Exhibit 10.8


                    SEPARATION AND GENERAL RELEASE AGREEMENT

         THIS SEPARATION AND GENERAL RELEASE AGREEMENT (the "Agreement") is made
as of this ____ day of August, 1998, by and between Henry H. Li ("Li"), residing
at #8A Old Peak  Road,  19 B Garden  Terrace  3, Hong  Kong,  and  Bandag,  Inc.
("Bandag"), located at 2905 N. Hwy. 61, Muscatine, Iowa 52761.

         WHEREAS, on or about July 29, 1996, Li commenced employment with Bandag
as Vice President of Asian Operations;

         WHEREAS,  Bandag and Li executed an Expatriate Agreement effective July
29, 1996 (the  "Expatriate  Agreement"),  which  recited  certain  benefits  and
entitlements  afforded to Li,  including  participation  in Bandag's pension and
profit sharing programs;

         WHEREAS,  in the Employment Offer for Henry Li, dated May 24, 1996 (the
"Offer  Letter"),  Bandag made  assurances  to Li that he would be entitled to a
"Special  Termination  Payment" if Bandag initiated Li's termination for reasons
other than unlawful or deliberately negligent conduct by Li;

         WHEREAS, Bandag terminated Li's employment effective July 31, 1998;

         WHEREAS,   Bandag  is   providing  Li  with   severance   compensation,
continuation  of health care  coverage,  outplacement,  and other benefits which
exceed what Li is entitled to by law or under Bandag's policies; and

         WHEREAS,  Li and Bandag wish to settle and resolve all disputes and all
claims or  potential  claims and  demands  whatsoever  that Li may have  against
Bandag on the terms set forth herein, and for that reason have entered into this
Agreement;

         NOW,  THEREFORE,  for good and  valuable  consideration,  Li and Bandag
hereby agree as follows:

         1.  Severance:  In  consideration  of the covenants  undertaken and the
release  given herein by Li, Bandag agrees to pay Li a lump sum payment of three
months salary,  in the amount of Eighty-Seven  Thousand,  One Hundred and Twenty
Dollars  and No  Cents  ($87,120.00),  less  standard  income  and  payroll  tax
withholdings  and deductions,  with such payment to be made within ten (10) days
of the expiration of the revocation period described below in paragraph 12.

         2.  Special  Termination  Payment:  In  further  consideration  of  the
covenants undertaken and the release given herein by Li, Bandag agrees to pay Li
a special  termination  payment in the gross amount of Five Hundred and Thirteen
Thousand,  Two Hundred and Ninety-Six Dollars and No Cents  ($513,296.00),  less
standard  income and payroll  tax  withholdings  and  deductions.  This  special
termination payment has been calculated pursuant to the formula set forth in the
Offer Letter, which is the difference between the Kodak Pension Benefit Li would
have received from Kodak at age 55 and the Kodak/Bandag Pension Benefit


<PAGE>

value at the date of termination.  The special  termination payment as described
herein  will be  paid  out to Li in two  (2)  lump  sum  payments;  One  Hundred
Sixty-Nine   Thousand,   Three   Hundred   Eight-Eight   Dollars  and  No  Cents
($169,388.00)  will be paid  within  ten  (10)  days  of the  expiration  of the
revocation  period  described  below in paragraph  12; and Three  Hundred  Three
Thousand,  Nine Hundred Eight Dollars and No Cents ($343,908.00) will be paid on
January 1, 1999.  In addition,  Bandag agrees to pay Li a lump sum of Thirty-Two
Thousand,  Four Hundred and Fifty-One and No Cents  ($32,451.00),  less standard
income and payroll tax withholdings  and deductions,  such amount being equal to
the pension  benefit to which Li would have been  entitled  had he vested in the
Bandag  pension  plan,  with such payment to be made within ten (10) days of the
expiration of the revocation period described below in paragraph 12.

         3.  Health-Care  Benefits and COBRA:  In further  consideration  of the
covenants  undertaken  and the  release  given  herein by Li,  Bandag  agrees to
provide Li with three months  continuation of CIGNA health care benefits,  or to
pay Li's premiums for such  continued  coverage under the  Consolidated  Omnibus
Budget  Reconciliation  Act  ("COBRA").   Bandag  will  provide  Li  with  these
health-care  benefits,  without regard to whether Li elects benefits pursuant to
his rights as set forth in COBRA.  Bandag  will  provide Li with a COBRA  notice
upon his termination.

         4.  Housing  Allowance:  In  further  consideration  of  the  covenants
undertaken  and the release  given herein by Li,  Bandag agrees to pay Li a lump
sum housing allowance in the amount of Thirty-Seven  Thousand,  Four Hundred and
Seventy-Seven  Dollars and Ninety  Cents  ($37,477.90),  and  further  agrees to
directly pay reasonable utility bills upon receipt from Li. Such payments are to
be  made  within  ten  (10)  days of the  expiration  of the  revocation  period
described below in paragraph 12.

         5. Outplacement:  In further  consideration of the covenants undertaken
and the release  given herein by Li, Bandag agrees to reimburse Li for the costs
reasonably associated with his outplacement services, in an amount not to exceed
Sixty Thousand  Dollars and No Cents  ($60,000.00).  Li agrees to provide Bandag
with all invoices  associated  with these  costs,  and  Bandag's  obligation  to
reimburse Li for such outplacement  services is conditioned on Li providing such
documentation.

         6. Accrued  Vacation:  Bandag agrees to pay Li his accrued  vacation in
the amount of  Twenty-Seven  Thousand  Dollars and No Cents  ($27,000.00),  less
standard income and payroll tax withholdings  and deductions,  with such payment
to be made  within  ten (10) days of the  expiration  of the  revocation  period
described below in paragraph 12.

         7. Stock:  In further  consideration  for the  covenants  undertaken by
Bandag, Li agrees to forfeit 840 shares of Bandag Common Stock and 840 shares of
Bandag Class A Common Stock per the terms of the Bandag  Restricted  Stock Award
Program, and to take all steps necessary to effectuate that stock forfeiture.

         8.  Repatriation:  If Li  elects  to  stay in Hong  Kong,  Bandag  will
reimburse  Li for his local  moving  and  storage  expenses  up to the amount of
Thirteen  Thousand  Dollars


                                      -2-
<PAGE>

and No Cents ($13,000.00) as supported by actual moving and storage invoices or,
at Li's discretion, will pay those invoices directly (up to that same $13,000.00
amount) upon receiving them from Li with a request for direct payment by Bandag.
If Li elects to  relocate,  Bandag will  reimburse  Li for all of his actual and
reasonable relocation expenses again as supported by actual invoices or, at Li's
discretion,  will pay those invoices directly upon receiving them from Li with a
request for direct payment by Bandag. Li will make his election as to whether he
will stay in Hong Kong or relocate, and he will notify Bandag in writing of that
election,  within  sixty  (60) days of the  execution  of this  Agreement.  That
election and  notification  by Li will be final and binding for purposes of this
Agreement,  and Li will not be  entitled  to the  reimbursement  or  payment  as
described  in  this  paragraph  if he  does  not  provide  such  timely  written
notification to Bandag of his election.

         9. Tax  Preparation:  Bandag agrees to assist Li in the  preparation of
his 1996,  1997, and 1998 tax returns,  in accordance with the terms of Bandag's
Expatriate Program.

         10.  Comprehensive  And General Release Of Bandag: In consideration for
the covenants undertaken herein by Bandag, Li hereby releases,  discharges,  and
covenants  not to sue  Bandag,  its direct or  indirect  parents,  subsidiaries,
affiliates, and related companies, and its and their past and present directors,
officers,  employees,  attorneys,  representatives,  members,  insurers, agents,
successors,  and assigns  (individually and collectively the "BANDAG RELEASEES")
from and with respect to any and all actual or potential  actions,  claims,  and
demands whatsoever,  whether known or unknown, suspected or unsuspected,  in law
or equity,  which  against the BANDAG  RELEASEES or any of them Li ever had, nor
has, or hereafter can, shall, or may have for, upon, or by reason of any matter,
cause,  or thing  whatsoever from the beginning of the world to the date of this
Agreement,  including without  limitation any and all claims: (a) arising out of
or in any way relating to Li's  employment  with Bandag or his  separation  from
that employment;  (b) arising out of or in any way relating to any transactions,
occurrences, acts, statements,  disclosures, or omissions occurring prior to the
date  of this  Agreement;  (c)  arising  out of or in any  way  relating  to the
Expatriate  Agreement or the Offer Letter  regarding  pension  obligations;  (d)
arising  out of or in any way  relating  to any claims  under  common  law;  (e)
arising out of or in any way relating to any claims under any federal, state, or
local statute, regulation, ordinance, or other law prohibiting discrimination on
the basis of age, sex, race, color,  religion,  disability,  national origin, or
workers'  compensation  status,  including  Title VII of the Civil Rights Act of
1964, as amended,  the Age Discrimination in Employment Act of 1967, as amended,
and Chapters  216,  216A and 216C of the Iowa General  Laws;  or (f) for salary,
bonuses,   commissions,   severance  pay,   vacation  pay,  travel   privileges,
disability,  life insurance,  medical insurance,  unemployment insurance, or any
other fringe benefit of or from Bandag.  IT IS THE EXPRESS INTENT OF THE PARTIES
THAT THE RELEASE  PROVIDED  HEREIN BY LI BE A GENERAL,  FULL, AND  COMPREHENSIVE
RELEASE,  TO THE  FULLEST  EXTENT  PERMITTED  BY LAW,  AS TO EACH AND ALL OF THE
BANDAG RELEASEES.

         11.  Comprehensive  And General Release Of Li: In consideration for the
covenants  undertaken  hereby by Li, Bandag  hereby  releases,  discharges,  and
covenants not to 


                                      -3-
<PAGE>

sue Li and  his  heirs,  executors,  administrators,  successors,  assigns,  and
attorneys  (individually  and  collectively  the "LI  RELEASEES")  from and with
respect  to any and  all  actual  or  potential  actions,  claims,  and  demands
whatsoever,  whether  known or  unknown,  suspected  or  unsuspected,  in law or
equity,  which  against the LI RELEASEES or any of them Bandag and its direct or
indirect parents, subsidiaries,  affiliates, and related companies ever had, now
have,  or  hereafter  can,  shall,  or may have for,  upon,  or by reason of any
matter,  cause, or thing  whatsoever from the beginning of the world to the date
of this Agreement,  including without limitation any and all claims: (a) arising
out of or in any way relating to Li's  employment  with Bandag or his separation
from  that  employment;  (b)  arising  out  of or in  any  way  relating  to any
transactions, occurrences, acts, statements, disclosures, or omissions occurring
prior  to the  date  of  this  Agreement;  or (c)  arising  out of or in any way
relating to the  Expatriate  Agreement  or the Offer  Letter  regarding  pension
obligations.  IT IS THE EXPRESS INTENT OF THE PARTIES THAT THE RELEASE  PROVIDED
HEREIN BY BANDAG BE A GENERAL,  FULL, AND COMPREHENSIVE  RELEASE, TO THE FULLEST
EXTENT PERMITTED BY LAW, AS TO EACH AND ALL OF THE LI RELEASEES.

         12. ADEA Waiver: The parties recognize and agree that Bandag shall have
no  obligation  to make any of the  payments  called  for  herein  and that this
Agreement  shall not become  effective until such time as Li has had a period of
twenty-one  (21) days to reflect on this  Agreement  before  executing it and an
additional  period of seven (7) days after executing the Agreement to revoke it.
The  parties  further  recognize  and agree that this  provision  is intended to
ensure  an  effective  waiver  of  any  claims  by  Li  under  the  federal  Age
Discrimination  in  Employment  Act,  as  amended by the Older  Workers  Benefit
Protection Act of 1990. By his signature  below, Li warrants and represents that
he has been given  twenty-one (21) days prior to his execution of this Agreement
to reflect on this Agreement and all material changes thereto,  and in the event
he executes  this  Agreement  before that full  twenty-one  (21) days he does so
knowingly and  voluntarily  and with the intention of waiving any remaining time
in that  twenty-one (21) day reflection  period,  that he understands all of the
terms of this Agreement,  that he has been advised in writing to consult with an
attorney  prior  to  executing  this  Agreement,   and  that  he  knowingly  and
voluntarily  enters into this  Agreement in all  respects.  The parties  further
agree that Li is not  entitled  to any  payment or  compensation  of any kind or
nature  whatsoever in the event that he revokes this  Agreement or elects not to
enter  into this  Agreement.  The  parties  further  intend  and agree that this
Agreement,  if  executed  and not  revoked  within  seven  (7) days  after  that
execution,  shall  constitute  an  effective  waiver  of any  claim  of any  age
discrimination  claims and of any other claim of  whatever  kind or nature by Li
against any of the BANDAG RELEASEES as defined in this Agreement.

         13. Commitment Not To Apply: In further consideration for the covenants
undertaken  herein by  Bandag,  Li agrees  that he will not now or in the future
apply for  employment  or  re-employment  with  Bandag  or any of its  direct or
indirect parents, subsidiaries, affiliates or related companies.

         14.  Confidentiality:  Li agrees to keep all  aspects of the  Agreement
confidential.  Notwithstanding the foregoing,  Li may disclose the terms of this
Agreement  to 


                                      -4-
<PAGE>

the Internal Revenue Service,  to his attorneys and financial  advisors,  and to
his spouse, provided that such persons are advised of the confidential nature of
this Agreement and agree to maintain any information  provided to them regarding
this Agreement in strict confidence.

         15. No Admission:  While this Agreement  resolves all issues between Li
and Bandag  relating to any alleged  violation of any state,  federal,  or local
law,  regulations,   or  ordinance,   this  Agreement  does  not  constitute  an
adjudication  or finding on the merits and it is not, and shall not be construed
as, an admission by Bandag of any violation of any policies,  procedures, state,
federal, or local laws,  regulations,  or ordinances.  Neither this Agreement or
anything in this Agreement shall be construed to be admissible in any proceeding
as evidence  of or an  admission  by Bandag of any  violation  of any  policies,
procedures, state, federal, or local laws, regulations, or ordinances, or of any
wrongdoing by Bandag; provided, however, that this Agreement shall be admissible
in any proceeding to enforce its terms.

         16. Complete  Agreement:  This Agreement is an integrated  document and
constitutes and contains the complete understanding and agreement of the parties
with respect to the subject matter  addressed herein and supersedes and replaces
all prior  negotiations  and  agreements  of any kind or nature  between  Li and
Bandag,  whether  written or oral,  including the  Expatriate  Agreement and the
Offer Letter.

         17. Severability:  If any of the provisions,  terms, or clauses of this
Agreement  are  held  invalid,  illegal,  unenforceable,  or  ineffective,  such
provisions,  terms and  clauses  shall be deemed  severable  such that all other
provisions,  terms, and clauses of this Agreement shall remain valid and binding
upon the parties.

         18.  Governing  Law: This Agreement is deemed to have been executed and
delivered  within  the State of Iowa,  and the  rights  and  obligations  of the
parties hereunder shall be governed by, and construed and enforced in accordance
with, the laws of the State of Iowa, without regard to principles of conflict of
laws.

         19.  Currency:  It is agreed and  understood by the parties hereto that
all payments referenced herein shall be made in U.S. dollars.

         20. Payment Method: Bandag agrees to make all payments to Li referenced
herein through wire transfer to Li's account upon instructions to be provided by
Li and his bank.

         21.  Counterparts:  This Agreement may be executed in counterparts  and
each  counterpart  when  executed  shall have the  effect of a signed  original.
Photographic  copies  of  such  signed  counterparts  may be used in lieu of the
original for any purpose.



                                      -5-
<PAGE>

         22. Certification: BY THEIR AUTHORIZED SIGNATURES BELOW, THE PARTIES TO
THIS  AGREEMENT  CERTIFY THAT THEY AGREE TO ALL OF THE TERMS OF THIS  AGREEMENT,
THAT THEY HAVE HAD AN  OPPORTUNITY  TO DISCUSS  THOSE  TERMS WITH  ATTORNEYS  OR
ADVISORS  OF THEIR  OWN  CHOOSING,  AND THAT  THEY HAVE  SIGNED  THIS  AGREEMENT
VOLUNTARILY AND WITH FULL UNDERSTANDING OF ITS LEGAL CONSEQUENCES.

         IN WITNESS WHEREOF, the parties hereto,  intending to be legally bound,
have caused this Agreement to be executed and delivered at Muscatine, Iowa as of
the date first written above.

Henry H. Li                              Bandag, Inc.



/s/  Henry H. Li                         By:  /s/  Jacqueline A. Musacchia