BANDAG SYSTEM FRANCHISE AGREEMENT






THIS AGREEMENT is made by and between Bandag, Incorporated,  an Iowa corporation
("BANDAG")       and       _____________________________________________________
("FRANCHISEE"),  a ____  corporation  organized  under  the laws of the state of
_____________,        ____       sole       proprietorship        owned       by
____________________________________________________, ____ partnership organized
under the laws of the state of _________________________________, doing business
under the name: ________________________________________________________,  whose
mailing                                address                               is:
_____________________________________________________________,   with   employer
federal                           identification                          number
_____________________________.


                                  Introduction

Over many years and at substantial expense,  BANDAG has developed,  promoted and
improved  for its  franchises,  and  continues  to improve,  a unique  method of
retreading  tires with  pre-cured  rubber.  This method  utilizes  manufacturing
technology,   engineering  and  know-how,   other  proprietary  processes,   and
specialized  equipment made by or for BANDAG or one of its corporate  affiliates
for use in the process of  inspecting  and  preparing  casings  for  retreading,
affixing  and bonding  the tread  rubber to the casing,  and  repairing  casings
(herein, such equipment,  as modified,  improved and supplemented by BANDAG from
time to time, to be called  "BANDAG  Equipment").  BANDAG has also developed for
use in this unique retreading  method BANDAG(R) tread rubber,  BANDAG(R) cushion
gum, other tread  materials and other materials used between the tread materials
and the casing (including  without  limitation  cushion rubber,  cushion gum and
other adhesives, repair gums, filling materials, special extrusions,  re-belting
materials,  cements and other rubber items)  (herein,  such items,  as modified,
improved  and  supplemented  by BANDAG from time to time,  to be called  "BANDAG
Rubber  Products").  In addition,  BANDAG has developed at  substantial  expense
valuable market research,  proprietary  rights (including  patents,  trademarks,
confidential know-how and copyrights), expertise in managing retread facilities,
and programs for the  marketing and sale of retreaded  tires,  for the technical
and sales training of personnel,  and for customer  service.  In this Agreement,
all the foregoing  described in this Introduction,  as they may be modified from
time to time by BANDAG, shall be referred to as the "BANDAG Method".

FRANCHISEE  desires to acquire  the right to  practice  the BANDAG  Method,  and
BANDAG is pleased to grant this valuable right to FRANCHISEE on the terms stated
in this Agreement.

In  consideration  of the mutual  agreements  herein and other good and valuable
consideration, BANDAG and FRANCHISEE agree as follows:

I.     BANDAG Method and Grant of Franchise

(a)    BANDAG hereby grants to FRANCHISEE  the  non-exclusive  right to make and
       sell  light  truck,  truck and bus tires  (but  excluding  any  aircraft,
       agricultural  or  passenger  tires)  retreaded  by the BANDAG  Method (as
       improved by BANDAG during the term of this Agreement) with a minimum bead
       diameter  of 13 inches and a maximum  finished  outside  diameter of 53.5
       inches.

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(b)    FRANCHISEE  may make  retreaded  tires by the BANDAG  Method  only at the
       facility located at:

       "Authorized Location:" ____________________________________
                        
                              ____________________________________

                              ____________________________________

(c)    FRANCHISEE's non-exclusive Territory shall be:

       _________________________________________________________________________

       _________________________________________________________________________

       _________________________________________________________________________

       _________________________________________________________________________

       ________________________________.
      
       FRANCHISEE may sell tires  retreaded by the BANDAG Method wherever and to
       whomever  and at any price  FRANCHISEE  may  choose,  in or  outside  the
       Territory (as is the case with other BANDAG franchisees).

(d)    FRANCHISEE may not resell BANDAG Rubber Products purchased from BANDAG or
       from any other  franchisee  of BANDAG other than to (i) end users (and in
       that instance,  only if such items are incorporated  into tires retreaded
       by the BANDAG  Method) and (ii) other BANDAG  franchisees  authorized  to
       retread tires by the BANDAG Method in the United States.

(e)    While  this  Agreement  is in effect,  FRANCHISEE  will not in any manner
       (directly or indirectly)  own,  manage,  operate,  join,  participate in,
       associate  with or be connected  with or interested  in, as a franchisee,
       investor, lender, manager, agent, employee,  officer, director,  partner,
       shareholder or proprietor of or consultant to, or provide service, advice
       or other  assistance to, any occupation,  entity,  interest,  business or
       enterprise that is engaged in any form of tire retreading business, other
       than as described in Annex A, that  competes  with Bandag,  or the Bandag
       Method,  or  retread  tires by any method  other than the Bandag  Method,
       without the express prior written approval of Bandag.  In order to obtain
       Bandag's  consent,  Franchisee must demonstrate to Bandag's  satisfaction
       that the transaction  contemplated will not in any way damage Bandag, the
       Bandag Method, and/or the Bandag franchise network. In the event that any
       part of the covenants or agreements  set forth in this Section I(e) shall
       be  determined  by any court of competent  jurisdiction  to be invalid or
       unenforceable  by reason of  extending  for too great a period of time or
       over too great a  geographical  area, or by reason of being too extensive
       in any other respect, and if such determination is upheld on appeal or no
       appeal from such determination is taken, then Bandag and Franchisee agree
       that this  Agreement  shall be amended so that the affected  part of said
       covenant  shall be  interpreted to extend only over the maximum period of
       time  for  which  it  may  be   enforceable,   and/or  over  the  maximum
       geographical area as to which it may be enforceable and/or to the maximum
       extent in all other  respects as to which it may be  enforceable,  all as
       determined by such court in such action.  Notwithstanding  the foregoing,
       the  unaffected  parts of said  covenants  shall remain in full force and
       effect.

(f)    For the purposes of this Agreement,

       (1)  "Affiliate"  shall mean any  natural  person or legal  entity  that,
       directly or  indirectly,  controls,  is  controlled by or is under common
       control with either FRANCHISEE or any Controlling Person; and

       (2)  "Controlling  Person"  shall be any  natural  person or other  legal
       entity with a 5% or greater  interest in FRANCHISEE or in another  entity
       that has, directly or indirectly, a 5% or greater interest in FRANCHISEE,
       or otherwise  having the power to control,  directly or  indirectly,  the
       management,  direction or day-to-day  operations of  FRANCHISEE.  Without
       limiting  the


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<PAGE>

       generality of the foregoing,  a natural person or legal entity shall be a
       "Controlling Person" of FRANCHISEE if it owns a 5% or greater interest in
       another  entity that either is itself a Controlling  Person of FRANCHISEE
       or has an indirect  ownership  interest in FRANCHISEE through one or more
       intervening levels of direct or indirect  subsidiaries.  For example,  if
       FRANCHISEE is a wholly-owned  subsidiary of another  corporation that is,
       in turn, owned equally by three other  corporations,  each of these three
       corporations  shall be  considered a  Controlling  Person for purposes of
       this Agreement.

II.    Materials Provided by BANDAG; Obligations of FRANCHISEE

(a)    To assist its franchisees, BANDAG has developed materials relating to the
       BANDAG  Method  and  to  production   engineering   (including  technical
       bulletins),   public  relations,   and  advertising,   merchandising  and
       promotion  of the  BANDAG  Method  and of tires  retreaded  by the BANDAG
       Method.  BANDAG  will  provide  to  FRANCHISEE  from  time to  time  such
       materials as are provided by BANDAG to its franchisees generally.  BANDAG
       may amend and revise such materials and charge for materials in excess of
       those normally provided.

(b)    All proprietary and other information  obtained directly or indirectly by
       FRANCHISEE  with  respect  to  BANDAG's  business  plans,  policies,  and
       modified or new methods,  processes or products,  and all written  matter
       furnished  to  FRANCHISEE  by BANDAG or its  affiliates  (whether  or not
       FRANCHISEE shall be charged for same), shall remain BANDAG's property and
       shall be deemed confidential information.  Such information and materials
       (including  any  translation)  shall not be  reproduced  or  disclosed to
       others or used for any purpose  other than  performance  of  FRANCHISEE's
       obligations under this Agreement. FRANCHISEE shall cause its employees to
       comply with this provision.

       If  there  is  any  claim  or  litigation   involving  the   confidential
       information,  and  if  BANDAG  in  its  sole  discretion  undertakes  the
       negotiation, settlement, defense or prosecution, FRANCHISEE shall execute
       any  documents  and  render   assistance   (exclusive  of   out-of-pocket
       expenditures)  as may be  reasonably  requested to carry out the same. If
       any   confidential   information  is  sought  by  discovery   procedures,
       FRANCHISEE shall (i) notify BANDAG within three (3) days after receipt of
       such discovery request, (ii) seek appropriate  protective orders for such
       information  and (iii)  join in any  motion  BANDAG  may file to  protect
       against disclosure of such materials.

III.   Maintenance of Quality and Reputation

(a)    FRANCHISEE acknowledges the superior quality,  performance and reputation
       of BANDAG  Equipment,  BANDAG  Rubber  Products,  and the other items and
       services that  constitute part of the BANDAG Method.  FRANCHISEE  further
       acknowledges  that it is essential to the reputation of the BANDAG Method
       and to the maintenance of the BANDAG  trademarks and logos,  and to avoid
       misleading the public with respect to the quality of the tires  retreaded
       by FRANCHISEE,  that the retreaded  tires sold by FRANCHISEE be retreaded
       strictly in accordance  with the BANDAG Method and with BANDAG  Equipment
       and  BANDAG  Rubber  Products,   including   BANDAG(R)tread   rubber  and
       BANDAG(R)cushion  gum.  Accordingly,  FRANCHISEE  shall  utilize  in  the
       retreading of tires with pre-cured rubber at the Authorized Location only
       BANDAG Rubber Products and BANDAG Equipment. FRANCHISEE shall also follow
       such  procedures  for  retreading  tires  with  pre-cured  rubber  as are
       established by BANDAG from time to time and shall maintain  standards and
       procedures  required  to comply  with the  BANDAG  Quality  Certification
       Program,  as revised by BANDAG from time to time. BANDAG may from time to
       time require  additional  certifications  for production and marketing of
       particular products or utilization of particular technology,  and require
       FRANCHISEE's  continued  adherence to the same, if FRANCHISEE  desires to
       produce such particular  products or utilize such  technology  associated
       with the Bandag Method.  In addition,  FRANCHISEE shall not engage in any
       business conduct


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<PAGE>

       reasonably  likely to affect  adversely  the  reputation  or  goodwill of
       BANDAG or the BANDAG Method

(b)    Representative  samples of any and all materials used in retreading tires
       by the  BANDAG  Method  and not  falling  under  Section  III(a)  of this
       Agreement  must be  submitted  for testing and  inspection  to BANDAG (at
       FRANCHISEE's  expense) and must be approved by BANDAG in writing prior to
       such  use by  FRANCHISEE;  BANDAG  will  not  unreasonably  withhold  its
       approval of such  materials if they meet  BANDAG's  standards for quality
       and performance.

(c)    All purchases from BANDAG or one of its corporate  affiliates shall be at
       the prices  established by BANDAG from time to time, and shall be subject
       to the seller's  Standard  Terms and  Conditions of Sale, as revised from
       time to  time.  These  terms  and  conditions  (as  supplemented  by this
       Agreement)  shall  constitute the entire and only  agreement  between the
       parties  with  respect to the sale of such  products  to  FRANCHISEE.  No
       additional or different terms set forth in  FRANCHISEE'S  purchase order,
       acknowledgment or other forms or correspondence shall govern any sales of
       such  products  to  FRANCHISEE,  and  BANDAG  hereby  objects to any such
       additional  or  different  terms  contained  in  any  communication  from
       FRANCHISEE.  A copy of the Standard  Terms and  Conditions of Sale at the
       effective date of this Agreement is attached  hereto as Annex B. A breach
       of such Terms shall be a breach of this Agreement.

(d)    FRANCHISEE  shall  maintain its  Authorized  Location in accordance  with
       standards  and  procedures  prescribed  by  BANDAG  from  time  to  time.
       FRANCHISEE  shall maintain  BANDAG  Equipment in  satisfactory  operating
       condition and incorporate all modifications prescribed by BANDAG.

(e)    FRANCHISEE  warrants that all required  inspections  of equipment used in
       retreading tires by the BANDAG Method will be undertaken and that, to the
       extent  required by local law,  FRANCHISEE  shall post on such  equipment
       appropriate  certificates  of inspection  or other  evidence of approval.
       FRANCHISEE  further  agrees:  (1) to maintain  and/or install such safety
       features  on  BANDAG  Equipment  as  are  originally   installed  or  are
       thereafter  recommended  by BANDAG and in conformity  with all applicable
       safety  codes and  regulations;  (2) not to alter any safety  features on
       BANDAG  Equipment,  whether such equipment was purchased from BANDAG or a
       third party;  and (3) to rework or authorize  BANDAG to rework any BANDAG
       Equipment to  reestablish  or retrofit any safety  feature for the BANDAG
       Equipment.

       BANDAG  determines that any of FRANCHISEE's  equipment used in retreading
       tires by the  BANDAG  Method is unsafe or does not  comply  with  current
       safety   standards  used  by  BANDAG  or  applicable   safety  codes  and
       regulations, BANDAG may give FRANCHISEE written notification thereof, and
       FRANCHISEE shall, within one month thereafter at its expense,  either (y)
       rework, or authorize BANDAG to rework, such equipment, or (z) remove such
       equipment from service and sell it back to BANDAG, or trade it in for new
       BANDAG Equipment,  in either case, at its then-current fair market value,
       all without  prejudice to the right of BANDAG to remove  certificates  of
       inspection or  nameplates  from  equipment  not found in compliance  with
       applicable   safety  codes  or  standards   and  to  notify   appropriate
       governmental  officials  that the  equipment  in question no longer meets
       applicable safety requirements.

(f)    FRANCHISEE acknowledges that it will, in the operation of its business of
       retreading  tires  with  pre-cured  rubber,  comply  with all  applicable
       federal,  state and  local  laws,  ordinances,  regulations  and  orders.
       FRANCHISEE shall also refrain from taking any action that prevents BANDAG
       from realizing the benefits of this Agreement.

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<PAGE>



(g)    FRANCHISEE  shall not sell,  lease or in any other way transfer  title or
       possession  of any BANDAG  Equipment to third  parties  other than BANDAG
       franchisees,  without first  offering such  Equipment in writing free and
       clear of all  claims  and  encumbrances  for  purchase  by BANDAG at fair
       market value.  "Fair market value", as used in this Agreement,  means the
       cash  purchase  price that  would  apply in an  arm's-length  transaction
       between an informed and willing BANDAG  franchisee under no compulsion to
       purchase  and  an  informed  and  willing  BANDAG   franchisee  under  no
       compulsion to sell.

IV.    Records and Inspection

FRANCHISEE shall maintain and provide to BANDAG financial  statements,  books of
account,  and  supply,  purchasing,  inventory,  production  and  sales  records
(including  the date of purchase,  weight and source of BANDAG  Rubber  Products
used  by  FRANCHISEE  and  records  showing  the  identity  and  address  of all
purchasers  of BANDAG  Rubber  Products  and of tires  retreaded  by the  BANDAG
Method),  together with any other business  records or information  records that
BANDAG may request in order to determine  whether  FRANCHISEE is performing  its
obligations  under this  Agreement.  FRANCHISEE  shall permit  BANDAG to examine
FRANCHISEE's  records,  premises and samples of tires made by the BANDAG  Method
during regular business hours.

V.     Relationship of Parties

The relationship of the parties is that of franchisor and franchisee, and seller
and buyer only, and FRANCHISEE  acknowledges that this Agreement does not create
a  fiduciary  relationship  between  FRANCHISEE  and  BANDAG.  The  parties  are
independent  contractors,  and exercise  sole control over their  businesses  at
their own risk.

VI.    Use of the Marks, Display, Advertising and Promotion of BANDAG Name

FRANCHISEE shall have the non-exclusive right to use the "BANDAG" name and mark,
including  BANDAG's  trademarks,  service  marks  and logos  (collectively,  the
"Marks") in the Territory in connection  with the  manufacture and sale of tires
retreaded by the BANDAG  Method,  subject to BANDAG's Logo and  Trademark  Usage
Requirements  and  Policy,  as revised  from time to time by BANDAG.  FRANCHISEE
shall at all times comply with such  Requirements and Policy,  which is attached
in its current form as Annex C.

VII.   Best Efforts

FRANCHISEE  shall at all times while this Agreement  remains in effect exert its
best efforts to produce and sell tires retreaded by the BANDAG Method.

VIII.  Duration

This  Agreement  shall  continue in effect for five years unless  terminated  as
provided elsewhere in this Agreement.

IX.    Termination of the Agreement by BANDAG

BANDAG shall have the right to terminate this Agreement:

       (a) Effective  upon notice to  FRANCHISEE,  in the event of any breach of
       Section I(d) or (e), II(b), III(a), XI, XII or XVI of this Agreement, or

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<PAGE>



       (b) Effective upon notice to FRANCHISEE,  in the event  FRANCHISEE  shall
       fail to pay all amounts due to BANDAG  within ten (10) days after  BANDAG
       notifies FRANCHISEE that payment is due, or

       (c) Effective upon notice to FRANCHISEE,  in the event  FRANCHISEE  shall
       fail to operate the business of retreading  tires by the BANDAG Method at
       the location authorized in Section I for more than sixty (60) consecutive
       days or otherwise abandons the franchise granted herein, or

       (d)  Effective  upon  notice  to  FRANCHISEE,  in  the  event  FRANCHISEE
       introduces  and/or supports any  proceedings  challenging the validity of
       any trademarks or other unpatented proprietary rights, whether registered
       or not, under which BANDAG derives its licensing power hereunder, or

       (e) Effective upon notice to  FRANCHISEE,  in the event of (1) any breach
       or non-compliance with any term or provision of this Agreement other than
       those  described in subsections  (a) through (d) above,  or any breach or
       non-compliance  with any other  agreement  between BANDAG and FRANCHISEE,
       and in either  such case the  breach or  non-compliance  is not  remedied
       within  thirty  (30)  days of  notice  thereof  from  BANDAG,  or (2) the
       repeated breach or  non-compliance  with one or more term or provision of
       this Agreement, whether or not such breach or non-compliance is corrected
       after notice, or

       (f) Immediately,  in the event FRANCHISEE becomes insolvent or is subject
       to any bankruptcy, insolvency, or similar proceeding, makes an assignment
       for the  benefit of  creditors,  becomes  unable to pay its debts as they
       become  due,  goes  into  liquidation  or  winding  up, or in the event a
       receiver is appointed for substantial part of FRANCHISEE's assets, or

       (g)  Effective  upon  thirty  (30)  days'  notice,  in the event of (1) a
       decision by a court or government agency that invalidates any significant
       provision  of  this  Agreement,  or  (2)  the  failure  of the  heirs  or
       successors of FRANCHISEE or a Controlling Person to apply for approval of
       a transfer  of the  pre-cured  retreading  business or the assets of such
       business in accordance  with Section  XI(c),  or BANDAG's  disapproval of
       such transfer.

X.     Effect of Termination

(a)    In the event of termination of this Agreement for any reason:

       (1) FRANCHISEE  shall  surrender and cease to exercise all rights granted
       under this  Agreement,  shall cease all use of the BANDAG  Method,  shall
       cease  all  use of  BANDAG  Equipment,  and  shall  cease  selling  tires
       retreaded  after  date of  termination  with  pre-cured  rubber on BANDAG
       Equipment.  In  addition,  no  officer,  director,   relative,   manager,
       shareholder,  partner or other owner of  FRANCHISEE  or any  Affiliate or
       Controlling  Person,  or any business  enterprise in which any of them is
       engaged or to which any of them is related,  may  directly or  indirectly
       operate  such  BANDAG  Equipment  or sell tires  retreaded  after date of
       termination with pre-cured rubber on BANDAG  Equipment.  FRANCHISEE shall
       also, at its own expense, cease all use of BANDAG's name and Marks in any
       and all  connections,  and refrain from  representing any of its products
       produced after  termination as "BANDAG products" or as being the "same as
       BANDAG" or "similar to BANDAG" or represent itself as a BANDAG franchisee
       or otherwise identify itself with BANDAG. Without limiting the foregoing,
       FRANCHISEE shall change the corporate name to eliminate use of any BANDAG
       Marks  and  change  all  stationary,  envelopes,  business  cards,  other
       advertisements  and other items and file such  documents  in all federal,
       state and local  offices as may be  considered  appropriate  by BANDAG to
       change the corporate name of record in such offices.

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<PAGE>


       (2) Termination of this Agreement  shall not relieve  FRANCHISEE from its
       obligation  to pay to BANDAG all moneys that may be due,  and all amounts
       yet unpaid and not yet due for  equipment,  materials and supplies  shall
       become due and payable within ten (10) days of the date of termination.

       (3) FRANCHISEE shall  immediately cease using, and return within a period
       of ten (10) days following termination, all property of BANDAG, including
       but not limited to all  confidential  and proprietary  written  materials
       (and all  copies  thereof)  received  from  BANDAG  and all  translations
       thereof.  Such materials will be delivered in person to a BANDAG designee
       or returned via courier service, to be signed for by the recipient.

       (4) BANDAG shall have the option, exercisable by notice within sixty (60)
       days following the effective date of  termination of this  Agreement,  to
       purchase  (i) any or all  BANDAG  Rubber  Products  at the price  paid by
       FRANCHISEE  and/or  (ii)  any  or all  BANDAG  Equipment  at its  10-year
       straight  line  depreciated  value,  with a minimum  of 15 percent of the
       purchase price paid by FRANCHISEE for such Equipment. This option extends
       to all BANDAG  Equipment and BANDAG Rubber  Products used in the business
       of  FRANCHISEE  prior  to the  effective  date of  termination.  From the
       purchase   price  shall  be  deducted  the  amount  of  any  set  off  or
       counterclaim that BANDAG may have against FRANCHISEE. Within two (2) days
       of receipt of notice from BANDAG,  FRANCHISEE shall prepare for immediate
       return all such items.

(b)    After receipt of BANDAG's  notice of  termination,  FRANCHISEE  shall not
       commit  itself to further  advertising  contracts or other  agreements by
       which it represents itself as a franchisee of BANDAG.

XI.    Transfer of Control

(a)    FRANCHISEE   acknowledges   that,  to  assure  BANDAG  that  FRANCHISEE's
       obligations  herein will be performed  fully and that  customers of tires
       retreaded by the BANDAG Method will receive adequate service, BANDAG must
       know and approve who in fact controls  FRANCHISEE.  Accordingly,  neither
       FRANCHISEE  nor any  Controlling  Person,  nor any holder or owner of any
       equity  interest in FRANCHISEE,  may enter into any agreement  pertaining
       to,  causing or  resulting  in a Transfer of Control,  or  consummate  or
       permit the consummation thereof,  without in each case obtaining BANDAG's
       prior written  approval.  To provide  BANDAG an  opportunity  to consider
       whether or not to  approve a  proposed  Transfer  of  Control,  a written
       request  for such  approval  shall be  submitted  to  BANDAG at least one
       hundred  twenty (120) days prior to the proposed or intended date for the
       Transfer of Control,  which request shall describe the proposed  Transfer
       of Control and give the identity of the proposed  transferee.  FRANCHISEE
       shall also submit such other information  regarding the proposed Transfer
       of Control as may be requested by BANDAG. Franchisee agrees that under no
       circumstances will Franchisee transfer or assign, directly or indirectly,
       any  interest in the  Franchise to any Person (as defined in this Section
       XI(a)) who has any form of  retreading  business that in any way competes
       with the  business of Bandag,  or the Bandag  Method  without the express
       prior  written   approval  of  Bandag  in  each  instance.   Furthermore,
       Franchisee shall not offer any interest in Franchisee through any form of
       public offering or exchange without the express prior written approval of
       Bandag in each  instance.  The foregoing  prohibits the engagement of any
       Person who intends to offer any interest of  Franchisee  to the public in
       any form of public offering without the express prior written approval of
       Bandag  in each  instance.  In  order to  obtain  Bandag's  consent  to a
       transfer,  assignment or public offering or exchange,  Franchisee  and/or
       Shareholders must demonstrate to Bandag's satisfaction that the transfer,
       assignment,  offering or exchange contemplated will not in any way damage
       Bandag,  the Bandag  Method,  and/or the Bandag  franchise  network.  For
       purposes  of  this  Section  XI(a),   "Person"   means  any   individual,
       corporation, estate, partnership, joint venture, association, joint stock
       company, trust, or unincorporated organization.

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<PAGE>


(b)    For the purposes of this Agreement,  "Transfer of Control" shall mean (i)
       if  FRANCHISEE  or  any  direct  or  indirect  Controlling  Person  is  a
       partnership,  any change in the identity or  respective  ownership of the
       partners  of any of them,  (ii) if  FRANCHISEE  or any direct or indirect
       Controlling Person is a corporation,  any sale, gift or other transfer of
       ownership  or  possession  of shares  comprising  5% or more of the total
       number of issued and outstanding shares of FRANCHISEE or such Controlling
       Person or (iii) the  transfer  of or  change  in the  direct or  indirect
       control of, or the  transfer or change in the power to control,  directly
       or  indirectly,  the  management,  direction or day-to-day  operations of
       FRANCHISEE  or of any direct or indirect  Controlling  Person;  provided,
       however,  that the death or determination of incompetency of a partner or
       any natural person  constituting a Controlling Person of FRANCHISEE shall
       not be a "Transfer of Control".

(c)    If a partner or Controlling Person of FRANCHISEE dies or is determined to
       be  incompetent,  the transfer of the business or assets of  FRANCHISEE's
       business  of  retreading  tires with  pre-cured  rubber  operated  at the
       Authorized  Location to any heirs or  successors  of the  deceased or the
       incompetent,  whether  by  bequest  or  otherwise,  shall be  subject  to
       BANDAG's prior written approval.  Such heirs or successors shall apply to
       BANDAG   for  such   approval   within  60  days   after  such  death  or
       determination,   providing  BANDAG  with  such  information  as  is  then
       customarily requested by BANDAG with respect to new franchisees.

XII.   General and Product Liability; Warranties; Insurance and Indemnification

(a)    FRANCHISEE   shall  purchase  and  maintain  in  full  force  and  effect
       comprehensive  general liability insurance  (including but not limited to
       product  liability,   completed  operations  and  contractual  liability,
       including FRANCHISEE's obligations under the indemnity provisions of this
       Agreement) adequate to insure its undertakings herein and shall furnish a
       certificate of such insurance upon request by BANDAG.

(b)    FRANCHISEE  shall  defend  indemnify  and hold BANDAG  harmless  from and
       against all  liabilities,  recoveries of judgment,  claims and demands on
       account of personal injury, including death or property loss or damage to
       others (including  FRANCHISEE's employees or customers) arising out of or
       in any manner connected with (i) FRANCHISEE's  business operations,  (ii)
       FRANCHISEE's  operations as a BANDAG franchisee,  (iii) the retreading of
       any tires,  (iv) the sale of any retreaded  tires, (v) the performance by
       FRANCHISEE  of this  Agreement,  (vi) the  breach of any of  FRANCHISEE's
       obligations  herein,  or (vii) the use by any  person who is not a BANDAG
       franchisee of BANDAG Equipment sold, transferred or otherwise provided to
       such person or his employer by  FRANCHISEE.  FRANCHISEE  shall at its own
       expense  defend  any and all such  claims  and  demands  and hold  BANDAG
       harmless from and against all charges of attorneys  incurred  thereby and
       all costs and other expenses arising therefrom. FRANCHISEE, on its behalf
       and  on  behalf  of  anyone  claiming  through  or by it,  including  its
       employees, agents,  subcontractors and insurers, hereby waives its rights
       of recovery  against  BANDAG for loss covered by insurance  maintained by
       FRANCHISEE or for FRANCHISEE's  benefit.  It is the intent of the parties
       that BANDAG shall not be subject to subrogation by anyone,  including any
       insurer, as a result of any such loss.

(c)    BANDAG MAKES NO WARRANTIES OR REPRESENTATIONS,  EXPRESS OR IMPLIED,  WITH
       RESPECT TO THE  MERCHANTABILITY  OR  SUITABILITY  OF TIRES  RETREADED  BY
       FRANCHISEE.  FRANCHISEE  has no authority to make any kind of warranty or
       representation to others on behalf of BANDAG.

(d)    (i)  Except  as  BANDAG  may  otherwise   expressly   agree  in  writing,
       FRANCHISEE,  acting on its own behalf only,  shall execute and deliver to
       each purchaser from FRANCHISEE of a tire retreaded by the BANDAG Method a
       BANDAG Dealer  National  Warranty on a form then  currently  furnished by
       BANDAG. BANDAG may also require FRANCHISEE to execute and deliver to each
       purchaser from  FRANCHISEE of a tire  retreaded by particular  technology



                                        8
<PAGE>


       associated  with the  BANDAG  Method a  special  warranty  on a form then
       currently  furnished  by BANDAG.  FRANCHISEE  shall  perform  and fulfill
       promptly  all  of the  terms  and  conditions  of  all  such  warranties.
       FRANCHISEE shall have the sole and complete  responsibility  for all such
       warranties (even though wording may have been provided by BANDAG) and for
       performance of any other  warranties  provided by FRANCHISEE to buyers of
       tires  retreaded  by the BANDAG  Method  and/or  sold or  distributed  as
       contemplated by this Agreement.  FRANCHISEE will perform all warranty and
       other  services  hereunder as an  independent  contractor  and not as the
       agent  of  BANDAG  and will  assume  responsibility  for and hold  BANDAG
       harmless from all claims  (including but not limited to claims  resulting
       from the  negligent  or willful  acts or  omissions  of  FRANCHISEE,  and
       including  attorneys'  fees) against  either of them arising out of or in
       connection with FRANCHISEE's performance of such service.

       (ii)  FRANCHISEE  agrees  to  comply  with all  policies  and  procedures
       described in the BANDAG  Dealer  National  Warranty or such other special
       warranty that may be required by BANDAG, as any thereof may be revised by
       BANDAG  from  time to  time,  including  but not  limited  to  performing
       warranty  service on tires retreaded by the BANDAG Method that FRANCHISEE
       did not  manufacture or sell, and policies and procedures  established by
       BANDAG  from time to time  relating  to the  keeping of books and records
       respecting  claims  FRANCHISEE  may  make  for  reimbursement  for  costs
       incurred  by  FRANCHISEE.  BANDAG  will  reimburse  FRANCHISEE  for costs
       incurred for service  FRANCHISEE  performs for  retreaded  tires that the
       FRANCHISEE did not  manufacture  or sell in accordance  with the policies
       and procedures of BANDAG described in the BANDAG Dealer National Warranty
       or such other special warranty. FRANCHISEE agrees that BANDAG may inspect
       FRANCHISEE's  books and records  respecting any warranty service or other
       claims FRANCHISEE may submit to BANDAG.

       (iii)  FRANCHISEE  hereby  authorizes  BANDAG to charge its account  with
       BANDAG  for each  adjustment  on a  BANDAG  retread  sold by  FRANCHISEE,
       performed by another  franchisee under a BANDAG Dealer National  Warranty
       or other special  warranty  required by BANDAG,  in such amount as may be
       provided therefor in the applicable warranty,  and to credit FRANCHISEE's
       account  for  each  adjustment  on  a  BANDAG  retread  sold  by  another
       franchisee,  performed by the FRANCHISEE  under a BANDAG Dealer  National
       Warranty  or  such  other  special  warranty,  in such  amount  as may be
       provided  therefor  in the  warranty,  all in  accordance  with  BANDAG's
       then-current  practices under the BANDAG Dealer National Warranty Program
       or any other special  warranty  program  BANDAG may require in connection
       with a particular technology.

XIII.  Security Interest

(a)    FRANCHISEE agrees to execute and deliver to BANDAG BANDAG's  then-current
       standard   form  security   agreement  to  secure  all  of   FRANCHISEE's
       obligations to BANDAG (as more fully described in such agreement), and to
       cause those  persons or entities  that own the BANDAG  Equipment  used in
       FRANCHISEE's  retread business from time to time to execute and deliver a
       similar  security  agreement to secure  FRANCHISEE's and their respective
       obligations to BANDAG.

(b)    BANDAG  agrees,  upon  written  request  from the  holder  of a  properly
       perfected  Bank Lien, to  subordinate  the security  interest  granted to
       BANDAG by FRANCHISEE,  to the extent it secures the rights and options of
       BANDAG hereunder to purchase certain assets used in FRANCHISEE's business
       of retreading tires with pre-cured rubber (but not any security  interest
       granted in connection  with  purchases by  FRANCHISEE,  or purchase money
       financing by BANDAG of any items purchased by  FRANCHISEE),  to such Bank
       Lien.  FRANCHISEE  hereby  covenants and agrees to execute and deliver to
       BANDAG any deeds, documents,  instruments and other writings requested by
       BANDAG  to grant or  create a lien  for the  purposes  described  in this
       section, and to take any actions reasonably deemed advisable by BANDAG or
       its counsel to create, establish,  preserve, perfect, continue perfected,
       record,  register,  protect,  determine priority of and enforce 


                                       9
<PAGE>

       such lien and  BANDAG's  rights,  and  FRANCHISEE  shall pay all expenses
       relating to the foregoing.

(c)    For the  purposes  of this  Agreement,  "Bank Lien" shall mean a security
       interest,  lien,  charge  or  encumbrance  granted  by  FRANCHISEE  to  a
       financial institution to secure indebtedness for borrowed money.

XIV.   Force Majeure

Performance of their respective obligations hereunder (other than any obligation
for the  payment of money) by either  BANDAG or  FRANCHISEE  may be  interrupted
without liability to the extent the interruption is due to a force majeure.  The
term "force  majeure" shall include an Act of God, war, civil  commotion,  fire,
explosion,  flood,  strike,  lock-out,  or any other cause beyond the reasonable
control of BANDAG or FRANCHISEE.

XV.    Notices; Litigation

Any notice or demand hereunder must be in writing and shall be deemed given when
personally  delivered by hand,  when  telecopied or telexed and  acknowledged by
appropriate means, or one (1) day after delivery to a courier service,  prepaid,
addressed  to the  party's  address  shown in this  Agreement  or as modified in
writing  pursuant to this  Agreement,  or three (3) days after  deposited in the
U.S.  mails,  first class mail,  postage  prepaid,  addressed as above.  In this
regard,  FRANCHISEE shall notify BANDAG within ten (10) days of institution of a
lawsuit by way of the service of a complaint,  cross-claim,  counterclaim or the
like against  FRANCHISEE  if such  lawsuit  involves  issues  relating to rights
granted  hereunder  and shall permit BANDAG to intervene and control the lawsuit
with regard to such issues.

XVI.   Assignment and Subfranchising

BANDAG may assign part or all of this  Agreement  and may delegate any or all of
its  obligations   hereunder  to  affiliates.   No  assignment,   sublicense  or
subfranchise  may be made by  FRANCHISEE  without the prior  written  consent of
BANDAG.

XVII.  Improvements by FRANCHISEE

In return  for the  inclusion  within  Section I hereof of  improvements  to the
BANDAG Method made by BANDAG,  all inventions,  patents and patent  applications
which are  conceived,  made or acquired by FRANCHISEE  in performing  under this
Agreement  or that  relate to BANDAG's  proprietary  rights or  equipment  shall
automatically be irrevocably  licensed on a royalty-free and non-exclusive basis
to BANDAG,  giving BANDAG the  non-exclusive  right to make,  have made, use and
sell such  improvements,  along with the right to  sublicense  such  inventions,
patents and patent applications to any and all BANDAG franchisees.

XVIII. Execution; Representations and Warranties

If FRANCHISEE has ten (10) or fewer  shareholders  and/or  partners,  FRANCHISEE
represents and warrants that the names of all its  shareholders  and/or partners
at the time of execution of this  Agreement  are listed  below,  and  FRANCHISEE
agrees  to notify  BANDAG  immediately  of any  change  of its  shareholders  or
partners.  If FRANCHISEE has more than ten (10)  shareholders  and/or  partners,
FRANCHISEE  represents and warrants that all Controlling Persons and all persons
with an  interest  in any  BANDAG  Equipment  at the time of  execution  of this
Agreement are listed below, and FRANCHISEE  agrees to notify BANDAG  immediately
of any change in any of these.  FRANCHISEE  further represents and warrants that
the signatures below on behalf of FRANCHISEE are duly  authorized,  and that the
persons signing have full power and authority to bind FRANCHISEE.

                                       10

<PAGE>

XIX.   Arbitration

(a)    Any  dispute  arising  out of or  relating  to  this  Agreement  will  be
       submitted  to and resolved by final and binding  arbitration  as the sole
       and exclusive remedy.  Any claim subject to this Section shall be made by
       filing  a demand  for  arbitration  within  one (1)  year  following  the
       conduct,  act or other event first  giving rise to the claim;  otherwise,
       the right to any remedy  shall be deemed  forever  waived  and lost.  The
       right and duty of the parties to this  Agreement  to resolve any disputes
       by arbitration shall be governed  exclusively by the Federal  Arbitration
       Act as  amended;  and  arbitration  shall  take  place  according  to the
       Commercial Rules of the American  Arbitration  Association,  and shall be
       held in its Chicago,  Illinois  office,  and be decided by one arbitrator
       chosen  according  to such  Rules.  Each party  shall bear all of its own
       costs of  arbitration  except  that the fees of the  arbitrator  shall be
       divided equally between the parties.

(b)    Unless  otherwise  agreed by the  parties,  pre-hearing  discovery in the
       dispute  to  be  arbitrated  shall  be  limited  to  the  following:  (1)
       production of any documents that the producing party intends to introduce
       into evidence at the hearing;  (2) production of any documents  generated
       by the party  seeking  production,  or  generated in the course of actual
       transactions   between  the  parties;  (3)  production  of  any  written,
       video-taped  or  tape-recorded  statement  given  by  the  party  seeking
       production; (4) production of any documents relied on by any expert whose
       opinions and conclusions will be offered at the hearing; and (5) not more
       than two  depositions per side,  with total adverse  examination  time in
       both depositions combined not to exceed 12 clock hours.

(c)    The  arbitrator  shall have no  authority to amend or modify the terms of
       this  Agreement  or to award  punitive or exemplary  damages.  His or her
       award may be enforced by the  judgment of any court  having  jurisdiction
       over the party against which enforcement is sought.

(d)    Each party  shall have the right,  without  awaiting  the  outcome of the
       arbitration,  to seek  from an  appropriate  court  provisional  remedies
       including,   but  not  limited  to,  temporary   restraining   orders  or
       preliminary injunctions before, during or after arbitration.  Seeking any
       such remedies  shall not be deemed to be a waiver of either party's right
       to compel arbitration.  FRANCHISEE acknowledges that BANDAG will confront
       a material  risk of severe and  irreparable  injury for which it will not
       have an  adequate  remedy in damages if  FRANCHISEE  breaches  any of its
       obligations  under Sections I(b), (d) or (e), II(b),  III(g),  VI, X, XI,
       XIII, XVI or XVII, and that such obligations  (without  limitation) shall
       therefore be specifically enforceable.

(e)    ACKNOWLEDGMENT OF ARBITRATION.

Each of the parties to this Agreement  understands that this Agreement  contains
an agreement to  arbitrate.  After  signing this  document,  each of the parties
understands  that it will not be able to bring a lawsuit  concerning any dispute
that may arise which is covered by the arbitration agreement, unless it involves
a question of constitutional or civil rights and arbitration  thereof may not be
compelled pursuant to the Federal Arbitration Act. Instead,  each of the parties
agrees to submit any such dispute to an impartial arbitrator.


                                       11

<PAGE>


XX.    Miscellaneous

(a)    This is the entire  Agreement and  supersedes  all prior  agreements  and
       communications, either oral or in writing between the parties hereto with
       respect to the subject  matter hereof,  except that the execution  hereof
       does  not  relieve  FRANCHISEE  from  any  obligations  with  respect  to
       materials,   equipment  or  supplies  sold  or  delivered  by  BANDAG  to
       FRANCHISEE,   or  to  maintain  the   confidentiality   of   confidential
       information  delivered or communicated by BANDAG to FRANCHISEE,  prior to
       the effective date of this Agreement.  Except for (I) the above-described
       obligations,  (ii) any product  warranties made by FRANCHISEE,  and (iii)
       FRANCHISEE's indemnification obligations hereunder and its responsibility
       for product liability on products  manufactured by it at any time, BANDAG
       and  FRANCHISEE,  each on  behalf  of  themselves  and of  every  company
       directly or indirectly controlled by, controlling or under common control
       with them, and the agents, officers, employees, successors and assigns of
       all of them,  release  each  other and the  above-described  persons  and
       entities  from any and all  claims,  purported  claims,  liabilities  and
       defaults  arising  from the  actions of the other under any and all prior
       agreements or otherwise  prior to the effective  date of this  Agreement.
       Any amendment, addition or variation to this Agreement must be in writing
       and duly executed by both BANDAG and FRANCHISEE.

(b)    The representations,  obligations and covenants of FRANCHISEE in Sections
       II(b),  III(g),  V, X, XII,  XVII,  XIX and XX(a)  (with  respect  to the
       release) shall survive termination of this Agreement.

(c)    The parties intend that all provisions will be enforceable to the maximum
       extent permitted under law.

(d)    FRANCHISEE   acknowledges   that   it  has   conducted   an   independent
       investigation of the business franchised  hereunder,  and recognizes that
       the business  venture  contemplated  by this Agreement  involves  certain
       business  risks and that its  success  will be largely  dependent  on the
       ability  of  FRANCHISEE  and  its  Controlling   Persons  as  independent
       businessmen.  BANDAG  expressly  disclaims the making of, and  FRANCHISEE
       acknowledges that it has not received, any warranty or guarantee, express
       or  implied,  as to the  potential  volume,  profits  or  success  of the
       business  venture  contemplated  by this  Agreement,  nor has  FRANCHISEE
       relied on any separate written or oral communications or understanding or
       on any warranty or representation by or with BANDAG. In addition,  except
       for any express  warranties that may be contained in manuals  provided by
       BANDAG to FRANCHISEE from time to time describing the capabilities of the
       BANDAG   Method,   BANDAG   expressly   disclaims   any   warranties   or
       representations,  express or implied,  with respect to the BANDAG Method,
       including   merchantability   and   fitness   for   purpose.   FRANCHISEE
       acknowledges  and agrees that it has read and  understood  this Agreement
       and the attachments  hereto, if any, that BANDAG has fully and adequately
       explained the provisions of each to FRANCHISEE's  satisfaction,  and that
       BANDAG has accorded FRANCHISEE ample time and opportunity to consult with
       advisors of  FRANCHISEE's  own choosing about the potential  benefits and
       risks of entering into this Agreement.

                                       12

<PAGE>



(e)    BANDAG may permit  FRANCHISEE  to remedy any  default  hereunder  without
       waiving the default so remedied, and a waiver of any default shall not be
       a waiver of any other  subsequent or prior default.  BANDAG's  failure to
       enforce any of its rights shall not be a waiver thereof.  The exercise of
       any right does not limit  BANDAG's  right to  exercise  any other  right;
       every right of BANDAG under this Agreement is cumulative with every other
       right BANDAG may have under this Agreement,  under any other agreement or
       otherwise.

(f)    With  respect  to any  provisions  in  this  Agreement  where  BANDAG  is
       permitted to make certain  modifications,  determinations and exceptions,
       they  shall be  within  BANDAG's  sole  and  absolute  discretion  unless
       otherwise expressly provided in this Agreement.

IN WITNESS  WHEREOF,  BANDAG and  FRANCHISEE  have caused this  Agreement  to be
executed in two originals, effective as of the date of execution by BANDAG.


FRANCHISEE                                BANDAG, INCORPORATED


________________________________          By: _______________________________
Print Name of Corporation,
Partnership, or Individual                Title: _____________________________

                                          Date: _____________________________
By: ____________________________

Title: __________________________         Address:
                                          Bandag World Headquarters
Date: __________________________          2905 North Highway 61
                                          Muscatine, IA 52761-5886
                                          U.S.A.

List of all partners (if a partnership)  or  shareholders  (if a corporation) of
FRANCHISEE:


--------------------------------          ----------------------------------
Print Name                          Print Name


--------------------------------          ----------------------------------
Print Name                          Print Name


--------------------------------          ----------------------------------
Print Name                          Print Name


--------------------------------          ----------------------------------
Print Name                          Print Name


                                       13

<PAGE>


               UNDERTAKING BY THE PRINCIPALS OF BANDAG FRANCHISEE

I (we) understand  that the BANDAG SYSTEM  FRANCHISE  AGREEMENT  between Bandag,
Incorporated     ("BANDAG")     and     _______________________________________,
("FRANCHISEE")  executed by  FRANCHISEE  on the _______ day of  ________________
19____, provides that upon termination of the Agreement FRANCHISEE must:

       1.     cease using and return to BANDAG all  confidential and proprietary
              written materials and all translations;

       2.     cease using all BANDAG trademarks and logos;

       3.     cease using the Bandag Method and equipment made by or for BANDAG,
              and cease selling tires retreaded  after date of termination  with
              pre-cured rubber on equipment made by or for BANDAG; and

       4.     cease  using the word BANDAG in its  corporate,  trade or business
              name, any assumed name, and in any other way.

In consideration of the grant of a franchise by BANDAG,  other good and valuable
consideration,  and my (our) access to  confidential  information and the Bandag
Method  and  Equipment,  I (we) agree  that in the event of  termination  of the
Franchise Agreement I (we) shall honor the above  understandings  personally and
in any undertaking in which I (we) might be involved.


------------------------      -----------------------    ----------------
Print Name                    Signature                        Date


------------------------      -----------------------     ----------------
Print Name                    Signature                       Date

------------------------      -----------------------    ----------------
Print Name                    Signature                        Date


                                       14

<PAGE>





                                  ANNEX LISTING


ANNEX A     EXCEPTION TO SECTION I(e) IN-TERM NONCOMPETITION PROVISION
ANNEX B     GENERAL TERMS AND CONDITIONS OF SALE
ANNEX C     BANDAG(R) LOGO AND TRADEMARK USAGE REQUIREMENTS AND POLICY

                                       15
<PAGE>


           Exception To Section I(e) In-Term Noncompetition Provision






       1.     Tire retreading pursuant to the AMF Flexcure System.




                                    ANNEX A
                                  Page 1 of 1

<PAGE>




                         BANDAG, INCORPORATED ("Seller")
                          TERMS AND CONDITIONS OF SALE

       1.  OFFER,  GOVERNING  PROVISIONS  AND  CANCELLATION.   THESE  TERMS  AND
CONDITIONS SHALL  CONSTITUTE THE ENTIRE AGREEMENT  BETWEEN SELLER AND BUYER, AND
SHALL BE GOVERNED BY AND SHALL BE CONSTRUED  ACCORDING  TO INTERNAL  LAWS OF THE
STATE OF IOWA. THE RIGHTS AND OBLIGATIONS OF THE PARTIES  HEREUNDER SHALL NOT BE
GOVERNED BY THE  PROVISIONS  OF THE 1980 U.N.  CONVENTION  ON CONTRACTS  FOR THE
INTERNATIONAL  SALE OF GOODS.  No order may be  canceled or altered by the Buyer
except upon terms and conditions  acceptable to Seller, as evidenced by Seller's
written consent. In the event of such an approved  cancellation by Buyer, Seller
shall be entitled to payment of the full price,  less the amount of any expenses
saved by Seller by reason of the cancellation.

       2. PRICES AND  PAYMENT.  All prices  listed are payable in United  States
Dollars.  All prices  are  subject to change  without  notice,  and the price of
products on order but  unshipped  will be adjusted to the price in effect at the
time of shipment.  With respect to goods sold  hereunder  other than  equipment,
payment is due on the terms agreed by Seller in writing, or, if there is no such
written agreement, in accordance with the applicable price list, or, if no price
list is applicable,  upon Buyer's receipt of Seller's  invoice.  With respect to
equipment  sold  hereunder,  payment  is due in  accordance  with an  applicable
written  purchase  agreement,  or, if none,  on  delivery.  Notwithstanding  the
foregoing,  at its sole  option at any time,  Seller may  require  Buyer to make
payment in advance or by irrevocable letter of credit, and may defer shipment or
cancel any order if the Buyer does not promptly provide such payment or a letter
of credit.  Any such letter of credit shall be issued for Seller's  benefit by a
prime U.S.  bank,  shall be subject to and  governed by the Uniform  Customs and
Practice for Documentary Credits (ICC Publication No. 400, 1983 Revision), shall
provide for payment against Seller's invoice and bill of lading, and shall be in
form and substance satisfactory to Seller.

       3. TAXES AND OTHER CHARGES. Any tax, duty, custom,  inspection or testing
fee,  or any other tax,  fee or charge of any nature  whatsoever  imposed by any
governmental authority, on or measured by the transaction between Seller and the
Buyer shall be paid by the Buyer in addition to the prices invoiced. Buyer shall
provide Seller at the time the order is submitted with any applicable  exemption
certificate or other document acceptable to the authority imposing such tax, fee
or  charge.  In the event the  Seller is  required  to pay any such tax,  fee or
charge, the Buyer shall reimburse Seller therefor.

       4.  DELIVERY,  CLAIMS AND FORCE MAJEURE.  (a) Equipment.  With respect to
equipment sold by Seller hereunder, the method and route of shipment shall be at
the sole  discretion  of  Seller.  Sales of  equipment  shall be F.O.B.  Buyer=s
facility.  Sales of equipment for delivery  outside of the U.S. and Canada shall
be F.O.B. U.S. port selected by Seller.

       (b) Rubber  Products.  With respect to orders for less than 500 pounds of
Rubber Products sold by Seller hereunder:  (I) shipments will be F.O.B. point of
shipment; (ii) all risk of loss or damage in transit shall be borne by the Buyer
after delivery to the carrier; and (iii) all costs of shipping shall be borne by
Buyer.  With  respect  to orders  for 500  pounds  or more of  Rubber  Products,
shipments will be F.O.B. Buyer's plant, and all costs of shipping shall be borne
by  Seller.  As used  herein,  "Rubber  Products"  shall  mean any and all tread
rubber, tread materials and all other materials used between the tread materials
and the casing (including without limitation all cushion rubber, cushion gum and
other adhesives,  repair gums, filled materials,  special extrusions,  rebelting
materials, cements and other rubber items).

                                     ANNEX B
                                   Page 1 of 5


<PAGE>




       (c) Promotional Materials. With respect to items other than equipment and
Rubber Products,  and intended primarily for promotional or publicity  purposes:
(i) sales by Seller  hereunder  will be F.O.B.  point of manufacture or point of
shipment;  (ii) all risk of loss or  damage in  transit  shall be borne by Buyer
after delivery by the manufacturer to a carrier; and (iii) all costs of shipping
shall be borne by Buyer.

       (d) Other Terms.

       (i) Any additional  expense  arising from the use of a method or route of
shipment  requested by Buyer shall be borne entirely by Buyer.  Seller  reserves
the right to make delivery in  installments,  unless otherwise agreed in writing
by Seller; all such installments are to be separately invoiced and paid for when
due per invoice, without regard to subsequent deliveries, and any deliveries not
in dispute shall be paid for regardless of other controversies relating to other
delivered or undelivered merchandise. Delay in delivery of any installment shall
not relieve buyer of its obligations to accept remaining deliveries. In any case
where Buyer is to bear the cost of shipping, Buyer shall bear all costs of bags,
barrels,  boxes,  pallets or other containers used to ship goods  hereunder.  No
shipping  containers  may be returned to Seller unless Seller has agreed to such
return in advance and all return freight is prepaid by Buyer. Seller may, at any
time,  require any or all costs of shipping for which Buyer is responsible under
the terms hereof to be prepaid by Buyer.

       (ii) Claims for  shortages  or other  errors in delivery  must be made in
writing to Seller within 10 days after receipt of shipment. Failure to give such
notice shall constitute  unqualified  acceptance and a waiver of all such claims
by Buyer. Claims for loss or damage to goods in transit,  after risk of loss has
passed to Buyer, shall be made to the carrier and not to Seller.

       (iii) All delivery dates are approximate.  Seller shall not be liable for
any damage as a result of any delay or failure to deliver due to any act of God,
act of the Buyer,  embargo or other  governmental  act,  regulation  or request,
fire, accident, strike, slow down or other labor difficulties,  war, riot, delay
in  transportation,  defaults of common carriers,  inability to obtain necessary
labor, materials or manufacturing facilities or, without limiting the foregoing,
any other event beyond the Seller's control.  In the event of any such delay the
date of  delivery  shall be  extended  for a period  equal to the  length of the
delay.  Buyer's exclusive remedy for other delays and for Seller's  inability to
deliver for any reason,  including Buyer's inability to produce goods which meet
the requirements of this contract, shall be rescission of this agreement.

       5.  STORAGE.  If the  products are not shipped  within  fifteen (15) days
after notification to the Buyer that they are ready for shipping, for any reason
beyond  Seller's  reasonable  control,  including  the  Buyer's  failure to give
shipping  instructions,  Seller may store such products at the Buyer's risk in a
warehouse  or yard or upon  Seller's  premises,  and  the  Buyer  shall  pay all
handling,  transportation and storage charges at the prevailing commercial rates
upon submission of invoices therefor.

       6.  CHANGES.  Seller  may at any time make  such  changes  in design  and
construction of products as Seller deems  appropriate,  without notice to Buyer.
Seller may furnish suitable  substitutes for materials  unobtainable  because of
priorities   or   regulations   established   by   governmental   authority   or
nonavailability of materials from suppliers.






                                     ANNEX B
                                   Page 2 of 5


<PAGE>




       7. WARRANTIES.

       (a) The NDI. With respect to any equipment that is the subject of a lease
agreement  between  Buyer and Seller  (whether or not a true lease) (the "NDI"),
Seller  warrants that each machine,  model upgrade or feature of the NDI will be
in good working  order on the day it is  installed.  If it is proven to Seller's
satisfaction not to have been in good working order at the time of installation,
the machine,  model  upgrade or feature will be repaired or replaced at Seller's
option.

       (b) Other  Products.  Seller  warrants  that the  original  purchaser  of
equipment manufactured by Seller other than the NDI will have the right to enjoy
the equipment free and clear of claims of third persons against  Seller.  Seller
warrants products  manufactured by it and supplied  hereunder other than the NDI
to be free from  defects  in  materials  and  workmanship  under  normal use and
service  for a period of six  months  from date of  shipment  (nine  months  for
equipment  manufactured  by Seller if such equipment is exported from country of
manufacture when shipped to Buyer),  except that the following components of the
repair gum extruder are so warranted only for 90 days from date of shipment: the
circuit boards,  barrels, barrel adapters and air motors, four months on cushion
gum. This warranty is only applicable to products  properly  maintained and used
according to Seller's  instructions.  If, within the applicable period, any such
product shall be proved to Seller's  satisfaction to be defective,  such product
shall be repaired or replaced at Seller's  option,  or, also at Seller's option,
the purchase price shall be refunded.

       (c) Other Terms.  (i) In the case of the NDI, such repair or replacement,
and, in the case of products  other than the NDI,  such repair,  replacement  or
refund,   shall  be  Seller's  sole  obligation  and  Buyer's  exclusive  remedy
hereunder.  With respect to the NDI,  such remedy is  conditioned  upon Seller's
receiving written notice of any alleged  malfunctioning  within ten (10) days of
installation,  and, at Seller's option,  return of the NDI to Seller, F.O.B. its
factory.  With  respect to products  other than the NDI,  such  remedy  shall be
conditioned upon Seller's  receiving written notice of any alleged defect within
ten (10) days  after its  discovery  and,  at  Seller's  option,  return of such
products to Seller, F.O.B. its factory. This warranty does not apply to products
that Seller determines have been damaged by misuse, neglect, improper operation,
accident or  alteration,  or that Seller  determines  have been tampered with or
repaired  in a manner not  authorized  by Seller.  Products  supplied  by Seller
hereunder that are  manufactured  by someone else are not warranted by Seller in
any way,  but  Seller  agrees to assign  to Buyer  any  warranty  rights in such
products that Seller may have from the original manufacturer.

       (ii) THE WARRANTY CONTAINED IN THIS SECTION 7 IS EXCLUSIVE AND IN LIEU OF
ALL OTHER  REPRESENTATIONS  AND  WARRANTIES,  EXPRESS  OR  IMPLIED,  AND  SELLER
EXPRESSLY  DISCLAIMS  AND EXCLUDES ANY IMPLIED  WARRANTY OF  MERCHANTABILITY  OR
IMPLIED  WARRANTY OF FITNESS FOR A  PARTICULAR  PURPOSE.  The  exclusive  remedy
stated in this  Section 7 shall  not be deemed to have  failed of its  essential
purpose so long as, (1) with  respect to the NDI,  Seller is willing and able to
repair or replace the malfunctioning item within ninety (90) days of the date on
which Seller  determines a malfunction to exist, or (2) with respect to products
other than the NDI,  Seller is willing  and able to repair or replace  defective
products,  or refund the purchase price,  within ninety (90) days of the date on
which Seller determines a defect to exist.







                                     ANNEX B
                                   Page 3 of 5


<PAGE>




       (iii) Any description of the products,  whether in writing or made orally
by  Seller or  Seller's  agents,  specifications,  samples,  models,  bulletins,
drawings,  diagrams,  engineering sheets or similar materials used in connection
with  Buyer's  order are for the sole  purpose of  identifying  the products and
shall not be  construed as an express  warranty.  Any  suggestions  by Seller or
Seller's agents regarding use,  application or suitability of the products shall
not be construed as an express  warranty unless  confirmed to be such in writing
by Seller.

       8. COMPLIANCE WITH LAWS.  Seller certifies that these goods were produced
in compliance  with all applicable  requirements  of sections 6, 7 and 12 of the
Fair Labor  Standards  Act, as amended,  and all  regulations  and orders of the
United States  Department of Labor issued under section 14 thereof.  Seller does
not warrant,  however,  that any  materials,  equipment  and  features  meet the
requirements  of any local,  state or federal  laws or  regulations  (other than
those specifically enumerated above) applicable to Buyer, including those issued
under OSHA.  The  equipment  describes  herein is provided  only with the safety
devices and features shown in the applicable specifications. Should the customer
require  any  additional  devices  or  features,  they  should  be  specifically
identified, and Seller will adjust the price accordingly.

       9. RETURNS. Products may be returned to Seller only when Seller's written
permission,  signed by duly authorized personnel of Seller, shall be obtained by
Buyer in  advance.  Goods  may not be  returned  unless  they are in  marketable
condition.  Returned products must be securely packaged and reach Seller without
damage. Any cost incurred by Seller to put products in marketable condition will
be charged to Buyer.

       10. PATENTS, TRADEMARKS AND COPYRIGHTS.  Seller will, at its own expense,
defend any suits that may be  instituted  by anyone  against  Buyer for  alleged
infringement of any United States patent,  trademark,  or copyright  relating to
any products  manufactured  and furnished by Seller  hereunder,  if such alleged
infringement  consists of the use of such products, or parts thereof, in Buyer's
business,  and if Buyer  shall  have  made  all  payments  then  due  hereunder,
provided,  however,  that Buyer shall give Seller immediate notice in writing of
any such suit,  shall transmit to Seller  immediately upon receipt all processes
and papers served upon Buyer, shall permit Seller through its counsel, either in
the name of Buyer or in the name of  Seller,  to defend  the same and shall give
all needed  information,  assistance and authority to enable Seller to do so. If
such  products are in such suit held in and of  themselves to infringe any valid
United  States  patent,  trademark or copyright,  then:  (a) Seller will pay any
final award of damages in such suit attributable to such  infringement,  and (b)
if in such suit use of such products by Buyer is permanently  enjoined by reason
of such  infringement,  Seller shall, at its own expense and at its sole option,
either (i)  procure  for Buyer the right to continue  using the  products,  (ii)
modify the  products to render them  noninfringing,  (iii)  replace the products
with   noninfringing   goods,   or  (iv)  refund  the  purchase  price  and  the
transportation costs paid by Buyer for the products.

       Notwithstanding  the foregoing,  Seller shall not be responsible  for any
compromise or settlement made without its written consent,  or for infringements
of  combination  or  process  patents  covering  the  use  of  the  products  in
combination with other goods or materials not furnished by Seller. The foregoing
states the entire  liability of Seller for  infringement,  and in no event shall
Seller be liable for consequential damages attributable to an infringement.







                                     ANNEX B
                                   Page 4 of 5


<PAGE>




       As  to  any  products  furnished  by  Seller  to  Buyer  manufactured  in
accordance  with drawings,  designs or  specifications  proposed or furnished by
Buyer,  or any  claim of  contributory  infringement  resulting  from the use or
resale by Buyer of products  sold  hereunder,  Seller  shall not be liable,  and
Buyer shall  indemnify  Seller and hold Seller harmless from and against any and
all loss,  liability,  damage,  claim or expense  (including  but not limited to
Seller's  reasonable  attorneys'  fees and other costs of  defense)  incurred by
Seller as a result of any claim of patent, trademark,  copyright or trade secret
infringements,  or  infringements  of any  other  proprietary  rights  of  third
parties.

       The purchase of any products  hereunder  does not entitle Buyer to employ
the same in any patented process.

       11.  EXCLUSION OF  CONSEQUENTIAL  DAMAGES AND  DISCLAIMER  OF  LIABILITY;
BUYER'S INDEMNITY. Seller's liability with respect to breaches of warranty shall
be limited as provided in Section 7 hereof.  With  respect to other  breaches of
this contract,  Seller's  liability shall in no event exceed the contract price.
SELLER  SHALL NOT BE  SUBJECT TO AND  DISCLAIMS:  (1) ANY OTHER  OBLIGATIONS  OR
LIABILITIES  ARISING  OUT  OF  BREACH  OF  CONTRACT  OR  OF  WARRANTY,  (2)  ANY
OBLIGATIONS WHATSOEVER ARISING FROM TORT CLAIMS (INCLUDING NEGLIGENCE AND STRICT
LIABILITY) OR ARISING UNDER OTHER  THEORIES OF LAW WITH RESPECT TO PRODUCTS SOLD
OR SERVICES RENDERED BY SELLER, OR ANY UNDERTAKINGS,  ACTS OR OMISSIONS RELATING
THERETO,   AND  (3)  ALL   CONSEQUENTIAL,   INCIDENTAL  AND  CONTINGENT  DAMAGES
WHATSOEVER. 
Without limiting the generality of the foregoing,  Seller specifically disclaims
any liability for penalties  (including  administrative  penalties),  special or
punitive damages,  damages for lost profits or revenues, loss of use of products
or any associated equipment, cost of capital, facilities or services,  downtime,
shut-down or slowdown  costs,  spoilage of  material,  or for any other types of
economic loss. All the limitations  and disclaimers  contained in this paragraph
and in the rest of this contract  shall apply to claims of Buyer's  customers or
any third party asserted by Buyer against Seller for indemnity or  contribution,
as well as direct claims of Buyer against Seller.

       Buyer shall  indemnify  Seller  against any and all losses,  liabilities,
damages and expenses (including,  without limitation,  attorneys' fees and other
costs of defending any action) that Seller may incur as a result of any claim by
Buyer  or  others  arising  out of or in  connection  with the  products  and/or
services sold  hereunder  and based on product or service  defects not proven to
have been caused solely by Seller's negligence.

       12.  MANUALS,  BROCHURES,  INSTRUCTIONS.  Any and all operating  manuals,
instructions,  brochures,  warnings or the like  concerning  the goods  supplied
hereunder shall be written in the English  language,  and are supplied as an aid
to Buyer and are not represented to be accurate,  complete or sufficient.  Buyer
warrants  that  it  will  accurately  transcribe  such  manuals,   instructions,
brochures or warnings to  appropriate  languages and dialects to comply with all
applicable laws and so that its employees and all third party users of the goods
will be properly informed of all the contents thereof.  Buyer will indemnify and
hold harmless Seller against all liabilities and expenses (including  attorneys'
fees)  arising  out of the use of the goods by the Buyer or a third party in any
case where the Buyer fails to make available adequate warnings,  labels, manuals
and instructions concerning the proper and normal use of the goods.

       13. SEVERABILITY. If any provisions of these terms and conditions of sale
shall be deemed illegal or  unenforceable,  such illegality or  unenforceability
shall not affect the validity and  enforceability  of any legal and  enforceable
provision hereof,  which shall be construed as if such illegal and unenforceable
provision(s) had not been inserted herein.


                                     ANNEX B
                                   Page 5 of 5


<PAGE>




            BANDAG7 LOGO AND TRADEMARK USAGE REQUIREMENTS AND POLICY

(a) BANDAG  shall have the  exclusive  right to  register  BANDAG's  trademarks,
service  marks  and  logos   (collectively,   the  "Marks")  with   governmental
authorities.  All use of the Marks by Franchisee and goodwill arising  therefrom
shall inure exclusively to BANDAG's  benefit.  Franchisee shall assign to BANDAG
any rights acquired in the Marks or any registration thereof.

(b)  Franchisee  shall:  (i) not impair  the value of  BANDAG's  Marks,  whether
registered or not; (ii) use only the Marks  designated by BANDAG;  (iii) not use
trademarks,  service  marks,  symbols,  slogans,  logos  or the  like  that  are
confusingly  similar to the Marks;  (iv) not use the Marks, or any word, name or
other symbol tending to be confusingly  similar to the Marks, in the name of any
bank account of  Franchisee  or in any other way tending to create  liability of
BANDAG or other than in connection  with the BANDAG Method and the sale of tires
retreaded by the BANDAG Method;  and (v) immediately  cease any pre-existing use
of the Marks that conflicts with the terms of this Agreement.  Franchisee  shall
promptly  report  any  unauthorized  use of the Marks to BANDAG.  Unless  BANDAG
objects  in  writing  to  Franchisee  at any time,  Franchisee  may,  but is not
required to,  include the Mark  "BANDAG" in its  corporate or trade name and use
such name in the  business of making and selling  tires  retreaded by the BANDAG
Method.  If  Franchisee  elects to use the name BANDAG in its corporate or trade
name,  Franchisee  shall not:  (1) use the word  BANDAG as the first word in its
corporate name (e.g., "Bandag Retreads,  Inc." is prohibited),  (2) use the name
BANDAG in a corporate name with the name of any state,  province,  county, city,
governmental or political unit or  subdivision,  (e.g.,  "San Francisco  Bandag,
Inc.", "Texas Bandag", etc. would be prohibited),  or (3) use the name BANDAG in
a corporate name being used by any other BANDAG franchisee  (wherever  located).
In addition,  Franchisee must comply with all policies and procedures adopted by
BANDAG  from time to time  regarding  use of the Mark BANDAG in the names of its
franchisees.  Franchisee shall,  immediately upon request by BANDAG,  consent in
writing,  in such form as may be requested by BANDAG, to the use of the "BANDAG"
Mark by third parties in their corporate or trade name.

(c)  Franchisee  shall  display  the  name  "BANDAG"  in  its  Territory  on its
buildings,  signs and trucks  used in the  business of  retreading  tires by the
BANDAG Method,  and shall reasonably  advertise and promote the name "BANDAG" in
connection  with  such  business  subject,   however,   at  all  times,  to  the
restrictions  set forth  below.  Every use of the name  "BANDAG" in any display,
advertisement,  promotion  or  otherwise  by  Franchisee  shall be in a form and
character approved by BANDAG.

BANDAG  encourages  franchisees to use the BANDAG logo for all kinds of approved
advertising and  identification  within its Territory.  However,  to protect the
integrity of BANDAG's Marks,  BANDAG  restricts the usage of the BANDAG Marks by
areas.

The  following  is a  list  of  authorized  uses  of  the  BANDAG  Marks  within
Franchisee's Territory:

     1.   Building and standing signs on property used by Franchisee.
     2.   Vehicles used in Franchisee's business.
     3.   Yellow-page advertising.
     4.   Newspaper advertising.
     5.   Electronic media advertising (radio and/or television).
     6.   Envelope and letterhead.
     7.   Business cards.
     8.   Collateral materials (leaflets, handouts, price lists, calendars etc.)
     9.   Billboards.
     10.  Community service program sponsorship.


                                     ANNEX C
                                   Page 1 of 2


<PAGE>



The following is a listing of unauthorized uses of the BANDAG Marks:

     1.   Building and/or standing signs located outside Franchisee's Territory.
     2.   Vehicles used exclusively outside Franchisee's Territory.
     3.   Yellow-page  advertising  which  does not cover  part of  Franchisee's
          Territory.
     4.   Newspapers not generally distributed within Franchisee's Territory.
     5.   Electronic media not servicing Franchisee's Territory.
     6.   Envelope  and  letterheads   having  addresses  outside   Franchisee's
          Territory.
     7.   Business cards having an address outside Franchisee's Territory.
     8.   Sales  and   informational   materials   using  an   address   outside
          Franchisee's Territory.
     9.   Billboards located outside Franchisee's Territory.
     10.  Community  service  program  sponsorship of groups not utilized by the
          citizens within Franchisee's Territory

















                                     ANNEX C
                                   Page 2 of 2