall  survive  the  execution,   delivery  and
performance of this Agreement and the creation and payment of the Obligations.

                  THE PARTIES  WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.

                  IN WITNESS WHEREOF,  the parties have executed this Patent and
Trademark Security Agreement as of the date written above.

WELLS FARGO BUSINESS CREDIT,
INC., f/k/a Norwest Business Credit, Inc.


By:
Its Vice President

NACO INDUSTRIES, INC.


By:
Its President

                                       -5-


<PAGE>



STATE OF UTAH                               )
                                            )
COUNTY OF SALT LAKE                         )

         The foregoing  instrument was  acknowledged  before me this 22nd day of
April,  1999,  by Verne Bray,  the  President of Naco  Industries,  Inc., a Utah
corporation, on behalf of the corporation.

                                                     Notary Public

STATE OF UTAH                               )
                                            )
COUNTY OF SALT LAKE                         )

         The foregoing  instrument was  acknowledged  before me this 22nd day of
April,  1999, by William Kirth, a Vice President of Wells Fargo Business Credit,
Inc., f/k/a Norwest Business Credit, Inc., a Minnesota corporation, on behalf of
the Corporation.




                                                     Notary Public

                                       -6-


<PAGE>



                                    EXHIBIT A
                                    ---------

                          UNITED STATES ISSUED PATENTS

                Title            Patent Number                  Issue Date
                -----            -------------                  ----------
One Piece Tubular Elbow and        5,597,185                 January 28, 1997
Process of Manufacture

Plastic Tee Fitting                4,708,374                   July 30, 1984




                             FOREIGN ISSUED PATENTS

                                      None

                                       A-1

<PAGE>


                                    EXHIBIT B
                                    ---------
                 UNITED STATES ISSUED TRADEMARKS, SERVICE MARKS
                 ----------------------------------------------
                         AND COLLECTIVE MEMBERSHIP MARKS
                         -------------------------------

                                  REGISTRATIONS
                                  -------------

                                      None

                                  APPLICATIONS
                                  ------------

                                      None

                           COLLECTIVE MEMBERSHIP MARKS
                           ---------------------------

                                      None

                               UNREGISTERED MARKS
                               ------------------

                                      None

                                       B-1

<PAGE>



                       MORTGAGEE'S DISCLAIMER AND CONSENT

                  To induce Wells Fargo  Business  Credit,  Inc.,  f/k/a Norwest
Business Credit,  Inc., a Minnesota  corporation (the "Lender"),  to make one or
more  loans to Naco  Industries,  Inc.,  a Utah  corporation  (the  "Borrower"),
secured  by  property  of  the  Borrower,   and  for  other  good  and  valuable
consideration, WebBank Corporation, a Utah corporation (the "Mortgagee"), hereby
certifies and agrees for the benefit of the Lender, its participants, successors
and assigns, as follows:

                  1. The  Mortgagee  holds a mortgage  lien on certain  premises
(the  "Premises")  located in Finney  County,  Kansas and described in Exhibit A
hereto,  pursuant to a mortgage (the "Mortgage"),  a true,  correct and complete
copy of which is attached hereto as Exhibit B.

                  2. The  Mortgage is in full force and effect and the  Borrower
is not in default of any provision of the Mortgage.

                  3. The Mortgagee acknowledges that except as set forth in this
paragraph 3, the Lender shall have no duty,  obligation or liability  whatsoever
with respect to the possession,  occupancy or use of the Premises. If the Lender
takes  possession  of or occupies  the  Premises  pursuant to paragraph 5 hereof
whether before or after cancellation or termination of the Mortgage,  the Lender
shall  pay the  Mortgagee  rent for the  period  during  which  the  Lender  has
possession of or occupies the Premises equal to the mortgage  payments due under
the Mortgage for such  period.  The Lender shall  possess or occupy the Premises
for no less than 30 days and shall be  required to give the  Mortgagee  30 days'
written notice of its intent to vacate the Premises. In no event, however, shall
the Lender be  obligated  to make  payments due pursuant to the Mortgage for any
period to the extent the  Borrower has made such  payments for such period.  The
Lender shall  reimburse the  Mortgagee  for any physical  damage to the Premises
actually caused by the Lender during any period when the Lender is in possession
of the Premises.  The Mortgagee acknowledges that the Lender shall not be liable
for any  diminution in value of the Premises  during the period of time in which
the Lender has physical possession of the Premises.

                  4. The Mortgagee  shall promptly notify the Lender as provided
herein of each of the following events:

                  (a) Any  notice which the  Mortgagee  may give to the Borrower
         regarding  any  breach  of  the  Mortgage,  or any  termination  of the
         Borrower's rights to use, lease or possess the Premises;

                  (b) Any  legal action  which the  Mortgagee  may  commence  to
         foreclose  the  Borrower's  interests  in the  Premises or to appoint a
         receiver for the Premises; and



                                       -1-


<PAGE>



                  (c) Any agreement or proposal for the Borrower to  voluntarily
         convey to the Mortgagee title to all or any portion of the Premises.

                  5. Subject to the terms of paragraph 3 hereof,  the  Mortgagee
shall  allow the Lender to take and remain in  possession  of the  Premises  for
purposes  of  holding,  processing,   manufacturing,  selling,  using,  storing,
liquidating,  realizing upon or otherwise disposing of the Lender's  collateral,
and for related and incidental purposes from and after the receipt by the Lender
of the notice required under paragraph 4 hereof.

                  6. All  notices  to the  Lender  shall be  deemed  given  when
received  by the Lender at 1740  Broadway,  Denver,  CO  80274-8625,  Attn:  Kim
Carmichael, or when received at the Lender's telecopier no. 303/863-4904.

                  7. This  Disclaimer  and Consent is binding upon the Mortgagee
and its successors and assigns. This Disclaimer and Consent shall be governed by
and construed in accordance with the substantive laws (other than conflict laws)
of the State of Utah.  This Disclaimer and Consent may be executed in any number
of counterparts,  each of which shall be an original,  but all of which together
shall  constitute  one  instrument.  No  failure  on the part of the  Lender  to
exercise,  and no delay in exercising any right, power or remedy hereunder shall
operate  as a waiver of such  right,  power or  remedy;  nor shall any single or
partial exercise of any right,  power or remedy hereunder  preclude any other or
further  exercise  of such right,  power or remedy or the  exercise of any other
right,  power or remedy.  This  Disclaimer  and  Consent  expresses  completely,
exclusively  and finally all the  agreements,  conditions  and  covenants of the
parties and does not need evidence  (written or oral) of prior,  contemporaneous
or subsequent statements or representations  (express or implied) to reflect the
intentions of the parties.  This  Disclaimer and Consent may not be supplemented
or modified  except in  writing.  This does not imply a  commitment  to lend and
shall be binding as long as any obligations of the Borrower to the Lender remain
outstanding or are subject to  recoupment.  THE PARTIES WAIVE ANY RIGHT TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING  BASED ON OR  PERTAINING TO THIS  DISCLAIMER
AND CONSENT.

                  IN WITNESS  WHEREOF,  this  Disclaimer  is signed on April __,
1999.

                                                 WEBBANK CORPORATION

                                                 By
                                                 Its


                                       -2-


<PAGE>



This Instrument was Drafted by:
Adrian E. Miller, Esq.
LeBoeuf, Lamb, Greene & MacRae, LLP
633 17th Street, Suite 2000
Denver, CO 80202


STATE OF UTAH                               )
                                      : ss.

COUNTY OF SALT LAKE                         )

                  The foregoing  instrument was acknowledged before me this ____
day of April, 1999, by _____________,  the ________________________,  of WebBank
Corporation , a ____________________ corporation, on behalf of said corporation.

                                                              Notary Public


                                       -3-


<PAGE>



                                    EXHIBIT A

                                       TO

                       MORTGAGEE'S DISCLAIMER AND CONSENT

                  The  Premises  referred to in the  referenced  instrument  are
located in Finney County, Kansas, and are described as follows:

                  Beginning  at a point 60 feet North and 1,080 feet West of the
         Southeast corner of Section Three (3), Township Twenty-four (24) South,
         Range  Thirty-  three  (33)  West of the 6th P.M.,  in  Finney  County,
         Kansas,  for the point of beginning;  thence West on a line parallel to
         and 60 feet North of the South line of said Section 3 a distance of 420
         feet;  thence North at an interior  angle of 89(0)07' a distance of 360
         feet;  thence East at an  interior  angle of 90(0)53' a distance of 420
         feet;  and thence South at an interior  angle of 89(0)07' a distance of
         360 feet to the point of beginning;  also  described as Tracts 8, 9 and
         10 in the Larson  Survey of such real estate  dated  February 23, 1966,
         prepared by Robert H. Jones,  P.E.,  and filed for record in the County
         Engineer's Office of Finney County, Kansas, in Survey Book 3.



<PAGE>


                                    EXHIBIT B

                                       TO

                       MORTGAGEE'S DISCLAIMER AND CONSENT

                               [copy of Mortgage]




<PAGE>



                               WAIVER OF INTEREST

                  I,   __________________   am  the  spouse  of  Verne  Bray.  I
understand  that to induce Wells Fargo  Business  Credit,  Inc.,  f/k/a  Norwest
Business Credit, Inc., a Minnesota  corporation (herein,  with its participants,
successors  and  assigns,  called  the  "Lender"),  to  extend  credit  to  Naco
Industries,  Inc., a Utah corporation (the "Borrower"),  my spouse has agreed to
guaranty  the  payment of any  indebtedness  of the  Borrower to the Lender (the
"Indebtedness").

                  The Lender's  credit  decision will be based,  in part, on our
financial  statement  which  is  a  joint  financial  statement  that  does  not
distinguish  between  assets that are owned  separately by one of us or that are
owned jointly.  To induce the Lender to extend credit to the Borrower  based, in
part, on my spouse's guaranty, I hereby waive as against the Lender any interest
I now have or may in the future have in (1) any real or personal  property shown
on any  financial  statement of ours  submitted in  connection  with my spouse's
guaranty,  and (2) any other real or personal  property  now owned or  hereafter
acquired  by  either  of us  individually  or by both of us  jointly  (all  such
property  described in clauses (1) and (2) being referred to as the "Property"),
except  for wages or salary  that I earn from  third  parties  not  directly  or
indirectly  affiliated  with the Borrower or directly or  indirectly  affiliated
with or related to my spouse so long as such wages and salary are kept  separate
from  property  of my spouse  and  property  I own  jointly  with my  spouse;  I
understand that in the event of a dispute between the Lender and me, I will have
the burden of proving that property is subject to the above mentioned exception.

                  I understand that one of the remedies that the Lender has upon
default in the  Indebtedness is to satisfy the  Indebtedness out of the Property
either by obtaining a judgment against my spouse or otherwise, and in that event
I understand and agree that if the Lender  attempts to satisfy the  Indebtedness
out of the  Property,  I will not claim any  ownership or other  interest in the
Property.

                  I also  acknowledge  that by signing any  mortgage or security
agreement  securing my spouse's  guaranty,  I have  subjected any interest I may
have in the Property  described therein to the lien and security interest of the
mortgage or the security agreement.

                  By its  acceptance  of this Waiver and by extending  credit to
the  Borrower,  the Lender agrees that I am not  personally  liable to repay the
Indebtedness.

Dated April ___, 1999.



                                   Name:  _____________________________



                                       -1-


<PAGE>


STATE OF UTAH                       )
                                    )
COUNTY OF SALT LAKE                 )

                  The foregoing  instrument was acknowledged before me this ____
day of April, 1999, by ______________.



                                                              Notary Public

Accepted this ____ day of April, 1999

WELLS FARGO BUSINESS CREDIT, INC.,
    f/k/a NORWEST BUSINESS CREDIT, INC.


By:/s/William Kirth
-------------------
    William Kirth
    Its Vice President

                                       -2-


<PAGE>


                              OFFICER'S CERTIFICATE

TO:      Wells Fargo Business Credit, Inc., f/k/a Norwest Business Credit, Inc.
         1740 Broadway
         Denver, CO 80274-8625
         ATTN: Kim Carmichael

                  To induce  you to make one or more  loans from time to time to
Naco Industries,  Inc., a Utah corporation (the "Borrower"),  in accordance with
the Credit and Security  Agreement  dated April 22, 1999 between it and you (the
"Credit and Security Agreement") and all other Loan Documents (as defined in the
Credit and Security  Agreement),  I hereby  represent  and warrant to you, in my
individual  capacity,  that each and every representation and warranty set forth
in Article V of the Credit and Security  Agreement is true and correct as of the
date hereof.

Dated: April 22, 1999

                                                     Very truly yours,


                                                     /s/Verne Bray
                                                     -------------
                                                     Verne Bray


<PAGE>




                       ASSIGNMENT OF LIFE INSURANCE POLICY
                                  AS COLLATERAL

                  This  Assignment,  dated as of February ___,  1999, is made by
Naco Industries,  Inc., a Utah corporation whose address is 395 West 1400 North,
Logan, UT, 84341 (the  "Assignor"),  for the benefit of Norwest Business Credit,
Inc.,  a Minnesota  corporation,  whose  address is 1740  Broadway,  Denver,  CO
80274-8625 its successors and assigns (the "Assignee").

                                    Recitals
                                    --------

                  The Assignor  and the Assignee  have entered into a Credit and
Security  Agreement  (as the same may  hereafter  be  amended,  supplemented  or
restated from time to time, the "Credit  Agreement")  dated as of February_____,
1999.  To induce the  Assignee  to execute  the Credit  Agreement  and to secure
payment and performance of the Assignor's  Obligations (as defined in the Credit
Agreement),  the  Assignee  has  required  the  execution  and  delivery of this
Agreement.

                  Accordingly, the Assignor hereby agrees for the benefit of the
Assignee as follows:

                  1. The Assignor hereby assigns, transfers and sets over to the
Assignee,  Policy No. _____________ issued by  ___________________________  (the
"Insurer") and any supplementary  contracts issued in connection therewith (said
policy and contracts  being herein called the "Policy"),  upon the life of Verne
Bray,  whose  address is  ____________________________________  and all  claims,
options,  privileges,  rights, title and interest therein and thereunder (except
as provided in Paragraph 3 hereof),  subject to all terms and  conditions of the
Policy and to all superior liens, if any, which the Insurer may have against the
Policy.  The  Assignor  by  this  instrument  agrees  and  the  Assignee  by the
acceptance of this Assignment agrees to the conditions and provisions herein set
forth.

                  2. It is expressly  agreed that,  without  detracting from the
generality of the foregoing,  the following specific rights are included in this
Assignment and pass by virtue hereof:

                  (a) The  sole  right  to  collect  from  the  Insurer  the net
         proceeds of the Policy when it becomes a claim by death or maturity;

                  (b) The sole right to  surrender  the Policy and  receive  the
         surrender value thereof at any time provided by the terms of the Policy
         and at such other times as the Insurer may allow;


                                       -1-


<PAGE>



                  (c) The sole right to obtain one or more loans or  advances on
         the  Policy,  either  from the  Insurer  or,  at any time,  from  other
         persons,  and to pledge or assign the Policy as security for such loans
         or advances;

                  (d) The sole right to collect and receive all distributions of
         shares of surplus,  dividend deposits or additions to the Policy now or
         hereafter  made or  apportioned  thereto,  and to exercise  any and all
         options  contained in the Policy with respect thereto;  provided,  that
         unless and until the  Assignee  shall  notify the Insurer in writing to
         the contrary, the distributions or shares of surplus, dividend deposits
         and additions  shall  continue on the plan in force at the time of this
         Assignment; and

                  (e) The  sole  right  to  exercise  all  nonforfeiture  rights
         permitted  by the terms of the Policy or allowed by the  Insurer and to
         receive all benefits and advantages derived therefrom.

                  3.  It is expressly agreed that the following specific rights,
so long as the Policy has not been  surrendered,  are reserved and excluded from
this Assignment and do not pass by virtue hereof:

                  (a) The  right to  collect  from the  Insurer  any  disability
         benefit payable in cash that does not reduce the amount of insurance;

                  (b) The right to designate and change the beneficiary;

                  (c) The  right  to  elect  any  optional  mode  of  settlement
         permitted by the Policy or allowed by the Insurer;

but the  reservation  of these  rights  shall in no way  impair the right of the
Assignee to surrender the Policy completely with all its incidents or impair any
other  right  of the  Assignee  hereunder,  and any  designation  or  change  of
beneficiary  or election of a mode of  settlement  shall be made subject to this
Assignment and to the rights of the Assignee hereunder.

                  4.  This  Assignment  is made and the  Policy is to be held as
collateral security for any and all liabilities of the Assignor to the Assignee,
either  now  existing  or that may  hereafter  arise in the  ordinary  course of
business between the Assignor and the Assignee,  including,  without limitation,
all Obligations as defined in Credit Agreement  (defined  above),  (all of which
liabilities secured or to become secured are herein called "Liabilities").

                  5. The  Assignee  covenants  and agrees  with the  Assignor as
follows:

                  (a) That  any  balance  of sums  received  hereunder  from the
         Insurer  remaining  after  payment  of the then  existing  Liabilities,
         matured or unmatured, shall be paid by the


                                       -2-


<PAGE>



         Assignee to the persons  entitled thereto under the terms of the Policy
         as if this Assignment not been executed;

                  (b) That the Assignee  will not  exercise  either the right to
         surrender the Policy or (except for the purpose of paying premiums) the
         right to obtain  policy  loans from the  Insurer,  until there has been
         default in any of the  Liabilities or a failure to pay any premium when
         due, nor until the Assignees shall have given the Assignor  notice,  in
         accordance with the Credit  Agreement,  specifically  referring to this
         Assignment, of the Assignee's intention to exercise such right; and

                  (c) That the  Assignee  will  upon  request   forward  without
         unreasonable  delay to the  Insurer the Policy for  endorsement  of any
         designation  or change of  beneficiary  or any  election of an optional
         mode of settlement.

                  6.  The  Insurer  is  hereby   authorized   to  recognize  the
Assignee's claims to rights hereunder  without  investigating the reason for any
action taken by the Assignee,  or the validity or the amount of the  Liabilities
or the  existence  of any  default  therein,  or the giving of any notice  under
Paragraph 5(b) above or otherwise, or the application to be made by the Assignee
of any amounts to be paid to the  Assignee.  The sole  signature of the Assignee
for any sums  received  shall be a full  discharge  and release  therefor to the
Insurer.  Checks  for all or any part of the sums  payable  under the Policy and
assigned herein, shall be drawn to the exclusive order of the Assignee if, when,
and in such amounts as may be, requested by the Assignee.

                  7.  The  Assignee  shall be  under  no  obligation  to pay any
premium,  or the principal of or interest on any loans or advances on the Policy
whether or not obtained by the Assignee, or any other charges on the Policy, but
any such amounts so paid by the Assignee from its own funds, shall become a part
of the Liabilities  hereby  secured,  shall be due  immediately,  and shall draw
interest at a rate fixed by the Assignee  from time to time not exceeding 6% per
annum.

                  8.  The  exercise  of any right,  option,  privilege  or power
given herein to the Assignee shall be at the option of the Assignee, but (except
as restricted by Paragraph 5(b) above) the Assignee may exercise any such right,
option,  privilege or power  without  notice to, or assent by, or affecting  the
liability of, or releasing any interest hereby assigned by the Assignor.

                  9.  The  Assignee  may take or  release  other  security,  may
release any party  primarily or secondarily  liable for any of the  Liabilities,
may grant  extensions,  renewals or indulgences with respect to the Liabilities,
or may apply to the  Liabilities in such order as the Assignee shall  determine,
the proceeds of the Policy hereby  assigned or any amount received on account of
the Policy by the exercise of any right permitted under this Assignment, without
resorting or regard to other security.


                                       -3-


<PAGE>



                  10. In the event of any  conflict  between the  provisions  of
this  Assignment  and provisions of the note or other evidence of any Liability,
with  respect  to the  Policy or  rights of  collateral  security  therein,  the
provisions of this Assignment shall prevail.

                  11. The Assignor  declares that no proceeding in bankruptcy is
pending  against it and that its property is not subject to any  assignment  for
the benefit of creditors.

Signed and sealed this ___ day of February, 1999.

Witness

Witness
Assignor:

By:
Its President


                                       -4-


<PAGE>


STATE OF                            )
                                    )  ss.
COUNTY OF                           )

                  The foregoing instrument was acknowledged before me this _____
day of ________________,  1999, by _________,  the _________ of Naco Industries,
Inc., a Utah corporation, on behalf of the corporation.

                                                              Notary Public

Assignee:

NORWEST BUSINESS CREDIT, INC.


By

Its Vice President

Duplicate   received   and  filed  at  the  home   office  of  the   Insurer  in
_________________, this _____ day of _________________, 1999.

                                               (Life Insurance Company)

                                               By
                                               Its


                                       -5-


<PAGE>

                          CREDIT AND SECURITY AGREEMENT

                           Dated as of April 22, 1999


                  NACO INDUSTRIES,  INC., a Utah  corporation (the  "Borrower"),
and WELLS FARGO BUSINESS CREDIT,  INC.,  f/k/a Norwest Business Credit,  Inc., a
Minnesota corporation (the "Lender"), hereby agree as follows:

                                                     ARTICLE I

                                                    Definitions

                  Section 1.1  Definitions.  For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:

                  (a) the  terms  defined  in this  Article  have  the  meanings
         assigned to them in this Article, and include the plural as well as the
         singular;  and all accounting  terms not otherwise  defined herein have
         the meanings assigned to them in accordance with GAAP.

                  "Accounts" means all of the Borrower's accounts,  as such term
         is defined  in the UCC,  including  without  limitation  the  aggregate
         unpaid  obligations  of  customers  and other  account  debtors  to the
         Borrower  arising  out of the sale or lease  of goods or  rendition  of
         services by the Borrower on an open account or deferred payment basis.

                  "Advance" means a Revolving Advance or a Term Advance.

                  "Affiliate" or  "Affiliates"  means any Person  controlled by,
         controlling  or  under  common  control  with the  Borrower,  including
         (without  limitation)  any Subsidiary of the Borrower.  For purposes of
         this  definition,  "control,"  when used with respect to any  specified
         Person,  means the power to direct the  management and policies of such
         Person, directly or indirectly, whether through the ownership of voting
         securities, by contract or otherwise.

                  "Agreement"  means this  Credit  and  Security  Agreement,  as
         amended, supplemented or restated from time to time.

                  "Banking  Day"  means a day other than a  Saturday,  Sunday or
         other  day on which  banks  are  generally  not open  for  business  in
         Minneapolis, Minnesota and Denver, Colorado.

                  "Book  Net  Worth"  means  the  aggregate  of the  common  and
         preferred   stockholders'   equity  in  the  Borrower,   determined  in
         accordance with GAAP.

                  "Borrowing Base" means, at any time the lesser of:

                  (a) the Maximum Line; or

                                       -1-


<PAGE>




                  (b) subject to change from time to time in the  Lender's  sole
         discretion, the sum of:

                           (i)  80% of Eligible Accounts,

                           (ii) the lesser of (A) 50% of Eligible  Inventory  or
                  (B) $750,000.

                  "Capital  Expenditures"  for a period means any expenditure of
         money for the  lease,  purchase  or other  acquisition  of any  capital
         asset, or for the lease of any other asset whether payable currently or
         in the future.

                  "Collateral"  means all of the Borrower's  Equipment,  General
         Intangibles,  Inventory, Receivables,  Investment Property, all sums on
         deposit  in any  Collateral  Account,  and any  items  in any  Lockbox;
         together with (i) all  substitutions  and replacements for and products
         of any of the foregoing; (ii) proceeds of any and all of the foregoing;
         (iii) in the  case of all  tangible  goods,  all  accessions;  (iv) all
         accessories, attachments, parts, equipment and repairs now or hereafter
         attached or affixed to or used in connection  with any tangible  goods;
         (v) all  warehouse  receipts,  bills of lading and other  documents  of
         title now or hereafter covering such goods; and (vi) the Life Insurance
         Policy.

                  "Collateral  Account" has the meaning given in the  Collateral
         Account Agreement.

                  "Commitment" means the Lender's commitment to make Advances to
         or for the Borrower's account pursuant to Article II.

                  "Credit   Facility"  means  the  credit  facility  being  made
         available to the Borrower by the Lender pursuant to Article II.

                  "Debt"  of any  Person  means  all  items of  indebtedness  or
         liability   which  in  accordance   with  GAAP  would  be  included  in
         determining  total  liabilities as shown on the  liabilities  side of a
         balance  sheet of that  Person as at the date as of which Debt is to be
         determined.  For purposes of  determining a Person's  aggregate Debt at
         any time, "Debt" shall also include the aggregate  payments required to
         be made by such Person at any time under any lease that is considered a
         capitalized lease under GAAP.

                  "Default"  means an event  that,  with  giving  of  notice  or
         passage of time or both, would constitute an Event of Default.

                  "Default  Period"  means any period of time  beginning  on the
         first day of any month  during  which a Default or Event of Default has
         occurred  and ending on the date the Lender  notifies  the  Borrower in
         writing that such Default or Event of Default has been cured or waived.

                                       -2-


<PAGE>



                  "Default  Rate"  means an annual  rate equal to three  percent
         (3%) over the Revolving Floating Rate, which rate shall change when and
         as the Revolving Floating Rate changes.

                  "ERISA" means the Employee  Retirement  Income Security Act of
         1974, as amended.

                  "Eligible  Accounts"  means all  unpaid  Accounts,  net of any
         credits, except the following shall not in any event be deemed Eligible
         Accounts:

                           (i) That  portion of  Accounts  that are not  created
                  under the Borrower's "Early Order Program" and that are unpaid
                  90 days or more after the invoice  date,  and that  portion of
                  Accounts  that are created under the  Borrower's  "Early Order
                  Program"  that are unpaid 30 days or more after the stated due
                  date;

                           (ii)  That  portion of Accounts  that is  disputed or
                  subject to a claim of offset or a contra account;

                           (iii) That  portion of Accounts not yet earned by the
                  final   delivery  of  goods  or  rendition  of  services,   as
                  applicable, by the Borrower to the customer;

                           (iv) Accounts owed by any unit of government, whether
                  foreign or domestic  (provided,  however,  that there shall be
                  included in Eligible Accounts that portion of Accounts owed by
                  such units of  government  for which the Borrower has provided
                  evidence  satisfactory to the Lender that (A) the Lender has a
                  first  priority  perfected  security  interest  and  (B)  such
                  Accounts may be enforced by the Lender  directly  against such
                  unit of government under all applicable laws);

                           (v)   Accounts owed  by  an  account  debtor  located
                  outside the United  States  which are not (A) backed by a bank
                  letter of credit naming the Lender as  beneficiary or assigned
                  to the Lender,  in the Lender's  possession  and acceptable to
                  the  Lender  in all  respects,  in its  sole  discretion,  (B)
                  covered by a foreign  receivables  insurance policy acceptable
                  to the Lender in its sole discretion;

                           (vi)  Accounts  owed  by an  account  debtor  that is
                  insolvent,  the subject of bankruptcy  proceedings or has gone
                  out of business;

                           (vii) Accounts  owed  by a  shareholder,  Subsidiary,
                  Affiliate, officer or employee of the Borrower;

                           (viii) Accounts  not   subject  to a  duly  perfected
                  security  interest in the Lender's  favor or which are subject
                  to any lien, security interest or claim in favor of any Person
                  other than the Lender including without limitation any payment
                  or performance bond;

                                       -3-


<PAGE>



                           (ix)  That   portion  of   Accounts   that  has  been
                  restructured, extended, amended or modified;

                           (x)   That  portion  of  Accounts  that   constitutes
                  advertising,  finance  charges,  service  charges  or sales or
                  excise taxes;

                           (xi) Accounts owed by an account  debtor,  regardless
                  of  whether  otherwise  eligible,  if 10% or more of the total
                  amount due under Accounts from such debtor is ineligible under
                  clauses (i), (ii) or (ix) above;

                           (xii) That  portion of the  aggregate  Accounts  of a
                  single  customer  that  exceeds  15%  of all  Accounts  of the
                  Borrower;  provided,  however,  that such limitation shall not
                  apply to the Accounts of WCI,  LLC, for which such  limitation
                  shall be $250,000; and

                           (xiii)  Accounts,  or  portions  thereof,   otherwise
                  deemed ineligible by the Lender in its sole discretion.

                  "Eligible  Inventory" means all Inventory of the Borrower,  at
         the lower of cost or market  value as  determined  in  accordance  with
         GAAP; provided,  however,  that the following shall not in any event be
         deemed Eligible Inventory:

                           (i)  Inventory  that is:  in-transit;  located at any
                  warehouse,  job site or other  premises  not  approved  by the
                  Lender  in  writing;   located  outside  of  the  states,   or
                  localities,  as  applicable,  in which  the  Lender  has filed
                  financing  statements  to  perfect a first  priority  security
                  interest  in such  Inventory;  covered  by any  negotiable  or
                  non-negotiable  warehouse  receipt,  bill of  lading  or other
                  document  of  title;  on  consignment  from  any  Person;   on
                  consignment  to any Person or subject to any  bailment  unless
                  such  consignee or bailee has  executed an agreement  with the
                  Lender;

                           (ii)  Supplies, packaging,  glue, scrap,  maintenance
                  parts or sample Inventory;

                           (iii) Work-in-process Inventory;

                           (iv) Inventory that is damaged, obsolete, slow moving
                  or  not  currently  saleable  in  the  normal  course  of  the
                  Borrower's operations;

                           (v)   Inventory that the Borrower has  returned,  has
                  attempted to return, is in the process of returning or intends
                  to return to the vendor thereof;


                                       -4-


<PAGE>



                           (vi)  Inventory that is perishable or live;

                           (vii) Inventory manufactured by the Borrower pursuant
                  to a license  unless  the  applicable  licensor  has agreed in
                  writing  to permit  the  Lender to  exercise  its  rights  and
                  remedies against such Inventory;

                           (viii)  Inventory  that  is  subject  to  a  security
                  interest in favor of any Person other than the Lender; and

                           (ix)  Inventory  otherwise  deemed  ineligible by the
                  Lender in its sole discretion.

                  "Environmental  Laws" has the  meaning  specified  in  Section
         5.12.

                  "Equipment"  means all of the  Borrower's  equipment,  as such
         term is defined in the UCC,  whether now owned or  hereafter  acquired,
         including  but  not  limited  to  all  present  and  future  machinery,
         vehicles, furniture, fixtures, manufacturing equipment, shop equipment,
         office  and  recordkeeping  equipment,   parts,  tools,  supplies,  and
         including  specifically (without limitation) the goods described in any
         equipment  schedule or list  herewith  or  hereafter  furnished  to the
         Lender by the Borrower.

                  "Event of Default" has the meaning specified in Section 8.1.

                  "Funding Date" has the meaning given in Section 2.1.

                  "GAAP" means generally accepted accounting principles, applied
         on a basis  consistent  with the  accounting  practices  applied in the
         financial statements described in Section 5.5.

                  "General  Intangibles"  means  all of the  Borrower's  general
         intangibles,  as such term is defined in the UCC,  whether now owned or
         hereafter  acquired,  including  (without  limitation)  all present and
         future patents,  patent  applications,  copyrights,  trademarks,  trade
         names,  trade  secrets,  customer  or  supplier  lists  and  contracts,
         manuals, operating instructions,  permits, franchises, the right to use
         the Borrower's name, and the goodwill of the Borrower's business.

                  "Guarantor" means Verne Bray.

                  "Hazardous Substance" has the meaning given in Section 5.12.

                  "Inventory"  means all of the  Borrower's  inventory,  as such
         term is defined in the UCC,  whether now owned or  hereafter  acquired,

                                       -5-


<PAGE>



         whether consisting of whole goods, spare parts or components,  supplies
         or materials,  whether acquired,  held or furnished for sale, for lease
         or under  service  contracts  or for  manufacture  or  processing,  and
         wherever located.

                  "Investment  Property" means all of the Borrower's  investment
         property,  as such term is  defined  in the UCC,  whether  now owned or
         hereafter  acquired,  including  but  not  limited  to all  securities,
         security  entitlements,   securities  accounts,   commodity  contracts,
         commodity accounts,  stocks,  bonds,  mutual fund shares,  money market
         shares and U.S. Government securities.

                  "Life  Insurance  Assignment"  means  an  Assignment  of  Life
         Insurance  Policy as  Collateral  to be  executed  by the owner and the
         beneficiary thereof, in form and substance  satisfactory to the Lender,
         granting the Lender a first priority lien on the Life Insurance  Policy
         to secure payment of the Obligations.

                  "Life Insurance Policy" has the meaning given in Section 6.11.

                  "Loan  Documents"  means  this  Agreement,  the  Notes and the
         Security Documents.

                  "Lockbox" has the meaning given in the Lockbox Agreement.

                  "Lockbox Agreement" means the Lockbox and Collection Agreement
         among the Borrower,  Wells Fargo,  the Lender and Regulus West, LLC, of
         even date herewith.

                  "Maturity Date" means April 30, 2002.

                  "Maximum Line" means $1,500,000, unless said amount is reduced
         pursuant  to Section  2.6,  in which event it means the amount to which
         said amount is reduced.

                  "Minimum  Interest  Charge" has the  meaning  given in Section
         2.2(b).

                  "Net Income" means fiscal  year-to-date  before-tax net income
         less extraordinary gains, as determined in accordance with GAAP.

                  "Note" means the Revolving Note.

                  "Obligations"  means the Notes and each and every  other debt,
         liability  and  obligation  of every  type and  description  which  the
         Borrower may now or at any time  hereafter  owe to the Lender,  whether
         such debt,  liability or obligation now exists or is hereafter  created
         or incurred,  whether it arises in a  transaction  involving the Lender
         alone or in a transaction  involving  other  creditors of the Borrower,

                                       -6-


<PAGE>


         and whether it is direct or indirect, due or to become due, absolute or
         contingent, primary or secondary,  liquidated or unliquidated, or sole,
         joint,  several or joint and several, and including  specifically,  but
         not limited to, all  indebtedness  of the Borrower  arising  under this
         Agreement,  the Notes or any other loan or credit agreement or guaranty
         between the Borrower and the Lender, whether now in effect or hereafter
         entered into.

                  "Patent and Trademark Security Agreement" means the Patent and
         Trademark  Security Agreement by the Borrower in favor of the Lender of
         even date herewith.

                  "Permitted Lien" has the meaning given in Section 7.1.

                  "Person" means any individual, corporation, partnership, joint
         venture, limited liability company,  association,  joint-stock company,
         trust,  unincorporated  organization  or  government  or any  agency or
         political subdivision thereof.

                  "Plan" means an employee benefit plan or other plan maintained
         for the Borrower's employees and covered by Title IV of ERISA.

                  "Premises" means all premises where the Borrower  conducts its
         business  and  has  any  rights  of  possession,   including   (without
         limitation)  the  premises  legally  described  in  Exhibit C  attached
         hereto.

                  "Prime Rate" means the rate  publicly  announced  from time to
         time by Wells  Fargo as its  "prime  rate" or,  if such bank  ceases to
         announce a rate so designated, any similar successor rate designated by
         the Lender.

                  "Receivables"  means each and every  right of the  Borrower to
         the  payment of money,  whether  such  right to  payment  now exists or
         hereafter  arises,  whether such right to payment arises out of a sale,
         lease  or other  disposition  of  goods  or  other  property,  out of a
         rendering of services,  out of a loan, out of the  overpayment of taxes
         or other  liabilities,  or  otherwise  arises  under  any  contract  or
         agreement,  whether  such  right to payment is  created,  generated  or
         earned  by the  Borrower  or by  some  other  person  who  subsequently
         transfers such person's interest to the Borrower, whether such right to
         payment is or is not already earned by performance,  and howsoever such
         right to payment may be  evidenced,  together with all other rights and
         interests  (including  all  liens  and  security  interests)  which the
         Borrower may at any time have by law or  agreement  against any account
         debtor or other  obligor  obligated to make any such payment or against
         any property of such account debtor or other obligor; all including but
         not limited to all present and future accounts,  contract rights, loans
         and obligations receivable, chattel papers, bonds, notes and other debt
         instruments, tax refunds and rights to payment in the nature of general
         intangibles.

                                       -7-


<PAGE>



                  "Reportable  Event"  shall have the  meaning  assigned to that
         term in Title IV of ERISA.

                  "Revolving Advance" has the meaning given in Section 2.1.

                  "Revolving  Floating  Rate"  means an annual rate equal to the
         sum of the  Prime  Rate plus two and  one-half  percent  (2.5%),  which
         annual rate shall change when and as the Prime Rate changes.

                  "Revolving  Note" means the  Borrower's  revolving  promissory
         note,  payable to the order of the Lender in substantially  the form of
         Exhibit A hereto and any note or notes issued in substitution therefor,
         as the same may  hereafter be amended,  supplemented  or restated  from
         time to time.

                  "Security  Documents"  means this  Agreement,  the  Collateral
         Account   Agreement,   the  Lockbox   Agreement,   the  Life  Insurance
         Assignment,  the Patent and Trademark Security Agreement, and any other
         document  delivered  to the  Lender  from  time to time to  secure  the
         Obligations,  as the same may  hereafter  be amended,  supplemented  or
         restated from time to time.

                  "Security Interest" has the meaning given in Section 3.1.

                  "Subsidiary"  means any  corporation of which more than 50% of
         the  outstanding  shares of capital stock having  general  voting power
         under  ordinary  circumstances  to  elect a  majority  of the  board of
         directors of such  corporation,  irrespective  of whether or not at the
         time  stock of any other  class or  classes  shall  have or might  have
         voting power by reason of the happening of any  contingency,  is at the
         time directly or indirectly owned by the Borrower,  by the Borrower and
         one or more other Subsidiaries, or by one or more other Subsidiaries.

                  "Termination  Date"  means the  earliest  of (i) the  Maturity
         Date,  (ii) the date the Borrower  terminates the Credit  Facility,  or
         (iii) the date the Lender demands payment of the  Obligations  after an
         Event of Default pursuant to Section 8.2.

                  "UCC" means the Uniform Commercial Code as in effect from time
         to time in the state designated in Section 9.13 as the state whose laws
         shall govern this Agreement,  or in any other state whose laws are held
         to govern this Agreement or any portion hereof.

                  "Wells Fargo" means Wells Fargo Bank, N.A.


                                       -8-


<PAGE>



                  Section 1.2 Cross References. All references in this Agreement
to  Articles,  Sections  and  subsections,  shall be to  Articles,  Sections and
subsections of this Agreement unless otherwise explicitly specified.

                                   ARTICLE II

                     Amount and Terms of the Credit Facility
                     ---------------------------------------

                  Section 2.1  Revolving  Advances.  The Lender  agrees,  on the
terms and subject to the  conditions  herein set forth,  to make advances to the
Borrower  from  time to time  from the date all of the  conditions  set forth in
Section  4.1 are  satisfied  or waived in writing by the  Lender  (the  "Funding
Date") to the Termination Date (the "Revolving Advances"). The Lender shall have
no  obligation  to make a Revolving  Advance  if,  after  giving  effect to such
requested  Revolving  Advance,  the sum of the outstanding and unpaid  Revolving
Advances would exceed the Borrowing  Base. The Borrower's  obligation to pay the
Revolving Advances shall be evidenced by the Revolving Note and shall be secured
by the  Collateral  as provided in Article  III.  Within the limits set forth in
this Section 2.1,  the Borrower may borrow,  prepay  pursuant to Section 2.6 and
reborrow.  The  Borrower  agrees  to comply  with the  following  procedures  in
requesting Revolving Advances under this Section 2.1:

                  (a) The  Borrower  shall  make each  request  for a  Revolving
         Advance to the Lender before 11:00 a.m. (Denver time) of the day of the
         requested  Revolving  Advance.  Requests  may be made in  writing or by
         telephone,  specifying the date of the requested  Revolving Advance and
         the amount  thereof.  Each  request  shall be by (i) any officer of the
         Borrower;  or (ii) any person designated as the Borrower's agent by any
         officer of the Borrower in a writing  delivered to the Lender; or (iii)
         any person whom the Lender reasonably  believes to be an officer of the
         Borrower or such a designated agent.

                  (b) Upon fulfillment of the applicable conditions set forth in
         Article IV, the Lender shall  disburse  the  proceeds of the  requested
         Revolving  Advance  by  crediting  the  same to the  Borrower's  demand
         deposit  account  maintained with Wells Fargo unless the Lender and the
         Borrower shall agree in writing to another manner of disbursement. Upon
         the  Lender's  request,   the  Borrower  shall  promptly  confirm  each
         telephonic  request  for an  Advance by  executing  and  delivering  an
         appropriate  confirmation certificate to the Lender. The Borrower shall
         repay  all   Advances   even  if  the  Lender  does  not  receive  such
         confirmation  and even if the person  requesting  an Advance was not in
         fact  authorized to do so. Any request for an Advance,  whether written
         or telephonic,  shall be deemed to be a representation  by the Borrower
         that the  conditions set forth in Section 4.2 have been satisfied as of
         the time of the request.

                                       -9-


<PAGE>



                  Section  2.2  Interest;   Minimum  Interest  Charge;   Default
         Interest; Usury.

                  (a) Revolving  Note.   Except as set forth in Section 2.2 (e),
         the  outstanding  principal  balance of the  Revolving  Note shall bear
         interest  at the  Revolving  Floating  Rate.  Interest  accruing on the
         Revolving  Note shall be due and payable in arrears on the first day of
         each month.

                  (b) Minimum  Interest  Charge.  Notwithstanding  the  interest
         payable  pursuant  to Section  2.2(a),  the  Borrower  shall pay to the
         Lender  interest of not less than  $20,000 per  calendar  quarter  (the
         "Minimum Interest  Charge") during the term of this Agreement,  and the
         Borrower shall pay any deficiency  between the Minimum  Interest Charge
         and the amount of interest otherwise calculated under Section 2.2(a) in
         arrears in the manner provided in Section 2.4.

                  (c) Default  Interest  Rate.   At any time  during any Default
         Period,  in the Lender's sole discretion and without waiving any of its
         other rights and remedies,  the  principal of the Advances  outstanding
         from time to time shall bear  interest at the Default  Rate,  effective
         for any periods  designated by the Lender from time to time during that
         Default Period.

                  (d) Participations.     If  any   Person   shall   acquire   a
         participation in the Advances under this Agreement,  the Borrower shall
         be  obligated  to the  Lender to pay the full  amount  of all  interest
         calculated under this Agreement, along with all other fees, charges and
         other  amounts  due under this  Agreement,  regardless  if such  Person
         elects to accept interest with respect to its  participation at a lower
         rate than the Revolving  Floating  Rate or the Term  Floating  Rate, or
         otherwise  elects to accept less than its  prorata  share of such fees,
         charges and other amounts due under this Agreement.

                  (e) Usury.   In any  event  no rate  change  shall be put into
         effect  which would  result in a rate  greater  than the  highest  rate
         permitted by law. Notwithstanding anything to the contrary contained in
         any Loan Document,  all agreements  which either now are or which shall
         become  agreements  between  the  Borrower  and the  Lender  are hereby
         limited so that in no contingency or event  whatsoever  shall the total
         liability for payments in the nature of interest,  additional  interest
         and  other  charges  exceed  the  applicable   limits  imposed  by  any
         applicable  usury  laws.  If any  payments  in the nature of  interest,
         additional  interest and other charges made under any Loan Document are
         held to be in excess of the  limits  imposed  by any  applicable  usury
         laws,  it is agreed that any such amount held to be in excess  shall be
         considered  payment  of  principal  hereunder,   and  the  indebtedness
         evidenced  hereby  shall be  reduced  by such  amount so that the total
         liability for payments in the nature of interest,  additional  interest
         and other charges shall not exceed the applicable limits imposed by any
         applicable  usury laws, in compliance  with the desires of the Borrower

                                      -10-


<PAGE>


         and the Lender.  This provision shall never be superseded or waived and
         shall  control  every other  provision  of the Loan  Documents  and all
         agreements between the Borrower and the Lender, or their successors and
         assigns.

                  Section 2.3 Fees.

                  (a) Origination  Fee.  The Borrower  hereby  agrees to pay the
         Lender a fully earned and  non-refundable  origination  fee of $15,000,
         due and  payable  upon the  execution  of this  Agreement.  The  Lender
         acknowledges  receipt  of  $26,000  toward  payment of this fee and the
         fees, costs and expenses described in Sections 2.3(d) and 9.6.

                  (b) Unused Line Fee. For the purposes of this Section  2.3(b),
         "Unused Amount" means the Maximum Line reduced by outstanding Revolving
         Advances.  The Borrower  agrees to pay to the Lender an unused line fee
         at the rate of one  quarter  percent  (0.25%)  per annum on the average
         daily Unused  Amount from the date of this  Agreement to and  including
         the  Termination  Date, due and payable monthly in arrears on the first
         day of the month and on the Termination Date.

                  (c) Facility  Fee. The  Borrower  hereby  agrees to pay to the
         Lender an annual  facility fee equal to one-quarter  percent (0.25%) of
         the  Maximum  Line,  payable  in arrears  on each  anniversary  of this
         Agreement and on the Termination Date.

                  (d) Audit Fees. The Borrower  hereby agrees to pay the Lender,
         on demand,  audit  fees in  connection  with any audits or  inspections
         conducted by the Lender of any Collateral or the Borrower's  operations
         or business at the rates established from time to time by the Lender as
         its audit fees (which  fees are  currently  $60 per hour per  auditor),
         together with all actual  out-of-pocket  costs and expenses incurred in
         conducting any such audit or inspection.

                  Section 2.4  Computation  of Interest and Fees;  When Interest
Due and Payable.  Interest accruing on the outstanding  principal balance of the
Advances and fees hereunder  outstanding  from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days. Interest shall
be payable  in  arrears  on the first day of each  month and on the  Termination
Date.

                  Section 2.5 Capital Adequacy. If any Related Lender determines
at any time that its  Return has been  reduced  as a result of any Rule  Change,
such Related  Lender may require the Borrower to pay it the amount  necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.5:

                                      -11-


<PAGE>



                  (a) "Capital  Adequacy Rule" means any law, rule,  regulation,
         guideline,   directive,   requirement  or  request   regarding  capital
         adequacy,  or  the  interpretation  or  administration  thereof  by any
         governmental  or  regulatory  authority,  central  bank  or  comparable
         agency,  whether or not having  the force of law,  that  applies to any
         Related   Lender.   Such  rules  include  rules   requiring   financial
         institutions   to  maintain   total   capital  in  amounts  based  upon
         percentages of outstanding loans,  binding loan commitments and letters
         of credit.

                  (b) "Return",  for any period,  means the return as determined
         by such  Related  Lender on the Advances  based upon its total  capital
         requirements and a reasonable attribution formula that takes account of
         the Capital Adequacy Rules then in effect. Return may be calculated for
         each calendar  quarter and for the shorter  period between the end of a
         calendar  quarter  and  the  date  of  termination  in  whole  of  this
         Agreement.

                  (c) "Rule  Change"  means any change in any  Capital  Adequacy
         Rule occurring after the date of this Agreement,  but the term does not
         include any changes in applicable requirements that at the Closing Date
         are scheduled to take place under the existing  Capital  Adequacy Rules
         or any increases in the capital that any Related  Lender is required to
         maintain  to the  extent  that  the  increases  are  required  due to a
         regulatory  authority's  assessment of the financial  condition of such
         Related Lender.

                  (d) "Related  Lender"   includes  (but is not  limited to) the
         Lender,  any parent  corporation  of the Lender and any assignee of any
         interest of the Lender  hereunder and any participant in the loans made
         hereunder.

Certificates  of any  Related  Lender  sent to the  Borrower  from  time to time
claiming  compensation  under this Section 2.5,  stating the reason therefor and
setting forth in reasonable  detail the calculation of the additional  amount or
amounts to be paid to the Related  Lender  hereunder to restore its Return shall
be conclusive  absent manifest error. In determining  such amounts,  the Related
Lender may use any reasonable averaging and attribution methods.

                  Section 2.6  Voluntary  Prepayment;  Reduction  of the Maximum
Line;  Termination of the Credit  Facility by the Borrower.  Except as otherwise
provided herein,  the Borrower may prepay the Revolving Advances in whole at any
time or from  time to time in  part.  The  Borrower  may  terminate  the  Credit
Facility  or reduce the  Maximum  Line at any time if it (i) gives the Lender at
least 30 days' prior written notice and (ii) pays the Lender the  termination or
line reduction fees in accordance with Section 2.7. Any reduction in the Maximum
Line  must be in an  amount  not less  than  $100,000  or an  integral  multiple
thereof. If the Borrower reduces the Maximum Line to zero, all Obligations shall
be immediately  due and payable.  Upon  termination  of the Credit  Facility and

                                      -12-


<PAGE>



payment  and  performance  of all  Obligations,  the  Lender  shall  release  or
terminate the Security Interest and the Security Documents to which the Borrower
is entitled by law.

                  Section 2.7  Termination  and Line Reduction  Fees;  Waiver of
Termination and Line Reduction Fees.

                  (a) Termination  and   Line  Reduction  Fees.  If  the  Credit
         Facility  is  terminated  for any  reason as of a date  other  than the
         Maturity  Date, or the Borrower  reduces the Maximum Line, the Borrower
         shall pay to the Lender a fee in an amount equal to a percentage of the
         Maximum  Line (or the  reduction,  as the case may be) as follows:  (i)
         three percent (3%) if the termination or reduction  occurs on or before
         the first  anniversary of the Funding Date;  (ii) two percent (2.0%) if
         the termination or reduction occurs after the first  anniversary of the
         Funding  Date but on or before the second  anniversary  of the  Funding
         Date; and (iii) one percent (1%) if the termination or reduction occurs
         after the second anniversary of the Funding Date.

                  (b) Waiver of Termination, Line Reduction and Prepayment Fees.
         The  Borrower  will  not be  required  to  pay  the  termination,  line
         reduction and  prepayment  fees otherwise due under this Section 2.7 if
         such  termination,  line  reduction  or  prepayment  is made because of
         refinancing of the Borrower by an affiliate of the Lender.

                  Section 2.8 Mandatory Prepayment. Without notice or demand, if
the outstanding  principal  balance of the Revolving  Advances shall at any time
exceed the Borrowing Base, the Borrower shall  immediately  prepay the Revolving
Advances to the extent necessary to eliminate such excess.  Any payment received
by the Lender under this Section 2.8 or under  Section 2.6 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine.

                  Section 2.9 Payment.  All payments to the Lender shall be made
in  immediately  available  funds and shall be  applied to the  Obligations  one
Banking Day after  receipt by the Lender.  The Lender may hold all  payments not
constituting  immediately  available  funds for three (3) additional days before
applying them to the Obligations.  Notwithstanding  anything in Section 2.1, the
Borrower  hereby  authorizes  the Lender,  in its discretion at any time or from
time to time without the Borrower's request and even if the conditions set forth
in Section 4.2 would not be satisfied,  to make a Revolving Advance in an amount
equal to the portion of the Obligations from time to time due and payable.

                  Section 2.10 Payment on Non-Banking Days. Whenever any payment
to be made  hereunder  shall be stated to be due on a day which is not a Banking
Day,  such  payment may be made on the next  succeeding  Banking  Day,  and such
extension of time shall in such case be included in the  computation of interest
on the Advances or the fees hereunder, as the case may be.

                                      -13-


<PAGE>




                  Section  2.11 Use of  Proceeds.  The  Borrower  shall  use the
proceeds of Advances for ordinary working capital purposes.

                  Section 2.12 Liability  Records.  The Lender may maintain from
time to time, at its discretion,  liability  records as to the Obligations.  All
entries  made on any such record  shall be presumed  correct  until the Borrower
establishes the contrary.  Upon the Lender's demand, the Borrower will admit and
certify in writing  the exact  principal  balance  of the  Obligations  that the
Borrower  then asserts to be  outstanding.  Any billing  statement or accounting
rendered by the Lender  shall be  conclusive  and fully  binding on the Borrower
unless the Borrower gives the Lender specific written notice of exception within
30 days after receipt.

                                   ARTICLE III

                      Security Interest; Occupancy; Setoff
                      ------------------------------------

                  Section 3.1 Grant of Security  Interest.  The Borrower  hereby
pledges,  assigns  and grants to the Lender a  security  interest  (collectively
referred to as the "Security  Interest") in the Collateral,  as security for the
payment and performance of the Obligations.

                  Section  3.2   Notification   of  Account  Debtors  and  Other
Obligors.  The  Lender may at any time  (whether  or not a Default  Period  then
exists)  notify any account  debtor or other person  obligated to pay the amount
due that such right to payment has been  assigned or  transferred  to the Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests.  At any time after the Borrower or
the Lender gives such notice to an account debtor or other  obligor,  the Lender
may, but need not, in the Lender's name or in the  Borrower's  name, (a) demand,
sue for,  collect  or  receive  any money or  property  at any time  payable  or
receivable on account of, or securing,  any such right to payment,  or grant any
extension  to, make any  compromise  or  settlement  with or otherwise  agree to
waive,   modify,   amend  or  change  the  obligations   (including   collateral
obligations)  of any  such  account  debtor  or  other  obligor;  and (b) as the
Borrower's agent and  attorney-in-fact,  notify the United States Postal Service
to change  the  address  for  delivery  of the  Borrower's  mail to any  address
designated by the Lender,  otherwise intercept the Borrower's mail, and receive,
open and dispose of the  Borrower's  mail,  applying all Collateral as permitted
under this  Agreement and holding all other mail for the  Borrower's  account or
forwarding such mail to the Borrower's last known address.

                  Section 3.3  Assignment of Insurance.  As additional  security
for the payment and performance of the Obligations,  the Borrower hereby assigns
to the Lender any and all monies  (including,  without  limitation,  proceeds of
insurance and refunds of unearned  premiums) due or to become due under, and all
other rights of the Borrower  with respect to, any and all policies of insurance

                                      -14-


<PAGE>



now or at any time hereafter  covering the Collateral or any evidence thereof or
any business  records or valuable papers  pertaining  thereto,  and the Borrower
hereby directs the issuer of any such policy to pay all such monies  directly to
the Lender. At any time, whether or not a Default Period then exists, the Lender
may (but need not), in the Lender's name or in the Borrower's name,  execute and
deliver  proof of claim,  receive  all such  monies,  endorse  checks  and other
instruments   representing  payment  of  such  monies,  and  adjust,   litigate,
compromise or release any claim against the issuer of any such policy.

                  Section 3.4 Occupancy.

                  (a) The Borrower hereby  irrevocably  grants to the Lender the
         right to take  possession  of the Premises at any time during a Default
         Period.

                  (b) The Lender  may use the  Premises  only to hold,  process,
         manufacture,  sell,  use, store,  liquidate,  realize upon or otherwise
         dispose of goods that are  Collateral  and for other  purposes that the
         Lender may in good faith deem to be related or incidental purposes.

                  (c) The Lender's  right to hold the  Premises  shall cease and
         terminate  upon the earlier of (i) payment in full and discharge of all
         Obligations and  termination of the Commitment,  and (ii) final sale or
         disposition  of all goods  constituting  Collateral and delivery of all
         such goods to purchasers.

                  (d) The Lender  shall not be  obligated  to pay or account for
         any rent or other compensation for the possession,  occupancy or use of
         any of the Premises;  provided, however, that if the Lender does pay or
         account  for  any  rent  or  other  compensation  for  the  possession,
         occupancy or use of any of the Premises,  the Borrower shall  reimburse
         the Lender  promptly  for the full amount  thereof.  In  addition,  the
         Borrower  will pay,  or  reimburse  the Lender  for,  all taxes,  fees,
         duties,  imposts,  charges  and  expenses  at any time  incurred  by or
         imposed  upon  the  Lender  by  reason  of  the  execution,   delivery,
         existence, recordation, performance or enforcement of this Agreement or
         the provisions of this Section 3.4.

                  Section 3.5 License.  Without  limiting the  generality of the
Patent Security  Agreement,  Copyright  Security  Agreement,  Trademark Security
Agreement,  the Borrower hereby grants to the Lender a non-exclusive,  worldwide
and royalty-free license to use or otherwise exploit all trademarks, franchises,
trade names,  copyrights and patents of the Borrower for the purpose of selling,
leasing or  otherwise  disposing  of any or all  Collateral  during any  Default
Period.

                  Section 3.6 Financing  Statement.  A carbon,  photographic  or
other  reproduction of this Agreement or of any financing  statements  signed by
the  Borrower  is  sufficient  as a  financing  statement  and may be filed as a

                                      -15-


<PAGE>



financing  statement  in any state to perfect  the  security  interests  granted
hereby. For this purpose, the following information is set forth:

                  Name and address of Debtor:

                  Naco Industries, Inc.
                  395 West 1400 North
                  Logan, Utah 84341
                  Federal Tax Identification No. 48-0836971

                  Name and address of Secured Party:

                  Norwest Business Credit, Inc.
                  1740 Broadway
                  Denver, Colorado 80274-8625
                  Federal Tax Identification No. 41-1237652

                  Section 3.7 Setoff. The Borrower agrees that the Lender may at
any time or from time to time,  at its sole  discretion  and without  demand and
without  notice to anyone,  setoff any  liability  owed to the  Borrower  by the
Lender,  whether or not due,  against  any  Obligation,  whether or not due.  In
addition,  each other Person holding a participating interest in any Obligations
shall have the right to  appropriate  or setoff any  deposit or other  liability
then owed by such Person to the Borrower, whether or not due, and apply the same
to the payment of said  participating  interest,  as fully as if such Person had
lent directly to the Borrower the amount of such participating interest.

                                   ARTICLE IV

                              Conditions of Lending
                              ---------------------

                  Section 4.1 Conditions  Precedent to the Initial Revolving and
Term Advances.  The Lender's  obligation to make the initial  Revolving and Term
Advances  hereunder shall be subject to the condition  precedent that the Lender
shall  have  received  all  of  the  following,   each  in  form  and  substance
satisfactory to the Lender:

                  (a)      This Agreement, properly executed by the Borrower.

                  (b)      The Notes, properly executed by the Borrower.

                  (c) A true and correct copy of any and all leases  pursuant to
         which the Borrower is leasing the Premises,  together with a landlord's
         disclaimer and consent with respect to each such lease.

                                      -16-


<PAGE>



                  (d) A true and correct copy of any and all mortgages  pursuant
         to which the Borrower  has  mortgaged  the  Premises,  together  with a
         mortgagee's disclaimer and consent with respect to each such mortgage.

                  (e) The Life Insurance  Assignment,  properly  executed by the
         beneficiary and owner thereof,  and the Life Insurance Policy,  each in
         form and  substance  satisfactory  to the  Lender,  together  with such
         evidence as the Lender may request  that the Life  Insurance  Policy is
         subject to no assignments or encumbrances other than the Life Insurance
         Assignment.

                  (f) The Lockbox Agreement,  properly executed by the Borrower,
         Wells Fargo and Regulus West, LLC.

                  (g) The  Patent and  Trademark  Security  Agreement,  properly
         executed by the Borrower.

                  (h) Current  searches of appropriate  filing  offices  showing
         that (i) no state or  federal  tax liens  have been filed and remain in
         effect   against  the  Borrower,   (ii)  no  financing   statements  or
         assignments  of patents,  trademarks or copyrights  have been filed and
         remain in effect against the Borrower except those financing statements
         and  assignments  of  patents,  trademarks  or  copyrights  relating to
         Permitted  Liens or to liens held by Persons who have agreed in writing
         that upon  receipt of proceeds of the  Advances,  they will deliver UCC
         releases  and/or  terminations  and  releases  of such  assignments  of
         patents, trademarks or copyrights satisfactory to the Lender, and (iii)
         the Lender has duly filed all financing statements necessary to perfect
         the Security  Interest,  to the extent the Security Interest is capable
         of being perfected by filing.

                  (i) A  certificate  of the  Borrower's  Secretary or Assistant
         Secretary  certifying  as to (i)  the  resolutions  of  the  Borrower's
         directors and, if required,  shareholders,  authorizing  the execution,
         delivery and  performance  of the Loan  Documents,  (ii) the Borrower's
         articles of incorporation  and bylaws,  and (iii) the signatures of the
         Borrower's  officers  or agents  authorized  to execute and deliver the
         Loan  Documents and other  instruments,  agreements  and  certificates,
         including Advance requests, on the Borrower's behalf.

                  (j) A current  certificate issued by the Secretary of State of
         Utah, certifying that the Borrower is in compliance with all applicable
         organizational requirements of the State of Utah.

                  (k) Evidence  that the Borrower is duly  licensed or qualified
         to transact  business in all  jurisdictions  where the character of the
         property owned or leased or the nature of the business transacted by it
         makes such licensing or qualification necessary.

                                      -17-


<PAGE>



                  (l) A certificate of an officer of the Borrower confirming, in
         his personal capacity,  the representations and warranties set forth in
         Article V.

                  (m) An opinion of counsel to the  Borrower,  addressed  to the
         Lender.

                  (n) Certificates of the insurance required hereunder, with all
         hazard insurance  containing a lender's loss payable endorsement in the
         Lender's favor and with all liability insurance naming the Lender as an
         additional insured.

                  (o) A separate guaranty,  properly executed by each Guarantor,
         pursuant to which each  Guarantor  unconditionally  guarantees the full
         and prompt payment of all Obligations.

                  (p) A waiver of interest,  properly  executed by the spouse of
         the Guarantor, waiving any and all interest such spouse may have in the
         assets  disclosed  to the  Lender in the  financial  statements  of the
         Guarantor  and  in  any  future  earnings  or  assets  acquired  by the
         Guarantor.

                  (q) An opinion of counsel to each Guarantor,  addressed to the
         Lender.

                  (r) Payment of the fees and  commissions  due through the date
         of the initial  Advance under Section 2.3 and expenses  incurred by the
         Lender  through such date and required to be paid by the Borrower under
         Section 9.6,  including all legal expenses incurred through the date of
         this Agreement.

                  (s) Evidence of the  commitment of Webb Bank to provide a term
         loan to the Borrower,  in the amount of $1,100,000,  secured by certain
         equipment and real estate of the Borrower.

                  (t) Such other  documents as the Lender in its sole discretion
         may require.

                  Section 4.2 Conditions Precedent to All Advances. The Lender's
obligation  to make each  Advance  shall be  subject to the  further  conditions
precedent that on such date:

                  (a) the representations and warranties  contained in Article V
         are correct on and as of the date of such Advance as though made on and
         as of such date,  except to the extent  that such  representations  and
         warranties relate solely to an earlier date; and

                  (b) no event has occurred and is  continuing,  or would result
         from such Advance which constitutes a Default or an Event of Default.

                                      -18-


<PAGE>



                                    ARTICLE V

                         Representations and Warranties
                         ------------------------------

                  The Borrower represents and warrants to the Lender as follows:

                  Section  5.1  Corporate   Existence  and  Power;  Name;  Chief
Executive Office;  Inventory and Equipment Locations; Tax Identification Number.
The Borrower is a  corporation,  duly  organized,  validly  existing and in good
standing  under the laws of the State of Utah and is duly  licensed or qualified
to transact  business in all  jurisdictions  where the character of the property
owned or  leased or the  nature  of the  business  transacted  by it makes  such
licensing or qualification  necessary.  The Borrower has all requisite power and
authority,  corporate  or  otherwise,  to  conduct  its  business,  to  own  its
properties  and to execute and  deliver,  and to perform all of its  obligations
under, the Loan Documents.  During its existence, the Borrower has done business
solely under the names set forth in Schedule 5.1 hereto.  The  Borrower's  chief
executive  office and principal  place of business is located at the address set
forth in Schedule 5.1 hereto,  and all of the Borrower's records relating to its
business  or the  Collateral  are  kept  at that  location.  All  Inventory  and
Equipment is located at that location or at one of the other locations set forth
in Schedule 5.1 hereto.  The Borrower's tax  identification  number is correctly
set forth in Section 3.6 hereto.

                  Section 5.2 Authorization of Borrowing;  No Conflict as to Law
or Agreements.  The execution,  delivery and  performance by the Borrower of the
Loan  Documents and the  borrowings  from time to time  hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any  consent or  approval  of the  Borrower's  stockholders;  (ii)  require  any
authorization,  consent or approval by, or  registration,  declaration or filing
with, or notice to, any  governmental  department,  commission,  board,  bureau,
agency or instrumentality,  domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any  provision of any law, rule or regulation  (including,  without  limitation,
Regulation X of the Board of Governors of the Federal  Reserve System) or of any
order,  writ,  injunction or decree presently in effect having  applicability to
the Borrower or of the  Borrower's  articles of  incorporation  or bylaws;  (iv)
result in a breach of or  constitute  a default  under any  indenture or loan or
credit agreement or any other material  agreement,  lease or instrument to which
the  Borrower  is a party  or by  which  it or its  properties  may be  bound or
affected;  or (v) result in, or  require,  the  creation  or  imposition  of any
mortgage,  deed of trust,  pledge,  lien,  security  interest or other charge or
encumbrance  of any  nature  (other  than the  Security  Interest)  upon or with
respect  to any  of the  properties  now  owned  or  hereafter  acquired  by the
Borrower.

                  Section 5.3 Legal Agreements.  This Agreement constitutes and,
upon due execution by the Borrower, the other Loan Documents will constitute the

                                      -19-


<PAGE>



legal, valid and binding  obligations of the Borrower,  enforceable  against the
Borrower in accordance with their respective terms.

                  Section 5.4 Subsidiaries.  Except as set forth in Schedule 5.4
hereto, the Borrower has no Subsidiaries.

                  Section  5.5  Financial  Condition;  No  Adverse  Change.  The
Borrower has heretofore furnished to the Lender its audited financial statements
for its fiscal year ended November 30, 1998 and those statements  fairly present
the Borrower's  financial  condition on the dates thereof and the results of its
operations  and cash  flows for the  periods  then  ended and were  prepared  in
accordance with generally accepted accounting principles.  Since the date of the
most recent financial  statements,  there has been no material adverse change in
the Borrower's business, properties or condition (financial or otherwise).

                  Section  5.6  Litigation.  There  are  no  actions,  suits  or
proceedings  pending  or, to the  Borrower's  knowledge,  threatened  against or
affecting  the  Borrower  or any  of its  Affiliates  or the  properties  of the
Borrower or any of its Affiliates  before any court or governmental  department,
commission,  board,  bureau,  agency or  instrumentality,  domestic  or foreign,
which, if determined  adversely to the Borrower or any of its Affiliates,  would
have a  material  adverse  effect  on the  financial  condition,  properties  or
operations of the Borrower or any of its Affiliates.

                  Section 5.7  Regulation  U. The Borrower is not engaged in the
business of extending  credit for the purpose of purchasing  or carrying  margin
stock  (within  the meaning of  Regulation  U of the Board of  Governors  of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to  purchase  or carry any  margin  stock or to extend  credit to others for the
purpose of purchasing or carrying any margin stock.

                  Section 5.8 Taxes.  The Borrower and its Affiliates  have paid
or caused to be paid to the proper  authorities when due all federal,  state and
local  taxes  required  to be withheld  by each of them.  The  Borrower  and its
Affiliates  have filed all  federal,  state and local tax  returns  which to the
knowledge of the officers of the Borrower or any Affiliate,  as the case may be,
are  required to be filed,  and the  Borrower  and its  Affiliates  have paid or
caused to be paid to the  respective  taxing  authorities  all taxes as shown on
said  returns or on any  assessment  received  by any of them to the extent such
taxes have become due.

                  Section  5.9  Titles  and  Liens.  The  Borrower  has good and
absolute title to all Collateral described in the collateral reports provided to
the Lender and all other  Collateral,  properties  and assets  reflected  in the
latest financial statements referred to in Section 5.5 and all proceeds thereof,
free and clear of all mortgages,  security  interests,  liens and  encumbrances,
except for Permitted Liens. No financing statement naming the Borrower as debtor
is on file in any office except to perfect only Permitted Liens.

                                      -20-


<PAGE>



                  Section  5.10  Plans.  Except as  disclosed  to the  Lender in
writing prior to the date hereof, neither the Borrower nor any of its Affiliates
maintains or has maintained any Plan. Neither the Borrower nor any Affiliate has
received  any notice or has any  knowledge  to the effect that it is not in full
compliance with any of the  requirements of ERISA. No Reportable  Event or other
fact or  circumstance  which  may  have an  adverse  effect  on the  Plan's  tax
qualified  status exists in connection  with any Plan.  Neither the Borrower nor
any of its Affiliates has:

                  (a) Any accumulated  funding  deficiency within the meaning of
         ERISA; or

                  (b) Any liability or knows of any fact or circumstances  which
         could  result  in  any  liability  to  the  Pension  Benefit   Guaranty
         Corporation,  the Internal Revenue Service,  the Department of Labor or
         any  participant  in  connection  with any  Plan  (other  than  accrued
         benefits  which are or which may  become  payable  to  participants  or
         beneficiaries of any such Plan).

                  Section 5.11 Default.  The Borrower is in compliance  with all
provisions of all agreements,  instruments,  decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which  could  have a  material  adverse  effect on the  Borrower's  financial
condition, properties or operations.

                  Section 5.12 Environmental Matters.

                  (a)  Definitions.  As used in this  Agreement,  the  following
         terms shall have the following meanings:

                           (i)  "Environmental  Law" means any  federal,  state,
                  local  or  other  governmental  statute,  regulation,  law  or
                  ordinance  dealing with the protection of human health and the
                  environment.

                           (ii)   "Hazardous   Substances"   means   pollutants,
                  contaminants,    hazardous   substances,   hazardous   wastes,
                  petroleum  and  fractions  thereof,  and all other  chemicals,
                  wastes,  substances and materials  listed in,  regulated by or
                  identified in any Environmental Law.

                  (b) To the Borrower's  best  knowledge,  there are not present
         in, on or under the Premises any  Hazardous  Substances in such form or
         quantity  as to create  any  liability  or  obligation  for  either the
         Borrower or the Lender  under common law of any  jurisdiction  or under
         any  Environmental  Law,  and no  Hazardous  Substances  have ever been
         stored, buried, spilled, leaked, discharged, emitted or released in, on
         or under the Premises in such a way as to create any such liability.

                                      -21-


<PAGE>



                  (c) To the  Borrower's  best  knowledge,  the Borrower has not
         disposed  of  Hazardous  Substances  in such a manner as to create  any
         liability under any Environmental Law.

                  (d) There  are not  and there  never  have been any  requests,
         claims, notices,  investigations,  demands, administrative proceedings,
         hearings  or  litigation,  relating  in any way to the  Premises or the
         Borrower, alleging liability under, violation of, or noncompliance with
         any  Environmental  Law or any license,  permit or other  authorization
         issued pursuant  thereto.  To the Borrower's  best  knowledge,  no such
         matter is threatened or impending.

                  (e) To  the  Borrower's    best   knowledge,   the  Borrower's
         businesses are and have in the past always been conducted in accordance
         with  all  Environmental  Laws  and all  licenses,  permits  and  other
         authorizations required pursuant to any Environmental Law and necessary
         for the lawful and efficient  operation of such  businesses  are in the
         Borrower's  possession  and are in full  force  and  effect.  No permit
         required under any  Environmental  Law is scheduled to expire within 12
         months and there is no threat that any such  permit will be  withdrawn,
         terminated, limited or materially changed.

                  (f) To the Borrower's best knowledge, the Premises are not and
         never  have  been  listed  on  the  National   Priorities   List,   the
         Comprehensive   Environmental  Response,   Compensation  and  Liability
         Information  System  or any  similar  federal,  state  or  local  list,
         schedule, log, inventory or database.

                  (g) The  Borrower has  delivered  to Lender all  environmental
         assessments,  audits,  reports,  permits,  licenses and other documents
         describing  or  relating  in  any  way to the  Premises  or  Borrower's
         businesses.

                  Section 5.13  Submissions  to Lender.  All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's  request for the credit  facilities  contemplated  hereby is
true and correct in all material respects and, as to projections,  valuations or
proforma  financial  statements,  present  a  good  faith  opinion  as  to  such
projections, valuations and proforma condition and results.

                  Section 5.14 Financing  Statements.  The Borrower has provided
to the Lender signed financing  statements  sufficient when filed to perfect the
Security  Interest  and the other  security  interests  created by the  Security
Documents.  When  such  financing  statements  are  filed in the  offices  noted
therein,  the Lender will have a valid and  perfected  security  interest in all
Collateral and all other collateral described in the Security Documents which is
capable  of  being  perfected  by  filing  financing  statements.  None  of  the
Collateral  or other  collateral  covered by the  Security  Documents is or will
become a fixture on real estate, unless a sufficient fixture filing is in effect
with respect thereto.

                                      -22-


<PAGE>




                  Section 5.15 Rights to Payment. Each right to payment and each
instrument,   document,  chattel  paper  and  other  agreement  constituting  or
evidencing  Collateral or other collateral  covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued)  the  valid,  genuine  and  legally  enforceable  obligation,
subject to no defense,  setoff or  counterclaim,  of the account debtor or other
obligor named therein or in the Borrower's  records  pertaining thereto as being
obligated to pay such obligation.

                  Section 5.16 Financial Solvency.  Both before and after giving
effect to all of the  transactions  contemplated in the Loan Documents,  none of
the Borrower or its Affiliates:

                  (a) was or will be insolvent, as that term is used and defined
         in Section  101(32) of the United States  Bankruptcy Code and Section 2
         of the Uniform Fraudulent Transfer Act;

                  (b) has  unreasonably  small capital or is engaged or about to
         engage in a business or a transaction for which any remaining assets of
         the Borrower or such Affiliate are unreasonably small;

                  (c) by executing,  delivering or  performing  its  obligations
         under the Loan  Documents or other  documents to which it is a party or
         by taking any action with  respect  thereto,  intends to, nor  believes
         that it  will,  incur  debts  beyond  its  ability  to pay them as they
         mature;

                  (d) by executing,  delivering or  performing  its  obligations
         under the Loan  Documents or other  documents to which it is a party or
         by taking any action with respect thereto,  intends to hinder, delay or
         defraud either its present or future creditors; and

                  (e) this time contemplates  filing a petition in bankruptcy or
         for an arrangement or  reorganization  or similar  proceeding under any
         law any  jurisdiction,  nor, to the best knowledge of the Borrower,  is
         the subject of any actual, pending or threatened bankruptcy, insolvency
         or similar proceedings under any law of any jurisdiction.

                                   ARTICLE VI

                        Borrower's Affirmative Covenants
                        --------------------------------

                  So long as the Obligations  shall remain unpaid, or the Credit
Facility shall remain  outstanding,  the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:

                                      -23-


<PAGE>



                  Section 6.1 Reporting Requirements. The Borrower will deliver,
or cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:

                  (a) as soon as  available,  and in any  event  within  90 days
         after  the end of each  fiscal  year of the  Borrower,  the  Borrower's
         financial  statements  reviewed  (or,  for any year  during  which  the
         Borrower's  net sales  exceeded  $10,000,000,  audited) by  independent
         certified public accountants selected by the Borrower and acceptable to
         the  Lender,  which  annual  financial  statements  shall  include  the
         Borrower's  balance  sheet  as at the end of such  fiscal  year and the
         related statements of the Borrower's income, retained earnings and cash
         flows  for the  fiscal  year then  ended,  prepared,  if the  Lender so
         requests,  on a  consolidating  and  consolidated  basis to include any
         Affiliates,  all in reasonable  detail and prepared in accordance  with
         GAAP,  together with (i) copies of all management  letters  prepared by
         such  accountants,  and  (ii) a  certificate  of the  Borrower's  chief
         financial  officer  stating that such  financial  statements  have been
         prepared in  accordance  with GAAP and whether or not such  officer has
         knowledge  of the  occurrence  of  any  Default  or  Event  of  Default
         hereunder  and,  if so,  stating  in  reasonable  detail the facts with
         respect thereto;

                  (b) as soon as available and in any event within 20 days after
         the  end  of  each  month,  an  unaudited/internal  balance  sheet  and
         statements  of income and  retained  earnings of the Borrower as at the
         end of and for such month and for the year to date  period  then ended,
         prepared,   if  the  Lender  so  requests,   on  a  consolidating   and
         consolidated basis to include any Affiliates,  in reasonable detail and
         stating in comparative form the figures for the corresponding  date and
         periods in the previous  year,  all prepared in  accordance  with GAAP,
         subject to year-end audit adjustments; and accompanied by a certificate
         of the Borrower's chief financial officer, substantially in the form of
         Exhibit B hereto stating (i) that such financial  statements  have been
         prepared  in   accordance   with  GAAP,   subject  to  year-end   audit
         adjustments,  (ii)  whether or not such  officer has  knowledge  of the
         occurrence of any Default or Event of Default hereunder not theretofore
         reported  and remedied  and, if so,  stating in  reasonable  detail the
         facts with respect thereto,  and (iii) all relevant facts in reasonable
         detail to  evidence,  and the  computations  as to,  whether or not the
         Borrower is in compliance with the  requirements  set forth in Sections
         6.13, 6.14 and 7.10;

                  (c)  within  15  days  after  the end of  each  month  or more
         frequently if the Lender so requires, agings of the Borrower's accounts
         receivable and its accounts payable, an inventory certification report,
         and a  calculation  of  the  Borrower's  Accounts,  Eligible  Accounts,
         Inventory and Eligible Inventory as at the end of such month or shorter
         time period;

                                      -24-


<PAGE>



                  (d) at least 30 days before the  beginning of each fiscal year
         of the Borrower, the projected balance sheets and income statements for
         each month of such year, each in reasonable  detail,  representing  the
         Borrower's good faith projections and certified by the Borrower's chief
         financial officer as being the most accurate projections  available and
         identical to the projections used by the Borrower for internal planning
         purposes,  together with such  supporting  schedules and information as
         the Lender may in its discretion require;

                  (e) immediately  after the   commencement  thereof,  notice in
         writing  of  all   litigation  and  of  all   proceedings   before  any
         governmental  or regulatory  agency  affecting the Borrower of the type
         described in Section 5.12 or which seek a monetary recovery against the
         Borrower in excess of $50,000;

                  (f) as  promptly  as  practicable  (but in any event not later
         than five  business  days)  after an  officer of the  Borrower  obtains
         knowledge of the occurrence of any breach,  default or event of default
         under any Security Document or any event which constitutes a Default or
         Event of Default hereunder, notice of such occurrence,  together with a
         detailed  statement  by a  responsible  officer of the  Borrower of the
         steps  being taken by the  Borrower to cure the effect of such  breach,
         default or event;

                  (g) as soon as possible  and in any event within 30 days after
         the Borrower knows or has reason to know that any Reportable Event with
         respect to any Plan has occurred, the statement of the Borrower's chief
         financial officer setting forth details as to such Reportable Event and
         the action  which the Borrower  proposes to take with respect  thereto,
         together  with a copy of the  notice  of such  Reportable  Event to the
         Pension Benefit Guaranty Corporation;

                  (h) as soon as possible, and in any event within 10 days after
         the Borrower  fails to make any  quarterly  contribution  required with
         respect to any Plan under Section  412(m) of the Internal  Revenue Code
         of 1986, as amended,  the statement of the Borrower's  chief  financial
         officer  setting  forth details as to such failure and the action which
         the Borrower  proposes to take with respect  thereto,  together  with a
         copy of any  notice of such  failure  required  to be  provided  to the
         Pension Benefit Guaranty Corporation;

                  (i) promptly  upon  knowledge   thereof,  notice  of  (i)  any
         disputes or claims by the  Borrower's  customers;  (ii)  credit  memos;
         (iii) any goods returned to or recovered by the Borrower;  and (iv) any
         change  in  the  persons   constituting  the  Borrower's  officers  and
         directors;

                  (j) promptly upon knowledge thereof,  notice of any loss of or
         material  damage to any Collateral or other  collateral  covered by the

                                      -25-


<PAGE>



         Security  Documents  or  of  any  substantial  adverse  change  in  any
         Collateral or such other collateral or the prospect of payment thereof;

                  (k) promptly upon their distribution,  copies of all financial
         statements,  reports and proxy statements which the Borrower shall have
         sent to its stockholders;

                  (l) promptly  after the sending or filing  thereof,  copies of
         all regular and periodic reports which the Borrower shall file with the
         Securities and Exchange Commission or any national securities exchange;

                  (m) as soon as  possible,  and in any event by not later  than
         April 30th of each year,  copies of the state and  federal  tax returns
         and all schedules thereto and an updated personal  financial  statement
         of each Guarantor;

                  (n) promptly upon knowledge thereof,  notice of the Borrower's
         violation of any law, rule or regulation, the non-compliance with which
         could  materially and adversely  affect the Borrower's  business or its
         financial condition; and

                  (o) from time to time, with reasonable promptness, any and all
         receivables schedules,  collection reports, deposit records,  equipment
         schedules,  copies of invoices in excess of $5,000 to account  debtors,
         shipment  documents  and delivery  receipts for goods sold in excess of
         $5,000, and such other material, reports, records or information as the
         Lender may request.

                  Section 6.2 Books and Records; Inspection and Examination. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request,  will permit any  officer,  employee,  attorney or  accountant  for the
Lender to audit,  review,  make  extracts from or copy any and all corporate and
financial  books  and  records  of the  Borrower  at all times  during  ordinary
business  hours,  to send and discuss  with account  debtors and other  obligors
requests for  verification  of amounts owed to the Borrower,  and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender,  or its  employees,  accountants,  attorneys or
agents, to examine and inspect any Collateral,  other collateral  covered by the
Security  Documents  or any other  property  of the  Borrower at any time during
ordinary business hours.

                  Section 6.3 Account  Verification.  The Lender may at any time
and  from  time to time  send or  require  the  Borrower  to send  requests  for
verification  of accounts or notices of assignment to account  debtors and other
obligors.  The  Lender  may also at any time  and  from  time to time  telephone
account debtors and other obligors to verify accounts.

                                      -26-


<PAGE>



                  Section 6.4 Compliance with Laws.

                  (a) Borrower  will   (i)  comply  with  the   requirements  of
         applicable laws and regulations,  the  non-compliance  with which would
         materially and adversely affect its business or its financial condition
         and (ii) use and keep the  Collateral,  and require that others use and
         keep the Collateral, only for lawful purposes, without violation of any
         federal, state or local law, statute or ordinance.

                  (b) Without limiting the foregoing undertakings,  the Borrower
         specifically   agrees  that  it  will   comply   with  all   applicable
         Environmental Laws and obtain and comply with all permits, licenses and
         similar  approvals  required by any  Environmental  Laws,  and will not
         generate,  use,  transport,  treat,  store or dispose of any  Hazardous
         Substances  in such a manner as to create any  liability or  obligation
         under the common law of any jurisdiction or any Environmental Law.

                  Section 6.5 Payment of Taxes and Other  Claims.  The  Borrower
will pay or discharge,  when due, (a) all taxes,  assessments  and  governmental
charges  levied  or  imposed  upon it or upon its  income or  profits,  upon any
properties  belonging to it (including,  without limitation,  the Collateral) or
upon  or  against  the  creation,  perfection  or  continuance  of the  Security
Interest,  prior to the date on which penalties attach thereto, (b) all federal,
state and local taxes  required to be withheld by it, and (c) all lawful  claims
for labor,  materials and supplies which, if unpaid,  might by law become a lien
or charge upon any properties of the Borrower; provided, that the Borrower shall
not be required to pay any such tax,  assessment,  charge or claim whose amount,
applicability  or  validity  is being  contested  in good  faith by  appropriate
proceedings and for which proper reserves have been made.

                  Section 6.6 Maintenance of Properties.

                  (a) The Borrower  will keep and maintain the  Collateral,  the
         other collateral covered by the Security Documents and all of its other
         properties  necessary  or useful  in its  business  in good  condition,
         repair and working order (normal wear and tear  excepted) and will from
         time to time  replace or repair any worn,  defective  or broken  parts;
         provided,  however,  that nothing in this Section 6.6 shall prevent the
         Borrower from discontinuing the operation and maintenance of any of its
         properties  if  such  discontinuance  is,  in  the  Lender's  judgment,
         desirable   in  the  conduct  of  the   Borrower's   business  and  not
         disadvantageous in any material respect to the Lender.

                  (b) The Borrower will defend the Collateral against all claims
         or  demands  of all  persons  (other  than  the  Lender)  claiming  the
         Collateral or any interest therein.

                  (c) The Borrower will keep all Collateral and other collateral
         covered  by the  Security  Documents  free and  clear  of all  security
         interests, liens and encumbrances except Permitted Liens.

                                      -27-


<PAGE>




                  Section 6.7  Insurance.  The  Borrower  will obtain and at all
times  maintain   insurance  with  insurers  believed  by  the  Borrower  to  be
responsible  and  reputable,  in such amounts and against such risks as may from
time to time be required by the  Lender,  but in all events in such  amounts and
against  such  risks as is  usually  carried  by  companies  engaged  in similar
business and owning  similar  properties  in the same general areas in which the
Borrower  operates.  Without  limiting  the  generality  of the  foregoing,  the
Borrower will at all times maintain business  interruption  insurance  including
coverage for force  majeure and keep all  tangible  Collateral  insured  against
risks of fire (including  so-called extended  coverage),  theft,  collision (for
Collateral  consisting  of motor  vehicles)  and such  other  risks  and in such
amounts as the  Lender  may  reasonably  request,  with any loss  payable to the
Lender to the extent of its interest,  and all policies of such insurance  shall
contain a lender's loss payable  endorsement for the Lender's benefit acceptable
to the Lender. All policies of liability insurance required hereunder shall name
the Lender as an additional insured.

                  Section 6.8  Preservation  of  Existence.  The  Borrower  will
preserve  and  maintain  its  existence  and all of its rights,  privileges  and
franchises  necessary  or  desirable  in the normal  conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.

                  Section 6.9 Delivery of Instruments,  etc. Upon request by the
Lender,  the  Borrower  will  promptly  deliver  to the  Lender  in  pledge  all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by the Borrower.

                  Section 6.10 Collateral Account; Lockbox.

                  (a) The  Borrower  shall  irrevocably  direct all  present and
         future  Account  debtors and other  Persons  obligated to make payments
         constituting  Collateral to make such payments directly to the Lockbox.
         All of the Borrower's invoices, account statements and other written or
         oral  communications  directing,  instructing,  demanding or requesting
         payment of any  Account  or any other  amount  constituting  Collateral
         shall conspicuously direct that all payments be made to the Lockbox and
         shall include the Lockbox address. All payments received in the Lockbox
         shall be processed to the Collateral Account.

                  (b) The Borrower  agrees to deposit in the Collateral  Account
         or, at the Lender's option, to deliver to the Lender all collections on
         Accounts,  contract  rights,  chattel paper and other rights to payment
         constituting  Collateral,  and all other cash  proceeds of  Collateral,
         which the Borrower may receive directly  notwithstanding  its direction
         to Account  debtors and other obligors to make payments to the Lockbox,
         immediately upon receipt thereof, in the form received,  except for the
         Borrower's  endorsement when deemed  necessary.  Until delivered to the
         Lender  or  deposited  in  the  Collateral  Account,  all  proceeds  or

                                      -28-


<PAGE>



         collections  of  Collateral  shall be held in trust by the Borrower for
         and as the property of the Lender and shall not be commingled  with any
         funds or property of the Borrower.

                  (c) Amounts deposited in the Collateral Account shall not bear
         interest and shall not be subject to withdrawal by the Borrower, except
         after full payment and discharge of all Obligations.

                  (d) All deposits in the  Collateral  Account shall  constitute
         proceeds  of  Collateral  and  shall  not  constitute  payment  of  the
         Obligations.  The Lender from time to time at its discretion may, after
         allowing  one Banking  Day,  apply  deposited  funds in the  Collateral
         Account to the  payment of the  Obligations,  in any order or manner of
         application  satisfactory to the Lender,  by transferring such funds to
         the Lender's general account.

                  (e) All items  deposited in the  Collateral  Account  shall be
         subject to final payment. If any such item is returned uncollected, the
         Borrower will  immediately  pay the Lender,  or, for items deposited in
         the Collateral Account,  the bank maintaining such account,  the amount
         of that item, or such bank at its discretion may charge any uncollected
         item  to the  Borrower's  commercial  account  or  other  account.  The
         Borrower  shall be liable as an endorser on all items  deposited in the
         Collateral Account, whether or not in fact endorsed by the Borrower.

                  Section 6.11 Key Person Life  Insurance.  The  Borrower  shall
maintain  insurance upon the life of Verne Bray,  its President,  with the death
benefit  thereunder  in an amount not less than  $250,000  (the "Life  Insurance
Policy").  The right to receive the proceeds of the Life Insurance  Policy shall
be assigned to the Lender by the Life Insurance Assignment.

                  Section 6.12 Performance by the Lender. If the Borrower at any
time fails to perform or observe any of the  foregoing  covenants  contained  in
this Article VI or elsewhere  herein,  and if such failure shall  continue for a
period of ten calendar days after the Lender gives the Borrower  written  notice
thereof (or in the case of the  agreements  contained  in Sections  6.5, 6.7 and
6.10,  immediately upon the occurrence of such failure,  without notice or lapse
of time),  the Lender may,  but need not,  perform or observe  such  covenant on
behalf and in the name,  place and stead of the  Borrower  (or, at the  Lender's
option,  in the  Lender's  name) and may,  but need not,  take any and all other
actions which the Lender may  reasonably  deem necessary to cure or correct such
failure (including,  without limitation,  the payment of taxes, the satisfaction
of security  interests,  liens or  encumbrances,  the performance of obligations
owed to account  debtors or other  obligors,  the procurement and maintenance of
insurance,  the  execution of  assignments,  security  agreements  and financing
statements,  and  the  endorsement  of  instruments);  and  the  Borrower  shall
thereupon pay to the Lender on demand the amount of all monies  expended and all
costs and expenses  (including  reasonable  attorneys'  fees and legal expenses)

                                      -29-


<PAGE>



incurred by the Lender in connection  with or as a result of the  performance or
observance  of such  agreements  or the  taking of such  action  by the  Lender,
together  with  interest  thereon  from the date  expended  or  incurred  at the
Floating  Rate. To  facilitate  the Lender's  performance  or observance of such
covenants of the Borrower,  the Borrower hereby irrevocably appoints the Lender,
or the Lender's  delegate,  acting  alone,  as the  Borrower's  attorney in fact
(which  appointment  is coupled  with an  interest)  with the right (but not the
duty) from time to time to create, prepare, complete,  execute, deliver, endorse
or file in the name  and on  behalf  of the  Borrower  any and all  instruments,
documents, assignments, security agreements, financing statements,  applications
for  insurance  and other  agreements  and  writings  required  to be  obtained,
executed, delivered or endorsed by the Borrower under this Section 6.12.

                  Section  6.13  Minimum  Book  Net  Worth.  The  Borrower  will
maintain,  as of each date described  below, its Book Net Worth at an amount not
less than the amount set forth opposite such period:

              Period                          Minimum Book Net Worth
              ------                          ----------------------
         February 28, 1999                           $649,000
           May 31, 1999                              $878,000
          August 31, 1999                           $1,061,000
       November 30, 1999 and
      on the last day of each
        quarter thereafter                          $1,281,000

                  Section 6.14 Minimum Net Income.  The Borrower will achieve as
of each date described below,  cumulative Net Income of not less than the amount
set forth opposite such period:

                Period                        Minimum YTD Net Income
                ------                        ----------------------

          February 28, 1999                         $(295,000)
            March 31, 1999                          $(275,000)
            April 30, 1999                          $(165,000)
             May 31, 1999                           $(75,000)
            June 30, 1999                            $30,000
            July 31, 1999                            $20,000
           August 31, 1999                           $145,000
          September 30, 1999                         $170,000
           October 31, 1999                          $255,000
          November 30, 1999                          $365,000

                  Section 6.15 New Covenants. On or before October 31, 1999, the
Borrower and the Lender shall agree on new  covenant  levels for Sections  6.13,

                                      -30-


<PAGE>



6.14 and 7.10 for periods after November 30, 1999. The new covenant  levels will
be based on the  Borrower's  projections  for such  periods and shall be no less
stringent than the present levels.

                                   ARTICLE VII

                               Negative Covenants
                               ------------------

                  So long as the Obligations  shall remain unpaid, or the Credit
Facility  shall  remain  outstanding,  the  Borrower  agrees  that,  without the
Lender's prior written consent:

                  Section 7.1 Liens.  The  Borrower  will not  create,  incur or
suffer to exist any mortgage,  deed of trust,  pledge,  lien, security interest,
assignment  or  transfer  upon or of any of its assets,  now owned or  hereafter
acquired, to secure any indebtedness;  excluding, however, from the operation of
the foregoing, the following (collectively, "Permitted Liens"):

                  (a) in the case of any of the Borrower's property which is not
         Collateral  or other  collateral  described in the Security  Documents,
         covenants,  restrictions, rights, easements and minor irregularities in
         title which do not materially interfere with the Borrower's business or
         operations as presently conducted;

                  (b) mortgages,  deeds  of  trust,  pledges,   liens,  security
         interests and assignments in existence on the date hereof and listed in
         Schedule 7.1 hereto, securing indebtedness for borrowed money permitted
         under Section 7.2;

                  (c) the Security  Interest  and liens and  security  interests
         created by the Security Documents; and

                  (d) purchase  money  security   interests   relating   to  the
         acquisition  of machinery  and  equipment of the Borrower not exceeding
         the  lesser  of cost or fair  market  value  thereof  and so long as no
         Default  Period is then in existence  and none would exist  immediately
         after such acquisition.

                  Section 7.2 Indebtedness. The Borrower will not incur, create,
assume or permit to exist any  indebtedness  or liability on account of deposits
or advances or any  indebtedness  for borrowed money or letters of credit issued
on the Borrower's  behalf, or any other  indebtedness or liability  evidenced by
notes, bonds, debentures or similar obligations, except:

                  (a) indebtedness arising hereunder;

                  (b) indebtedness  of the  Borrower  in  existence  on the date
         hereof and listed in Schedule 7.2 hereto; and


SL 605.3 57131 00596
                                                   -31-


<PAGE>



                  (c) indebtedness   relating to liens  permitted in  accordance
         with Section 7.1.

                  Section  7.3   Guaranties.   The  Borrower  will  not  assume,
guarantee,  endorse or  otherwise  become  directly  or  contingently  liable in
connection with any obligations of any other Person, except:

                  (a) the endorsement of negotiable  instruments by the Borrower
         for  deposit or  collection  or similar  transactions  in the  ordinary
         course of business; and

                  (b) guaranties,  endorsements   and other direct or contingent
         liabilities in connection  with the  obligations  of other Persons,  in
         existence on the date hereof and listed in Schedule 7.2 hereto.

                  Section 7.4 Investments and Subsidiaries.

                  (a) The Borrower  will not purchase or hold  beneficially  any
         stock or other  securities  or  evidences of  indebtedness  of, make or
         permit to exist any loans or  advances  to, or make any  investment  or
         acquire  any  interest  whatsoever  in,  any  other  Person,  including
         specifically  but without  limitation any partnership or joint venture,
         except:

                           (i)  investments in direct  obligations of the United
                  States of  America or any  agency or  instrumentality  thereof
                  whose obligations constitute full faith and credit obligations
                  of the United States of America  having a maturity of one year
                  or less,  commercial paper issued by U.S.  corporations  rated
                  "A-1" or "A-2" by  Standard  & Poors  Corporation  or "P-1" or
                  "P-2" by Moody's  Investors Service or certificates of deposit
                  or bankers'  acceptances having a maturity of one year or less
                  issued  by  members  of  the  Federal  Reserve  System  having
                  deposits  in excess of  $100,000,000  (which  certificates  of
                  deposit  or  bankers'  acceptances  are fully  insured  by the
                  Federal Deposit Insurance Corporation);

                           (ii)  travel  advances  or  loans  to the  Borrower's
                  officers  and  employees  not  exceeding  at any  one  time an
                  aggregate of $25,000; and

                           (iii)  advances  in the  form of  progress  payments,
                  prepaid rent not exceeding twelve months or security deposits.

                  (b) The  Borrower  will not  create  or  permit  to exist  any
         Subsidiary,  other than any  Subsidiary in existence on the date hereof
         and listed in Schedule 5.4.

                  Section 7.5 Dividends. Except as set forth below, the Borrower
will not declare or pay any dividends  (other than  dividends  payable solely in

                                      -32-


<PAGE>



stock of the  Borrower) on any class of its stock or make any payment on account
of the purchase,  redemption or other  retirement of any shares of such stock or
make any distribution in respect thereof, either directly or indirectly.

                  Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations.  The Borrower will not sell,  lease,  assign,  transfer or otherwise
dispose of (i) the stock of any  Subsidiary,  (ii) all or a substantial  part of
its assets,  or (iii) any  Collateral  or any interest  therein  (whether in one
transaction or in a series of  transactions)  to any other Person other than the
sale of  Inventory in the  ordinary  course of business and will not  liquidate,
dissolve or suspend  business  operations.  The Borrower  will not in any manner
transfer  any  property  without  prior or present  receipt of full and adequate
consideration.

                  Section 7.7 Consolidation and Merger; Asset Acquisitions.  The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a  transaction  analogous  in purpose or
effect to a consolidation or merger) all or substantially  all the assets of any
other Person.

                  Section 7.8 Sale and  Leaseback.  The Borrower  will not enter
into any arrangement,  directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or  hereafter  acquired,  and then or  thereafter  rent or lease as lessee  such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.

                  Section 7.9  Restrictions on Nature of Business.  The Borrower
will not engage in any line of business materially different from that presently
engaged in by the Borrower  and will not  purchase,  lease or otherwise  acquire
assets not related to its business.

                  Section 7.10 Capital Expenditures. The Borrower will not incur
or contract to incur Capital Expenditures of more than $200,000 in the aggregate
during its fiscal year ending November 30, 1999.

                  Section  7.11  Accounting.  The  Borrower  will not  adopt any
material  change in accounting  principles  other than as required by GAAP.  The
Borrower will not adopt, permit or consent to any change in its fiscal year.

                  Section 7.12  Discounts,  etc. The  Borrower  will not,  after
notice from the Lender, grant any discount,  credit or allowance to any customer
of the  Borrower  or accept any return of goods  sold,  or at any time  (whether
before or after notice from the Lender) modify,  amend,  subordinate,  cancel or
terminate the obligation of any account debtor or other obligor of the Borrower.

                                      -33-


<PAGE>



                  Section 7.13 Defined Benefit Pension Plans.  The Borrower will
not adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.

                  Section 7.14 Other Defaults.  The Borrower will not permit any
breach,  default or event of default to occur  under any note,  loan  agreement,
indenture,  lease,  mortgage,  contract  for deed,  security  agreement or other
contractual obligation binding upon the Borrower.

                  Section 7.15 Place of Business;  Name.  The Borrower  will not
transfer its chief  executive  office or principal  place of business,  or move,
relocate,  close or sell any business location. The Borrower will not permit any
tangible Collateral or any records pertaining to the Collateral to be located in
any state or area in which, in the event of such location, a financing statement
covering  such  Collateral  would be  required  to be, but has not in fact been,
filed in order to perfect the Security  Interest.  The Borrower  will not change
its name.

                  Section 7.16 Organizational  Documents;  S Corporation Status.
The  Borrower  will not amend its  certificate  of  incorporation,  articles  of
incorporation  or bylaws.  The Borrower will not become an S Corporation  within
the meaning of the Internal Revenue Code of 1986, as amended.

                  Section 7.17 Salaries.  The Borrower will not pay excessive or
unreasonable   salaries,   bonuses,   commissions,   consultant  fees  or  other
compensation;  or increase the salary,  bonus,  commissions,  consultant fees or
other  compensation  of any director,  officer or  consultant,  or any member of
their families, by more than 10% in any one year, either individually or for all
such persons in the  aggregate,  or pay any such  increase from any source other
than profits earned in the year of payment.

                  Section 7.18 Change in Ownership.  The Borrower will not issue
or sell any stock of the Borrower so as to change the  percentage  of voting and
non-voting stock owned by each of the Borrower's shareholders,  and the Borrower
will not  permit or suffer to occur the sale,  transfer,  assignment,  pledge or
other disposition of any or all of the issued and outstanding shares of stock of
the Borrower.

                                  ARTICLE VIII

                     Events of Default, Rights and Remedies
                     --------------------------------------

                  Section 8.1 Events of Default.  "Event of  Default",  wherever
used herein, means any one of the following events:

                  (a) Default in the payment of the Obligations when they become
         due and payable;

                                      -34-


<PAGE>




                  (b) Default in the payment of any fees, commissions,  costs or
         expenses required to be paid by the Borrower under this Agreement;

                  (c) Default in the performance,  or breach, of any covenant or
         agreement of the Borrower contained in this Agreement;

                  (d) The  Borrower  or  any   Guarantor   shall  be  or  become
         insolvent,  or admit in writing its or his  inability to pay its or his
         debts  as they  mature,  or  make an  assignment  for  the  benefit  of
         creditors;  or the Borrower or any Guarantor shall apply for or consent
         to the appointment of any receiver,  trustee, or similar officer for it
         or him or for all or any  substantial  part of its or his property;  or
         such receiver,  trustee or similar  officer shall be appointed  without
         the  application or consent of the Borrower or such  Guarantor,  as the
         case may be; or the  Borrower  or any  Guarantor  shall  institute  (by
         petition,  application,  answer,  consent or otherwise) any bankruptcy,
         insolvency,   reorganization,   arrangement,   readjustment   of  debt,
         dissolution,  liquidation or similar  proceeding  relating to it or him
         under the laws of any  jurisdiction;  or any such  proceeding  shall be
         instituted (by petition, application or otherwise) against the Borrower
         or any such Guarantor; or any judgment,  writ, warrant of attachment or
         execution  or  similar  process  shall be issued  or  levied  against a
         substantial part of the property of the Borrower or any Guarantor;

                  (e) A petition  shall be filed by or against  the  Borrower or
         any  Guarantor  under the  United  States  Bankruptcy  Code  naming the
         Borrower or such Guarantor as debtor;

                  (f) The Life  Insurance  Policy  shall be  terminated,  by the
         Borrower or otherwise;  or the Life Insurance Policy shall be scheduled
         to terminate within 30 days and the Borrower shall not have delivered a
         satisfactory  renewal thereof to the Lender; or the Borrower shall fail
         to pay any  premium  on the Life  Insurance  Policy  when  due;  or the
         Borrower shall take any other action that impairs the value of the Life
         Insurance Policy.

                  (g) Any  representation  or warranty  made by the  Borrower in
         this  Agreement,  by any  Guarantor  in any  guaranty  delivered to the
         Lender, or by the Borrower (or any of its officers) or any Guarantor in
         any agreement, certificate,  instrument or financial statement or other
         statement  contemplated  by or  made  or  delivered  pursuant  to or in
         connection with this Agreement or any such guaranty shall prove to have
         been incorrect in any material respect when deemed to be effective;

                  (h) The  rendering  against the Borrower of a final  judgment,
         decree or order for the  payment of money in excess of $25,000  and the

                                      -35-


<PAGE>



         continuance of such judgment, decree or order unsatisfied and in effect
         for any period of 30 consecutive days without a stay of execution;

                  (i) A  default  under  any  bond,  debenture,  note  or  other
         evidence of  indebtedness of the Borrower owed to any Person other than
         the Lender,  or under any indenture or other instrument under which any
         such  evidence  of  indebtedness  has  been  issued  or by  which it is
         governed, or under any lease of any of the Premises, and the expiration
         of the applicable  period of grace, if any,  specified in such evidence
         of indebtedness, indenture, other instrument or lease;

                  (j) Any Reportable Event,  which the Lender determines in good
         faith might  constitute  grounds for the termination of any Plan or for
         the  appointment by the  appropriate  United States District Court of a
         trustee to administer  any Plan,  shall have occurred and be continuing
         30 days after  written  notice to such effect  shall have been given to
         the Borrower by the Lender;  or a trustee shall have been  appointed by
         an appropriate  United States District Court to administer any Plan; or
         the  Pension  Benefit  Guaranty   Corporation   shall  have  instituted
         proceedings to terminate any Plan or to appoint a trustee to administer
         any Plan; or the Borrower  shall have filed for a distress  termination
         of any Plan under Title IV of ERISA;  or the Borrower shall have failed
         to make any  quarterly  contribution  required with respect to any Plan
         under Section 412(m) of the Internal  Revenue Code of 1986, as amended,
         which  the  Lender  determines  in  good  faith  may by  itself,  or in
         combination  with any such  failures  that the Lender may determine are
         likely to occur in the future,  result in the  imposition  of a lien on
         the Borrower's assets in favor of the Plan;

                  (k) An  event  of  default  shall  occur  under  any  Security
         Document  or under  any other  security  agreement,  mortgage,  deed of
         trust,  assignment  or  other  instrument  or  agreement  securing  any
         obligations of the Borrower hereunder or under any note;

                  (l) The  Borrower  shall  liquidate,  dissolve,  terminate  or
         suspend  its  business  operations  or  otherwise  fail to operate  its
         business in the ordinary course,  or sell all or  substantially  all of
         its assets, without the Lender's prior written consent;

                  (m) The Borrower shall fail to pay, withhold, collect or remit
         any tax or tax  deficiency  when  assessed  or due (other  than any tax
         deficiency  which  is  being  contested  in good  faith  and by  proper
         proceedings and for which it shall have set aside on its books adequate
         reserves therefor) or notice of any state or federal tax liens shall be
         filed or issued;

                  (n) Default in the payment of any amount owed by the  Borrower
         to the Lender other than any indebtedness arising hereunder;


                                      -36-


<PAGE>



                  (o) Any Guarantor shall  repudiate,  purport to revoke or fail
         to perform  any such  Guarantor's  obligations  under such  Guarantor's
         guaranty in favor of the Lender, any individual  Guarantor shall die or
         any other Guarantor shall cease to exist;

                  (p) The Borrower shall take or participate in any action which
         would be prohibited under the provisions of any Subordination Agreement
         or make any payment on the Subordinated Indebtedness (as defined in the
         Subordination  Agreement)  that any Person was not  entitled to receive
         under the provisions of the Subordination Agreement;

                  (q) Any event or  circumstance  with  respect to the  Borrower
         shall occur such that the Lender  shall  believe in good faith that the
         prospect  of  payment  of all or any  part  of the  Obligations  or the
         performance by the Borrower under the Loan Documents is impaired or any
         material  adverse change in the business or financial  condition of the
         Borrower shall occur.

                  (r) There shall occur any breach,  default or event of default
         by or attributable  to any Affiliate  under any agreement  between such
         Affiliate and the Lender.

                  Section 8.2 Rights and  Remedies.  During any Default  Period,
the Lender may exercise any or all of the following rights and remedies:

                  (a) the Lender  may,  by notice to the  Borrower,  declare the
         Commitment  to  be  terminated,  whereupon  the  same  shall  forthwith
         terminate;

                  (b) the Lender  may,  by notice to the  Borrower,  declare the
         Obligations to be forthwith due and payable,  whereupon all Obligations
         shall become and be forthwith  due and  payable,  without  presentment,
         notice of dishonor, protest or further notice of any kind, all of which
         the Borrower hereby expressly waives;

                  (c) the Lender may, without notice to the Borrower and without
         further  action,  apply  any and all money  owing by the  Lender to the
         Borrower to the payment of the Obligations;

                  (d) the Lender may exercise and enforce any and all rights and
         remedies  available  upon  default  to a secured  party  under the UCC,
         including,   without  limitation,  the  right  to  take  possession  of
         Collateral,  or  any  evidence  thereof,  proceeding  without  judicial
         process  or by  judicial  process  (without  a prior  hearing or notice
         thereof,  which the Borrower hereby expressly  waives) and the right to
         sell, lease or otherwise dispose of any or all of the Collateral,  and,
         in  connection  therewith,  the  Borrower  will on demand  assemble the

                                      -37-


<PAGE>



         Collateral  and  make it  available  to the  Lender  at a  place  to be
         designated  by the  Lender  which  is  reasonably  convenient  to  both
         parties;

                  (e) the  Lender  may  exercise  and  enforce  its  rights  and
         remedies under the Loan Documents; and

                  (f) the  Lender may  exercise  any other  rights and  remedies
         available to it by law or agreement.

Notwithstanding  the  foregoing,  upon the  occurrence  of an  Event of  Default
described in  subsections  (d) or (e) of Section 8.1, the  Obligations  shall be
immediately due and payable automatically without presentment,  demand,  protest
or notice of any kind.

                  Section 8.3 Certain Notices.  If notice to the Borrower of any
intended  disposition of Collateral or any other intended  action is required by
law  in  a  particular  instance,  such  notice  shall  be  deemed  commercially
reasonable  if given  (in the  manner  specified  in  Section  9.3) at least ten
calendar days before the date of intended disposition or other action.

                                   ARTICLE IX

                                  Miscellaneous
                                  -------------

                  Section  9.1 No  Waiver;  Cumulative  Remedies.  No failure or
delay by the  Lender in  exercising  any right,  power or remedy  under the Loan
Documents  shall  operate as a waiver  thereof;  nor shall any single or partial
exercise  of any such  right,  power or remedy  preclude  any  other or  further
exercise  thereof or the exercise of any other right,  power or remedy under the
Loan Documents.  The remedies  provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.

                  Section  9.2  Amendments,  Etc.  No  amendment,  modification,
termination  or waiver of any  provision of any Loan  Document or consent to any
departure by the Borrower  therefrom or any release of a Security Interest shall
be effective  unless the same shall be in writing and signed by the Lender,  and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further  notice or demand
in similar or other circumstances.

                  Section 9.3  Addresses for Notices,  Etc.  Except as otherwise
expressly   provided   herein,   all  notices,   requests,   demands  and  other
communications  provided  for under the Loan  Documents  shall be in writing and
shall be (a) personally  delivered,  (b) sent by first class United States mail,

                                      -38-


<PAGE>



(c) sent by overnight  courier of national  reputation,  or (d)  transmitted  by
telecopy,  in each case  addressed or  telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:

                  If to the Borrower:

                  Naco Industries, Inc.
                  395 West 1400 North
                  Logan, Utah  84341
                  Telecopier:  (435) 752-7041
                  Attention: Jeff Kirby

                  If to the Lender:

                  Norwest Business Credit, Inc.
                  1740 Broadway
                  Denver, Colorado 80274-8625
                  Telecopier:  (303) 863-4904
                  Attention: Kim Carmichael

or,  as to each  party,  at such  other  address  or  telecopier  number  as may
hereafter  be  designated  by such party in a written  notice to the other party
complying  as to  delivery  with the terms of this  Section.  All such  notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail,  (c) the date sent if sent by overnight  courier,  or (d) the
date of transmission  if delivered by telecopy,  except that notices or requests
to the  Lender  pursuant  to any of the  provisions  of  Article II shall not be
effective until received by the Lender.

                  Section 9.4 Further Documents.  The Borrower will from time to
time  execute  and  deliver  or  endorse  any  and all  instruments,  documents,
conveyances,  assignments,  security agreements,  financing statements and other
agreements  and  writings  that the  Lender may  reasonably  request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights
under the Loan Documents (but any failure to request or assure that the Borrower
executes,  delivers  or  endorses  any such item  shall not affect or impair the
validity,  sufficiency or  enforceability of the Loan Documents and the Security
Interest, regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion).

                  Section 9.5 Collateral.  This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any  deficiency.
The  Lender's  duty of care with respect to  Collateral  in its  possession  (as
imposed by law) shall be deemed  fulfilled  if it exercises  reasonable  care in

                                      -39-


<PAGE>



physically keeping such Collateral,  or in the case of Collateral in the custody
or possession of a bailee or other third person,  exercises  reasonable  care in
the  selection  of the bailee or other  third  person,  and the Lender  need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated  to preserve  any rights the  Borrower  may have against  prior
parties,  to realize on the  Collateral  at all or in any  particular  manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.

                  Section 9.6 Costs and Expenses.  The Borrower agrees to pay on
demand all costs and expenses,  including (without limitation)  attorneys' fees,
incurred by the Lender in connection with the Obligations,  this Agreement,  the
Loan Documents,  and any other document or agreement  related hereto or thereto,
and the transactions  contemplated hereby, including without limitation all such
costs,   expenses  and  fees  incurred  in  connection  with  the   negotiation,
preparation, execution, amendment,  administration,  performance, collection and
enforcement  of the  Obligations  and all such  documents and agreements and the
creation, perfection,  protection,  satisfaction,  foreclosure or enforcement of
the Security Interest.

                  Section 9.7 Indemnity.  In addition to the payment of expenses
pursuant to Section  9.6,  the  Borrower  agrees to  indemnify,  defend and hold
harmless  the  Lender,  and  any  of  its  participants,   parent  corporations,
subsidiary corporations,  affiliated corporations,  successor corporations,  and
all present and future officers, directors,  employees,  attorneys and agents of
the  foregoing  (the  "Indemnitees")  from  and  against  any of  the  following
(collectively, "Indemnified Liabilities"):

                  (a) any and all transfer taxes, documentary taxes, assessments
         or  charges  made  by  any  governmental  authority  by  reason  of the
         execution  and  delivery  of the Loan  Documents  or the  making of the
         Advances;

                  (b) any claims,  loss or damage to which any Indemnitee may be
         subjected if any  representation or warranty  contained in Section 5.12
         proves to be incorrect  in any respect or as a result of any  violation
         of the covenant contained in Section 6.4(b); and

                  (c) any and all other liabilities, losses, damages, penalties,
         judgments,  suits,  claims,  costs and  expenses  of any kind or nature
         whatsoever  (including,  without  limitation,  the reasonable  fees and
         disbursements  of counsel) in  connection  with the  foregoing  and any
         other investigative, administrative or judicial proceedings, whether or
         not such Indemnitee  shall be designated a party thereto,  which may be
         imposed on, incurred by or asserted against any such Indemnitee, in any
         manner related to or arising out of or in connection with the making of
         the Advances  and the Loan  Documents or the use or intended use of the
         proceeds of the Advances.

If any investigative,  judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,

                                      -40-


<PAGE>



the  Borrower,  or counsel  designated by the Borrower and  satisfactory  to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the  Indemnitee,  at the Borrower's sole costs and
expense.  Each  Indemnitee will use its best efforts to cooperate in the defense
of any  such  action,  suit  or  proceeding.  If the  foregoing  undertaking  to
indemnify,  defend and hold harmless may be held to be unenforceable  because it
violates any law or public  policy,  the Borrower  shall  nevertheless  make the
maximum  contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the  termination  of this Agreement and the
discharge of the Borrower's other obligations hereunder.

                  Section 9.8 Participants.  The Lender and its participants, if
any,  are not  partners or joint  venturers,  and the Lender  shall not have any
liability or  responsibility  for any obligation,  act or omission of any of its
participants.  All rights and powers specifically  conferred upon the Lender may
be transferred or delegated to any of the Lender's  participants,  successors or
assigns.

                  Section 9.9  Execution in  Counterparts.  This  Agreement  and
other Loan  Documents  may be  executed in any number of  counterparts,  each of
which when so 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.

                  Section 9.10 Binding Effect;  Assignment;  Complete Agreement;
Exchanging  Information.  The Loan Documents  shall be binding upon and inure to
the benefit of the Borrower and the Lender and their  respective  successors and
assigns,  except that the Borrower shall not have the right to assign its rights
thereunder or any interest  therein without the Lender's prior written  consent.
This  Agreement,  together with the Loan  Documents,  comprises the complete and
integrated  agreement of the parties on the subject matter hereof and supersedes
all prior  agreements,  written or oral, on the subject matter  hereof.  Without
limiting the Lender's right to share information  regarding the Borrower and its
Affiliates  with the  Lender's  participants,  accountants,  lawyers  and  other
advisors,  the  Lender,  Norwest  Corporation,   and  all  direct  and  indirect
subsidiaries of Norwest  Corporation,  may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates,  and the
Borrower  waives any right of  confidentiality  it may have with respect to such
exchange of such information.

                  Section 9.11 Severability of Provisions. Any provision of this
Agreement  which is  prohibited or  unenforceable  shall be  ineffective  to the
extent  of  such  prohibition  or  unenforceability   without  invalidating  the
remaining provisions hereof.

                  Section 9.12  Headings.  Article and Section  headings in this
Agreement are included  herein for  convenience  of reference only and shall not
constitute a part of this Agreement for any other purpose.

                                      -41-


<PAGE>



                  Section 9.13 Governing  Law;  Jurisdiction,  Venue;  Waiver of
Jury Trial.  The Loan Documents shall be governed by and construed in accordance
with the  substantive  laws (other than conflict laws) of the State of Colorado.
This  Agreement  shall be  governed  by and  construed  in  accordance  with the
substantive  laws  (other  than  conflict  laws) of the State of  Colorado.  The
parties hereto hereby (i) consent to the personal  jurisdiction of the state and
federal  courts  located  in the  State  of  Colorado  in  connection  with  any
controversy related to this Agreement; (ii) waive any argument that venue in any
such forum is not convenient,  (iii) agree that any litigation  initiated by the
Lender or the  Borrower  in  connection  with this  Agreement  or the other Loan
Documents  shall be venued in either the District  Court for the City and County
of Denver,  Colorado, or the United States District Court, District of Colorado;
and (iv) agree that a final  judgment  in any such  suit,  action or  proceeding
shall be conclusive  and may be enforced in other  jurisdictions  by suit on the
judgment or in any other manner  provided by law. THE PARTIES WAIVE ANY RIGHT TO
TRIAL  BY JURY IN ANY  ACTION  OR  PROCEEDING  BASED  ON OR  PERTAINING  TO THIS
AGREEMENT.

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be executed by their respective  officers thereunto duly authorized
as of the date first above written.

WELLS FARGO BUSINESS CREDIT,
INC., f/k/a Norwest Business Credit, Inc.

By:/s/William Kirth
-------------------
     William Kirth
     Its Vice President

NACO INDUSTRIES, INC.

By:/s/Verne Bray
----------------
     Verne Bray
     Its President

                                       -1-


<PAGE>



                         Table of Exhibits and Schedules

                  Exhibit A               Form of Revolving Note
                  Exhibit B               Compliance Certificate
                  Exhibit C               Premises
                       ----------------------------------
                  Schedule 5.1            Trade Names, Chief Executive Office,
                                          Principal Place of Business, and
                                          Locations of Collateral
                  Schedule 5.4            Subsidiaries
                  Schedule 7.1            Permitted Liens

                  Schedule 7.2            Permitted Indebtedness and Guaranties

                                       -2-


<PAGE>



                                                Exhibit A to Credit and Security
                                                Agreement

                                 REVOLVING NOTE

$1,500,000                                                      Denver, Colorado
                                                                  April 22, 1999

         For value received,  the  undersigned,  Naco  Industries,  Inc., a Utah
corporation  (the  "Borrower"),  hereby promises to pay on the Termination  Date
under the Credit  Agreement  (defined  below),  to the order of NORWEST BUSINESS
CREDIT,  INC., a Minnesota  corporation  (the  "Lender"),  at its main office in
Denver,  Colorado,  or at any other place  designated  at any time by the holder
hereof,  in lawful  money of the  United  States of America  and in  immediately
available  funds, the principal sum of One Million Five Hundred Thousand Dollars
($1,500,000) or, if less, the aggregate unpaid principal amount of all Revolving
Advances made by the Lender to the Borrower under the Credit Agreement  (defined
below) together with interest on the principal amount hereunder remaining unpaid
from time to time,  computed on the basis of the actual  number of days  elapsed
and a 360-day  year,  from the date hereof  until this Note is fully paid at the
rate from time to time in effect under the Credit and Security Agreement of even
date  herewith (as the same may hereafter be amended,  supplemented  or restated
from time to time,  the  "Credit  Agreement")  by and between the Lender and the
Borrower.  The principal  hereof and interest  accruing thereon shall be due and
payable as provided in the Credit  Agreement.  This Note may be prepaid  only in
accordance with the Credit Agreement.

         This Note is issued pursuant,  and is subject, to the Credit Agreement,
which provides,  among other things, for acceleration  hereof.  This Note is the
Revolving Note referred to in the Credit Agreement.  This Note is secured, among
other things,  pursuant to the Credit  Agreement  and the Security  Documents as
therein  defined,  and may now or  hereafter  be  secured  by one or more  other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.

         The Borrower  hereby agrees to pay all costs of  collection,  including
attorneys'  fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.

         Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.

                                                     NACO INDUSTRIES, INC.

                                                     By/s/Verne Bray
                                                     ---------------
                                                          Verne Bray
                                                          Its President

                                       A-1

<PAGE>



                                                Exhibit B to Credit and Security
                                                Agreement

                             COMPLIANCE CERTIFICATE

To:               Kimberly Carmichael
                  Wells Fargo Business Credit, Inc.

Date:             __________________, ______

Subject:          Naco Industries, Inc.
                  Financial Statements

                  In accordance with our Credit and Security  Agreement dated as
of  April  22,  1999  (the  "Credit  Agreement"),  attached  are  the  financial
statements  of  Naco   Industries,   Inc.  (the   "Borrower")   as  of  and  for
________________,  19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current  Financials").  All terms used in this  certificate have the
meanings given in the Credit Agreement.

                  I certify that the Current  Financials  have been  prepared in
accordance with GAAP, subject to year-end audit adjustments,  and fairly present
the Borrower's  financial  condition and the results of its operations as of the
date thereof.

                  Events of Default. (Check one):
                  -----------------

                  o        The  undersigned  does  not  have  knowledge  of  the
                           occurrence of a Default or Event of Default under the
                           Credit Agreement.

                  o        The  undersigned has knowledge of the occurrence of a
                           Default  or  Event  of   Default   under  the  Credit
                           Agreement  and attached  hereto is a statement of the
                           facts with respect to thereto.

                  I hereby certify to the Lender as follows:

                  o        The  Reporting  Date  does not mark the end of one of
                           the Borrower's fiscal quarters, hence I am completing
                           only paragraph __ below.

                  o        The  Reporting  Date  marks  the  end  of  one of the
                           Borrower's fiscal quarters, hence I am completing all
                           paragraphs below except paragraph __.

                  o        The  Reporting  Date marks the end of the  Borrower's
                           fiscal year,  hence I am  completing  all  paragraphs
                           below.

                                       B-1

<PAGE>



                  Financial Covenants. I further hereby certify as follows:
                  -------------------

                  1.  Minimum  Book Net Worth.  Pursuant to Section  6.13 of the
         Credit  Agreement,  as of the Reporting  Date, the Borrower's  Book Net
         Worth  was  $____________  which o  satisfies  o does not  satisfy  the
         requirement  that such  amount be not less than  $_____________  on the
         Reporting Date as set forth in table below:

              Period                          Minimum Book Net Worth
              ------                          ----------------------
         February 28, 1999                           $649,000
           May 31, 1999                              $878,000
          August 31, 1999                           $1,061,000
         November 30, 1999                          $1,281,000

                  2. Minimum Net Income.  Pursuant to Section 6.14 of the Credit
         Agreement,  the  Borrower's  Net Income as of the Reporting  Date,  was
         $____________,  which o satisfies  o does not  satisfy the  requirement
         that such amount be not less than  $_____________ on the Reporting Date
         as set forth in table below:


                Period                        Minimum YTD Net Income
                ------                        ----------------------
          February 28, 1999                         $(295,000)
            March 31, 1999                          $(275,000)
            April 30, 1999                          $(165,000)
             May 31, 1999                           $(75,000)
            June 30, 1999                            $30,000
            July 31, 1999                            $20,000
           August 31, 1999                           $145,000
          September 30, 1999                         $170,000
           October 31, 1999                          $255,000
          November 30, 1999                          $365,000

                  3.  Capital  Expenditures.  Pursuant  to  Section  7.10 of the
         Credit Agreement,  for the year-to-date  period ending on the Reporting
         Date,  the  Borrower has expended or  contracted  to expend  during the
         fiscal  year  ended  November  30,  _____,  for  Capital  Expenditures,
         $__________________  in the  aggregate,  which o  satisfies  o does not
         satisfy the requirement that such  expenditures not exceed  $__________
         in the aggregate and $___________  for any one transaction  during such
         year.

                                       B-2

<PAGE>



                  4. Salaries.  As of the Reporting Date, the Borrower o is o is
         not in compliance with Section 7.17 of the Credit Agreement  concerning
         salaries.

                  Attached hereto are all relevant facts in reasonable detail to
evidence,  and the  computations of the financial  covenants  referred to above.
These computations were made in accordance with GAAP.

                                     NACO INDUSTRIES, INC.


                                     By:
                                         Its Chief Financial Officer

                                       B-3

<PAGE>



                                                Exhibit C to Credit and Security
                                                Agreement

                                    PREMISES

                  The Premises referred to in the Credit and Security  Agreement
are legally described as follows:

395 West 1400 North
Logan, Utah 84341

3445 West Jones Avenue
Garden City, Kansas 67846

812 West 17th Street
Ogden, Utah 84404

                                       D-1

<PAGE>



                                             Schedule 5.1 to Credit and Security
                                             Agreement

Trade Names, Chief Executive Office, Principal Place of Business, and Locations
-------------------------------------------------------------------------------
                                 of Collateral
                                 -------------

                                   Trade Names
                                   -----------

                                   NACO Industries, Inc.
                                   NACO West
                                   Valor Division
                                   NACO Composites, Inc.


               Chief Executive Office/Principal Place of Business
               --------------------------------------------------

                                   395 West 1400 North
                                   Logan, Utah 84341

                     Other Inventory and Equipment Locations
                     ---------------------------------------

                                   3445 West Jones Avenue
                                   Garden City, Kansas 67846

                                   812 West 17th Street
                                   Ogden, Utah 84404

                                   2395 Maggio Circle
                                   Lodi, California 95240





<PAGE>



                                            Schedule 5.4  to Credit and Security
                                            Agreement

                                  Subsidiaries
                                  ------------

                                      None


<PAGE>



                                             Schedule 7.1 to Credit and Security
                                             Agreement
<TABLE>
<CAPTION>

                                 Permitted Liens
                                 ---------------

        Creditor             Collateral    Jurisdiction           Filing Date    Filing No.
        --------             ----------    ------------           -----------    ----------

<S>                          <C>           <C>                    <C>            <C>
Yale Financial Services      Equipment     Kansas - SOS           02/21/97       2327631
Yale Financial Services      Equipment     Utah - SOS             02/21/97       97-555326
Colonial Pacific Leasing     Equipment     California - SOS       06/06/95       9515960914
Colonial Pacific Leasing     Equipment     Kansas - SOS           05/22/95       2140381

</TABLE>






<PAGE>


                  Schedule 7.2 to Credit and Security Agreement

                      Permitted Indebtedness and Guaranties
                      -------------------------------------

                                  Indebtedness
                                  ------------
<TABLE>
<CAPTION>

              Creditor              Principal     Maturity             Monthly                   Collateral
              --------              ---------     --------             -------                   ----------
                                     Amount         Date               Payment
                                     ------         ----               -------

<S>                                 <C>          <C>                   <C>            <C>
Western Forklift & Supply           8,552.13     03/18/2002              276.00       1 used Clark Forklift Model GCS 17 SN#
                                                                                      G127-0127-8203
GE Capital / Colonial Pacific      61,186.22     11/19/2003            1,561.74       1 Cannon 100-ton molding clamp
Leasing
GE Capital / Balboa Capital        63,993.61     12/12/2001            2,795.15       1 Used Battenfeld RIM Molding Machine
                                                                                      including press and urethane pumping
                                                                                      system

First Security Bank                 9,586.74     04/01/2001              466.52       1 1996 Chev. C1500 Pickup SN
                                                                                      1GCEC14M6TZ156480

Zions Bank                         15,182.15     01/17/2003              377.94       1 Used 1995 Chevrolet 4x4 2500 Pickup
                                                                                      SN# GCGK24K4SE277790
First Security Bank                  2298.05     07/05/1999              472.03       94 GMC Safari Van SN
                                                                                      GKEL19W5RB554795

First Security Bank                  2047.65     07/05/1999              418.29       94 GMC Model TC10953
                                                                                      1GTEC19KXRE549048 1/2 Pickup

First Security Bank                  2293.60     12/29/1999              244.93       Used 92 Chev. SN 1GCFC24K3NE155830
Yale Financial Services, Inc.      Operating     08/30/2001              341.00       New Yale Forklift GLP050
WebBank Corporation                1,100,000     04/22/2014           11,653.01       Equipment
                                                                       (adj. int. rate)
</TABLE>


                                   Guaranties
                                   ----------

Primary Obligor        Amount and Description of        Beneficiary of Guaranty
---------------        -------------------------        -----------------------
                        Obligation Guaranteed
                        ---------------------

USU Credit Union       $240,000 Building Mortgage               PVC Inc.



<PAGE>


                              FORM OF LEGAL OPINION

                               February ___, 1999


TO:      Norwest Business Credit, Inc.
         1740 Broadway
         Denver, CO 80274-8625
         Attention: Kim Carmichael

                  Re: Naco Industries, Inc. (the "Borrower")

Ladies and Gentlemen:

                  We are general  counsel for and have  represented the Borrower
in connection with the execution and delivery to you of the following documents,
each dated as of February ___, 1999 (the "Documents"):

                  (a)  Credit  and  Security   Agreement  between  you  and  the
         Borrower.

                  (b) The other Loan  Documents  (as  defined in said Credit and
         Security Agreement).

Capitalized  terms used in this  letter but not  defined  herein  shall have the
meanings given to them in the Credit and Security Agreement.

                  We have also acted as counsel for Verne Bray (the  "Individual
Guarantor")  in connection  with the execution by the  Individual  Guarantor and
delivery to you of the Individual Guarantor's Guaranty dated as of February ___,
1999.

                  In so  acting,  we  have  examined  copies  of  the  Documents
executed  by the  Borrower  and the  Individual  Guarantor's  Guaranty,  we have
reviewed the articles of incorporation  and bylaws of the Borrower and pertinent
indentures  and  agreements,  known to us,  binding  upon the  Borrower  and the
Individual  Guarantor,  we have  supervised  the necessary  corporate  action to
authorize  the  Documents,  and we have  reviewed  such  matters of law and made
inquiry into such matters of fact as we have considered appropriate for purposes
of rendering this opinion to you.

                  Based upon the foregoing, it is our opinion that:



<PAGE>


                  1. The  Borrower is a business  corporation,  duly  organized,
validly  existing and in good standing  under the laws of the State of Utah, and
is duly licensed or qualified to transact  business in all  jurisdictions  where
the  character  of the  property  owned or leased or the nature of the  business
transacted by it makes such  licensing or  qualification  necessary.  It has all
requisite power and authority,  corporate or otherwise,  to conduct its business
and to own its properties.  The name of the Borrower set forth above is now, and
has been at all times since its incorporation, its correct corporate name.

                  2. The Borrower is duly  authorized  and empowered to execute,
deliver and perform the Documents and to borrow money from you.

                  3. The execution,  delivery and  performance of the Documents,
and the  performance by the Borrower of its obligations  thereunder,  do not and
will not  violate or  conflict  with any  provision  of law or the  articles  of
incorporation  or  bylaws of the  Borrower  and do not and will not  violate  or
conflict  with,  or cause any  default or event of default to occur  under,  any
agreement presently binding upon the Borrower.

                  4. The execution and delivery of the Documents  have been duly
approved  by all  necessary  action of the  directors  and  shareholders  of the
Borrower;  and the  Documents  have  been duly  executed  and  delivered  by the
Borrower and constitute its lawful and binding obligations,  legally enforceable
against it in accordance with their  respective terms (subject to laws generally
affecting the enforcement of creditors' rights).

                  5. To the best of our knowledge, no litigation,  tax claims or
governmental  proceedings are pending or are threatened  against the Borrower or
the Individual Guarantor and no judgment or order of any court or administrative
agency is outstanding against the Borrower or the Individual Guarantor.

                  6. The transaction evidenced by the Documents does not violate
any law pertaining to usury or the payment of interest on loans.

                  7. The authorization,  execution,  delivery and performance of
the Documents are not and will not be subject to the  jurisdiction,  approval or
consent of, or to any requirement of registration  with or notification  to, any
federal, state or local regulatory body or administrative agency.

                  8. The proper place to file  financing  statements  to perfect
the  security  interests  created by said Credit and  Security  Agreement is the



<PAGE>



office of the Secretary of State of the states of Utah,  California  and Kansas.
The  financing  statements  signed by the  Borrower  are  sufficient  in form to
perfect,  when so filed,  the  Security  Interest  to the extent  such  security
interests are capable of being perfected by filing.

                  9. The  Individual  Guarantor's  guaranty  has  been  duly and
validly  executed and delivered by the Individual  Guarantor and constitutes the
legal, valid and binding agreement of the Individual  Guarantor,  enforceable in
accordance with its terms,  except to the extent that enforcement thereof may be
limited  by  any  applicable  bankruptcy,  insolvency  or  similar  laws  now or
hereafter in effect affecting creditors' rights generally.

                                      Very truly yours,




<PAGE>