SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K


                [X] Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                   For the fiscal year ended December 1, 1996

             [ ] Transaction Report Pursuant to Section 13 or 15(d)
                          of the Securities Act of 1934

                           Commission File No. 1-9440

                             HARROW INDUSTRIES, INC.
             (Exact name of Registrant as specified in its charter)

            Delaware                                52-1499075
    (State of Incorporation)            (I.R.S. Employer Identification No.)

                2627 East Beltline, S.E., Grand Rapids, MI 49546

               Registrant's telephone number, including area code

                                 (616) 942-1440

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

           $65,000,000 12-3/8% Senior Subordinated Debentures due 2002

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

                                      None





     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934 during the preceding 12 months with the Commission and (2) has been subject
to such filing requirements for the past 90 days. Yes X No


<PAGE>



ITEM 1.           BUSINESS


General

     Through its subsidiaries and divisions,  Harrow Industries, Inc. ("Harrow",
or the "Company")  designs,  manufactures and markets a wide variety of products
primarily  for  the  consumer,   home  remodeling,   commercial  retrofit,   new
residential and commercial construction, access control, and time and attendance
markets.  The Company's major products include professional and consumer pruning
and  harvesting  hand tools,  consumer and  architectural  hardware,  electronic
locking systems,  biometric identification devices, custom residential cabinetry
and water source heat pumps.

     Harrow's  business  is  affected by various  general  economic  conditions,
including the rate of new construction, which is related to the availability and
cost of financing and other economic conditions.  Management's strategy has been
to limit  Harrow's  sensitivity  to changes  in the  economy  by  maintaining  a
diversified product base and emphasizing the development of products marketed to
the commercial and home remodeling and do-it-yourself  markets, which management
believes have historically been less sensitive to economic downturns.  There can
be no  assurances,  however,  that a  significant  decline  in the  rate  of new
construction would not have a material adverse effect on Harrow's business.

     Some of Harrow's operations have seasonal  characteristics.  This generally
produces lower results in Harrow's  first and third fiscal  quarters than in the
second and fourth  quarters.  Since most of its  operations are driven by orders
received  throughout the year,  backlog is not a significant  factor to Harrow's
overall  business.  The  largest  customer  of Harrow,  served by two  unrelated
divisions,  accounts for  approximately  10% of consolidated net sales. No other
customer accounts for 5% or more of consolidated sales.

Segment Information

     Harrow  operates in three industry  segments:  (1) security  products,  (2)
hardware and tools, and (3) other building products.

     Information  concerning sales,  operating income,  identifiable  assets and
certain  other  information  by  industry  segment  is  found  in  Note P to the
Consolidated Financial Statements.

     In accordance  with  management's  philosophy  that Harrow's  operations be
decentralized  and  its  subsidiaries  and  divisions  be  granted   significant
autonomy,  most aspects of the operations,  including  purchasing,  engineering,
manufacturing and marketing are conducted locally. Management believes that this
philosophy  permits  its  various  businesses  to respond  more  quickly to, and
operate more effectively in, the markets they serve.  Following is a description
of the businesses operating in each of the three industry segments.



<PAGE>



Security Products Group

         Locknetics Security Engineering

     Locknetics   Security   Engineering   ("LSE")   located   in   Forestville,
Connecticut,  designs,  manufactures and distributes  electronic locking systems
including  electromagnetic and  electromechanical  security products and systems
primarily for security system wholesalers, contract hardware, locksmith dealers,
alarm wholesalers and automatic door operator manufacturers.

     LSE  products  are sold  through  its own sales  force  and  manufacturers'
representatives.

         Recognition Systems, Inc.

     Recognition Systems,  Inc. ("RSI"),  acquired as of the beginning of fiscal
1995, is located in Campbell,  California and was founded in 1986 with a charter
to develop,  manufacture and market biometric  identification devices based upon
the  measurement  of three  dimensional  hand geometry by using a  sophisticated
combination of infrared cameras, electronic circuitry and associated algorithms.

     RSI sells its  products  into  three  markets  - access  control,  time and
attendance and personal  identification - through a nationwide  network of sales
representative  agencies.  International  sales are made to  authorized  country
distributors who resell within their territories.

Hardware and Tools Group

         H.B. Ives

     H.B.  Ives  ("Ives"),  Harrow's  largest  operation,  is  headquartered  in
Wallingford,  Connecticut with manufacturing and distribution  facilities in New
Haven,  Connecticut and Michigan City, Indiana, and a distribution center in Los
Angeles,  California.  A  significant  increase or  decrease in Ives'  operating
performance could have a material effect on Harrow's overall performance.

     Ives  manufactures  a  broad  line  of  commercial  and  consumer  hardware
including entry sets,  door  coordinators,  exterior door hardware,  door stops,
surface bolts, and cabinet and bath hardware. Through a separate operation, Ives
also manufactures wire products and storage hooks.

     Sales to the consumer residential hardware market are direct in the case of
some large customers, and through independent wholesalers to other customers who
are serviced by  manufacturers'  representatives.  Ives sells to the  contractor
hardware market through distributors serviced by its own sales force.




<PAGE>



         Corona Clipper

     Corona  Clipper  ("Corona"),   located  in  Corona,  California,   designs,
manufactures  and distributes  pruning and harvesting  tools,  shears,  saws and
other  hand-held  gardening  tools for homeowners and nurseries.  A line of high
quality  professional  pruning  and  harvesting  tools is sold for  agricultural
applications  in  the  grape,  avocado  and  apple  industries  as  well  as  to
distributors that service professional landscapers.

     Corona  sells to the  retail  market  through  a  combination  of  in-house
salespeople  and  manufacturers'  representatives.  Its  customers  include mass
merchandisers,  home improvement  centers,  hardware chains and various lawn and
garden distributors. The professional market for pruning tools is served through
a combination of in-house salespeople and manufacturers' representatives.

Other Building Products Group

         Rutt

     Rutt, located in Goodville, Pennsylvania, is a leading manufacturer of high
quality  custom  kitchens,  bath  and  other  cabinetry  primarily  to the  home
renovation  markets.  Rutt is perceived  to be the quality  leader in the custom
residential cabinet market.

     Rutt's  cabinetry  is made to order and is of such high  quality  that Rutt
receives,  through the efforts of its own sales force, extensive  representation
by dealers in affluent  residential  areas of the country.  Rutt  currently  has
products on display in over 130 authorized dealer  locations.  Approximately 80%
of Rutt's sales are to the home renovation market.

         FHP Manufacturing

     FHP Manufacturing ("FHP"),  located in Fort Lauderdale,  Florida, is one of
the largest manufacturers of water source heat pumps in the United States. These
units are sold throughout North America under the trade name Florida Heat Pump.

     FHP is a leader in  heating  and  cooling  technology  that uses the energy
available in natural water supplies. Tests show that FHP units can save from 30%
to 50% of the  energy  used by  conventional  units,  which  offsets  the higher
capital and  installation  costs of FHP  equipment  for  customers  with certain
levels of heating and cooling requirements.

     FHP  sells  through  manufacturers'  representatives  to  large  mechanical
contractors and through multi-branch  stocking  distributors who in turn sell to
smaller dealers. FHP acts as its own distributor in southern Florida.







<PAGE>



Employees

     As of January 1, 1997,  Harrow  employed 1165  employees,  including 923 in
production  (management  and  hourly),  105 in marketing  and sales,  and 137 in
finance and  administration.  During the year, hourly  production  employees can
increase by as many as 60  employees,  depending  on seasonal  workloads in some
Harrow plants.


ITEM 2.           PROPERTIES

     The following table sets forth the facilities of Harrow,  excluding  public
warehouse space, by location and operation. Each location (except the facilities
designated as warehouses and sales showrooms) include administrative offices:

<TABLE>

        Location of                Owned              Leased
    Division/Subsidiary         (Square Ft.)       (Square Ft.)                   Use
<S>                             <C>                <C>              <C>
Grand Rapids, MI                     --              4,264(1)       Corporate Offices.
New Haven, CT                      100,000              --          Manufacture of builder and consumer
   (H.B. Ives)                                                      hardware, warehouse and shipping facilities.
Wallingford, CT                      --             46,700(1)       Sales office and warehouse and shipping
   (H.B. Ives)                                                      facilities.
Michigan City, IN                   69,000              --          Manufacture of wire hardware,
   (H.B. Ives)                                                      warehouse and shipping facilities.
Forestville, CT                      --             30,000(1)       Manufacture of electronic locking
   (LSE)                                                            systems and accessories, warehouse and
                                                                    shipping facilities.
Goodville, PA                      174,843              --          Manufacture of custom cabinetry,
   (Rutt)                                                           warehouse and shipping facilities.
Los Angeles, CA                      --               2,668(1)      Sales showroom sublet to independent
   (Rutt)                                                           dealer.
Atlanta, GA                          --               1,958(1)      Sales showroom sublet to independent
   (Rutt)                                                           dealer.
Chicago, IL                          --               3,451(1)      Sales showroom sublet to independent
   (Rutt)                                                           dealer.
Fort Lauderdale, FL                 63,600              --          Manufacture of heat pumps, warehouse
   (FHP)                                                            and shipping facilities.


<PAGE>

Corona, CA                          73,000              --          Manufacture of pruning tools and other
   (Corona Clipper)                                                 forged products, warehouse and shipping
                                                                    facilities.
Campbell, CA                         --              13,694(1)      Manufacture of biometric identification
   (RSI)                                                            devices, warehouse and shipping
                                                                    facilities.
</TABLE>

(1)      Lease Terms:
         Grand Rapids,  MI--Annual  Rental  $54,366--expiration  March 31, 1997.
         Wallingford,  CT--Annual Rental $252,180--expiration December 31, 2002.
         Forestville,  CT--Annual Rental  $183,000--expiration May 31, 2008. Los
         Angeles, CA--Annual Rental $72,481--expiration March 31, 2005;
                  Sub-lease Rental $72,481--expiration March 31, 2005.
         Atlanta, GA--Annual Rental $42,321--expiration April 30, 2000;
                  Sub-lease Rental $42,321--expiration April 30, 2000.
         Chicago, IL--Annual Rental $85,861--expiration November 30, 2005;
                  Sub-lease  Rental   $85,861--expiration   November  30,  2005.
         Campbell, CA--Annual Rental $128,176--expiration September 30, 1998.

ITEM 3.           LEGAL PROCEEDINGS

     The  Company is  involved  in  proceedings  with  respect to  environmental
matters  including  sites where the Company has been identified as a potentially
responsible  party under federal and state  environmental  laws and regulations.
While it is not possible to quantify  with  certainty  the  potential  impact of
actions regarding environmental matters, particularly any future remediation and
other  compliance  efforts,  in the opinion of management,  compliance  with the
present environmental protection laws will not have a material adverse effect on
the financial  condition or competitive  position of the Company.  However,  the
Company's   efforts  to  comply  with   increasingly   stringent   environmental
regulations may have an adverse effect on the Company's future earnings.

     Provisions of $453,000 in 1996, $428,000 in 1995, and $484,000 in 1994 were
recorded  to cover the  costs of  remedial  actions  expected  to be taken  with
respect to the cleanup of these  sites.  As of December 1, 1996,  the  remaining
recorded  liability related to these issues totaled $766,000,  of which $375,000
was provided to cover estimated remediation costs of a former plant site. Annual
remediation costs for this site currently  approximate  $75,000, and remediation
is expected to be completed in as few as three years or as many as twenty years.

     The Company is also subject to legal  proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the amount of
ultimate  liability with respect to these actions will not materially affect the
consolidated financial position of the Company.




<PAGE>



ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  Not applicable.

ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS

     The Company's common stock is not registered nor is it publicly traded. See
Item  12  for  information  concerning  the  distribution  of  ownership  of the
Company's common stock.

ITEM 6.           SELECTED FINANCIAL DATA
<TABLE>
                                                   Fiscal Year Ended (1)
                                 December 1,  December 3,   November 27,  November 28,  November 29,
                                   1996         1995            1994          1993        1992
                              (Thousands of Dollars, Except Per Share Data and Ratios)
<S>                                <C>         <C>          <C>          <C>          <C>   
Statement of operations data:
   Net sales ...................   $ 151,747   $ 134,657    $ 139,393    $ 128,823    $ 124,679
   Net earnings (loss) .........       5,315       3,403        1,615         (226)         205
   Net earnings (loss) per
      share of common stock (2)         4.76        2.91         1.29         (.41)         .01
   Ratio of earnings to fixed
      charges (3) ..............       2.24x       1.63x        1.37x        1.03x        1.06x
Balance sheet data:
   Total assets ................   $  74,720   $  68,989    $  61,378    $  58,622    $  59,143
   Long-term debt and other
      noncurrent liabilities (4)      56,295      52,510       50,337       50,088       51,132
   Stockholders' equity
      (deficit) (5) ............         536        (399)      (3,730)      (5,122)      (4,701)
</TABLE>
(1)   Fiscal  1995 includes  53 weeks;  all other fiscal  years shown include 52
      weeks.

(2)   Earnings  per  share of  common  stock are  calculated  based on  weighted
      average  outstanding  shares  of  1,074,046  in 1996,  1,100,000  in 1995,
      1,096,671 in 1994, 1,043,340 in 1993 and 999,994 in 1992.

(3)   Earnings used in computing the ratio of earnings to fixed charges  consist
      of pretax earnings before fixed charges. Fixed charges consist of interest
      expense, amortization of deferred financing costs and the interest portion
      of rental expense.

(4)   Includes current  maturities of long-term debt,  capital lease obligations
      and redeemable preferred and common stock.

(5)   Includes the effects of the restructuring  transactions  which occurred in
      1987, as described in Note N to the Consolidated Financial Statements.



<PAGE>



ITEM 7.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

     The Company's cash requirements  relate primarily to the seasonal financing
of working  capital,  the purchase of property,  plant and  equipment,  business
acquisition opportunities, the servicing of outstanding debt and cash dividends.
Cash  provided by operating  activities  continues to be the major source of the
Company's funds and is expected to satisfy a substantial  portion of future cash
needs.  These  funds have been  augmented  by  long-term  debt under a revolving
credit agreement.

     Cash  provided by  operating  activities  totaled  $5.7  million in 1996 as
compared  to $6.4  million in 1995 and $3.2  million in 1994.  Cash  provided by
operating  activities before considering changes in working capital totaled $8.2
million in 1996,  $5.2  million in 1995 and $4.8  million in 1994  reflecting  a
continuous  improvement  in net  earnings.  Increased  investments  in  accounts
receivable and  inventories  were required in each year as a result of growth in
the Company's  businesses.  These  investments were partially funded in 1996 and
1994 by related  increases  in accounts  payable and accrued  expenses.  Similar
increases in 1995 were more than  adequate to fund the 1995 increase in accounts
receivable  and  inventories.  Working  capital  at  December  1, 1996 was $18.6
million  compared  to $13.3  million at the end of fiscal  1995.  The  Company's
current ratio of 2.0 to 1 at the end of 1996 improved  slightly from 1.8 to 1 at
the end of 1995.

     Capital  expenditures  were $3.1 million in 1996,  $3.6 million in 1995 and
$4.3 million in 1994.  The  expenditures  were primarily for  replacement,  cost
reduction  and capacity  expansion.  Capital  additions for 1997 are expected to
approximate  $8  million  and will be  primarily  for  capacity  expansion,  new
products, profit improvement and replacement.

     On  June  14,  1996,  the  Company  redeemed  its 14%  Junior  Subordinated
Debentures  in the  amount  of $7  million  from  proceeds  available  under its
revolving  credit facility.  Under the terms of the revolving credit  agreement,
which was  renegotiated  effective  July 31, 1996,  the Company may borrow up to
$30,000,000 under a formula which includes an amount based on qualified accounts
receivable and  inventories,  plus a term loan amount  initially  established at
$15,000,000.  As of December 1, 1996,  the  available  unused  credit  under the
agreement  approximated  $8,100,000.  The agreement  also provides for a standby
credit facility of $15,000,000 to finance possible future acquisitions.

     The Senior  Subordinated  Debentures  require annual sinking fund payments;
however,  as a result of current and prior year  repurchases of  debentures,  no
principal maturities are due until 2001, when $6.5 million is due.

Effects of Inflation

     The Company believes inflation has not had a material overall effect on its
operations during the past three years.


<PAGE>



Results of Operations - 1996 Compared to 1995

     Consolidated  net sales  increased by 12.7% from $134.7  million in 1995 to
$151.7 million in 1996. Net sales of the security  products segment increased by
14.4% from  $20.2  million in 1995 to $23.2  million  in 1996 due  primarily  to
increased sales of commercial  security products.  Net sales of the hardware and
tools segment  increased by 12.3% from $75.0 million in 1995 to $84.2 million in
1996. Both major product lines experienced sales gains,  however, the percentage
increase in sales of  consumer,  building  and  architectural  hardware was more
modest than the increase for consumer and  professional  pruning and  harvesting
tools. Net sales for the other building products segment increased by 12.5% from
$39.4  million  to $44.4  million in 1996.  All  product  lines in this  segment
experienced  sales  increases  although the percentage for custom  cabinetry was
somewhat greater than that of water source heat pumps.

     Gross margin increased from $49.0 million in 1995 to $55.6 million in 1996.
As a percentage of net sales, gross margin increased from 36.4% in 1995 to 36.6%
in 1996.  Higher  sales  volume,  a  favorable  workers  compensation  insurance
experience adjustment,  and improved manufacturing  efficiencies  contributed to
the gross margin  improvement.  Offsetting  these  factors were lower margins on
sales of certain consumer pruning tools and higher warranty costs which affected
custom cabinetry gross margins.

     Selling,  administrative  and general  expenses  increased  6.4% from $38.0
million in 1995 to $40.4 million in 1996.  Commission  and other volume  related
costs comprise a significant  portion of the increase.  Engineering  and product
development costs also contributed to the increase. These increases were reduced
by  $500,000 to reflect an  insurance  recovery  of prior  period  environmental
remediation  and related costs.  Selling,  administrative  and general  expenses
include  provisions  of $1.0 million in 1995 and $500,000 in 1996 to provide for
estimated  postemployment  benefits  and  certain  other  costs  related  to the
Company's  president and chief executive officer.  As a percentage of net sales,
selling,  administrative  and general  expenses  decreased from 28.2% in 1995 to
26.6% in 1996.

     Operating income increased $4.1 million from $11.0 million in 1995 to $15.1
million in 1996. Operating income as a percentage of net sales improved to 10.0%
in 1996 compared to 8.2% in 1995.

     Interest  expense  decreased  from $6.6  million in 1995 to $6.4 million in
1996 due primarily to lower average interest rates resulting from the redemption
of  subordinated  debentures and the  renegotiation  of the Company's  revolving
credit agreement.

     A gain from the sale of the Leigh  businesses  of  $270,000  is included in
other income in 1995.

     Earnings  before  income  taxes  increased by 92.5% to $8.8 million in 1996
compared to $4.6 million in 1995 due primarily to increased  sales and resulting
operating income.

     The 1996  provision for income taxes exceeds the amount  expected using the
<PAGE>
statutory  rate of 34% due primarily to state income taxes and the tax effect of
nondeductible  goodwill  amortization.  The 1995  provision for income taxes was
less than the  expected  amount due to a tax benefit  from the sale of the Leigh
businesses and an adjustment to reduce prior years'  estimated  liabilities as a
result of the expiration of the statute of limitations for fiscal 1991.

     Net earnings  were $5.3 million  ($4.76 per share) in 1996 compared to $3.4
million ($2.91 per share) in 1995.

Results of Operations - 1995 Compared to 1994

     The  comparability  of operating  results is affected by the acquisition of
RSI (see Note K to the  consolidated  financial  statements) and the sale of the
Leigh  businesses (see Note L).  Operating  results of the Leigh  businesses are
included in consolidated  results for 1994 and, except for the gain on the sale,
excluded from 1995 consolidated results.

     Consolidated  net sales  decreased  from  $139.4  million in 1994 to $134.7
million in 1995. Net sales of the security products segment increased 58.3% from
$12.8  million  in 1994 to  $20.2  million  in 1995  due to  increased  sales of
commercial  security  products and the  addition of hand reader sales  resulting
from the  acquisition  of RSI.  Net  sales of the  hardware  and  tools  segment
increased  by 10.0% from $68.2  million in 1994 to $75.0  million in 1995.  Both
major product lines experience sales gains,  however, the percentage increase in
sales of consumer,  building and architectural hardware was more modest than the
increase for consumer and  professional  pruning tools.  Net sales for the other
building  products  segment  decreased from $58.4 million to $39.4 million.  Net
sales of continuing  product  lines  (excluding  air control and other  products
related to the Leigh businesses from 1994 amounts)  increased by $5.2 million or
15.2% in 1995. All continuing  product lines in this segment  experienced  sales
increases  although the percentage  sales gain of custom  cabinetry was somewhat
greater than that of water source heat pumps.

     Gross margin increased from $46.3 million in 1994 to $49.0 million in 1995.
As a percentage of net sales, gross margin increased from 33.2% in 1994 to 36.4%
in 1995. The elimination of the lower margin Leigh businesses  combined with the
acquisition of RSI contributed  significantly to the improvement in gross margin
percentages.  Higher sales volume of other product  lines,  a favorable  workers
compensation  insurance  experience   adjustment,   and  improved  manufacturing
efficiencies,  particularly  for custom  cabinetry  and pruning  and  harvesting
tools,  also  contributed  to the gross  margin  improvement.  Offsetting  these
factors were aluminum,  brass and copper cost increases  which affected  builder
and consumer hardware gross margins.

     Selling,  administrative  and general expenses increased by 1.1% from $37.6
million in 1994 to $38.0 million in 1995. As a percentage of net sales, selling,
administrative  and general  expenses  increased from 26.9% in 1994 to 28.2% for
1995.  Selling,  administrative  and general expenses for 1995 decreased by $5.7
million as a result of the sale of the Leigh businesses.  This decrease was more
than offset by the addition of RSI  expenses,  volume-related  increases for all
<PAGE>
other  operations  and a  provision  of $1.0  million to provide  for  estimated
postemployment  benefits and certain other costs related to the Company's former
chairman and its former president and chief executive officer.

     Operating  income increased $2.2 million from $8.8 million in 1994 to $11.0
million in 1995.  Operating income as a percentage of net sales improved to 8.2%
in 1995 compared to 6.3% in 1994.

     Interest  expense  increased  from $6.3  million in 1994 to $6.6 million in
1995 due  primarily to higher  average  borrowings  under the  revolving  credit
agreement.

     Earnings  before  income  taxes was $4.6  million in 1995  compared to $2.6
million in 1994.  The  increase of $2.0  million was due  primarily  to improved
operations offset partially by increased  interest expense. A gain from the sale
of the Leigh  businesses  of  $270,000  is  included  in other  income  and also
contributed to the increase.

     The 1995 provision for income taxes was less than the amount expected using
the  statutory  federal  income  rate of 34% due to the tax effects of the Leigh
sale, an adjustment to reduce prior years' estimated  liabilities as a result of
the expiration of the statute of limitation for fiscal 1991 and the  realization
of certain export  incentives.  These  reductions more than offset the provision
for state income taxes and the tax effect of  nondeductible  items  (principally
goodwill  amortization).  The Company's  effective  income tax rate for 1994 was
higher than the statutory  rate due primarily to state income taxes,  the effect
of nondeductible  goodwill amortization and the inability to utilize foreign net
operating losses.

     Net earnings  were $3.4 million  ($2.91 per share) in 1995 compared to $1.6
million ($1.29 per share) in 1994.

ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated balance sheets of Harrow Industries, Inc. and subsidiaries
as of  December  1, 1996 and  December  3, 1995,  and the  related  consolidated
statements of stockholders' equity (deficit), operations and cash flows for each
of the three fiscal years in the period  ended  December 1, 1996,  and the notes
thereto,  are  included  with the  financial  statement  schedules in a separate
section of this report.

ITEM 9.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL DISCLOSURES

                Not applicable.








<PAGE>



                                    PART III


ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain information  regarding the executive
officers and  directors of the  Company.  Officers  serve at the pleasure of the
Board of  Directors.  Directors  serve until the election and  qualification  of
their successors.

<TABLE>
Name                                               Age    Position
<S>                                                <C>    <C>
Donald G. Calder (1)                               59     Chairman, Chief Executive Officer and Director
James S. Dahlke                                    46     President and Director
George L. Ohrstrom, Jr. (1)                        69     Vice President and Director
John S. Hogan                                      42     Vice President, Chief Financial Officer and
                                                          Treasurer
Gary L. Humphreys                                  54     Vice President and Corporate Controller
Donald D. Fenstermacher                            55     Vice President of Management Information
                                                          Services
Betsy F. Raymond                                   38     Vice President of Human Resources and
                                                          Secretary
Robert A. Hoagland                                 58     President of H.B. Ives
Jerry D. Price                                     50     President of Rutt
Clifford A. Young, Jr.                             54     President of FHP Manufacturing
James J. Scott                                     44     President of Locknetics Security Engineering
James C. McGovern                                  54     President of Corona Clipper
William W. Wilson                                  71     President of Recognition Systems, Inc.
W. Lawrence Banks (1) (2)                          58     Director
David H. Benson                                    59     Director
Derrick N. Key                                     49     Director
George F. Ohrstrom (1) (2)                         43     Director
Georg Graf Schall-Riaucour (3)                     56     Director
Eriberto R. Scocimara                              60     Director

(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Chairman of Audit Committee.

</TABLE>




<PAGE>




     Donald G.  Calder has been a director  since 1972 and a Vice  President  of
Harrow or its  predecessor  from 1972 through  August 1989. On January 30, 1997,
Mr. Calder was appointed  Chairman and Chief  Executive  Officer of the Company.
Mr.  Calder has been a partner at G.L.  Ohrstrom & Co.  since 1970 and devotes a
substantial  amount of his time in  connection  therewith.  He is a director  of
Carlisle Companies Incorporated,  Central Securities  Corporation,  Brown-Forman
Corporation, Roper Industries, Inc. and several privately held companies.

     James S. Dahlke was appointed  President and Chief Operating Officer of the
Company on June 17, 1996.  Mr. Dahlke was appointed as a Director of the Company
on January 30, 1997.  Prior to joining  Harrow,  Mr. Dahlke served as President,
Chief Executive Officer and Director of Medalist  Industries,  Inc. from 1995 to
1996, and was President of the Waukesha  Fluid Handling unit of United  Dominion
Industries from 1988 to 1995.

     George L. Ohrstrom,  Jr. has been a director and a Vice President of Harrow
or its predecessor since 1962. Mr. Ohrstrom is President of G.L. Ohrstrom & Co.,
Inc., and was managing  partner of its  predecessor,  G.L.  Ohrstrom & Co., from
1960 to October 1996. He is a director of Carlisle  Companies  Incorporated  and
Roper Industries, Inc. Mr. Ohrstrom is the father of George F. Ohrstrom.

     John S. Hogan was appointed Vice President and Chief  Financial  Officer in
January 1990 and has been  Treasurer of Harrow since January 1987.  From 1979 to
January 1987 he was Corporate  Accounting  Manager of Harrow or its predecessor.
Prior to joining Harrow he had been on the audit staff of Ernst & Young LLP, the
Company's independent auditors.

     Gary L.  Humphreys  joined  Harrow in October  1994 as Vice  President  and
Corporate  Controller.  Mr.  Humphreys  was a partner of Ernst & Young LLP,  the
Company's independent auditors, from October 1976 to September 1994.

     Donald D.  Fenstermacher  joined  Harrow in 1984 as Director of  Management
Information Services. He was elected Vice President effective May 1, 1990.

     Betsy F. Raymond joined Harrow in 1991 as Vice President of Human Resources
and Assistant  Corporate Secretary and was elected Corporate Secretary effective
February 1, 1992.

     Robert A. Hoagland has been President of H.B. Ives since 1991.

     Jerry D. Price joined  Harrow as President of Rutt  effective in July 1993.
Prior to joining  Harrow,  he was group Vice President of  Manufacturing  for TJ
International and Executive Vice President-Operations for Biltbest Windows.

     Clifford A. Young, Jr. has been President of FHP since 1971.

     James J. Scott has been President of Locknetics Security  Engineering since
1989.


<PAGE>




     James C. McGovern  joined Harrow as President of Corona  Clipper on May 20,
1992. Prior to joining Harrow he was President of Aluminum Forge Company.

     William W. Wilson was named President of the Company's Recognition Systems,
Inc.  subsidiary in October of 1996. He served as RSI's Vice  President of Sales
and  Marketing  from  1990 to June of 1995  and  provided  business  development
services  to RSI as a  consultant  from July of 1995  until his  appointment  as
President.

     W. Lawrence  Banks has been a Director of the Company since 1980. Mr. Banks
has been a  director  of Robert  Fleming & Co.,  Limited,  an  English  merchant
banking firm, for more than five years and is a Deputy Chairman thereof,  and he
is Chairman of Robert Fleming, Inc., its U.S. investment banking subsidiary. Mr.
Banks is also a director of Roper Industries, Inc.

     David H.  Benson has served as a director  of Harrow  since  1980.  He is a
merchant banker at Kleinwort Benson Limited, an English merchant banking firm.

     Derrick N. Key has been a director of the company since  February 1996. Mr.
Key has been a director and Chief Executive  Officer of Roper  Industries,  Inc.
since December 1991. He is also a director of two private companies.

     George F.  Ohrstrom has been a director of Harrow since 1986.  From 1983 to
1987, he was an associate at Bear,  Stearns & Co., Inc.  Since December 1987, he
has been a partner of G.L. Ohrstrom & Co.

     Georg Graf  Schall-Riaucour  was  appointed  to the Board of  Directors  on
January 25, 1995. He has been general manager of  Wittelsbacher  Ausgleichsfonds
since May 1994, prior to which,  since 1971 he was senior partner of the Munich,
Germany  law firm of Stever & Belten.  Mr.  Schall-Riacour  is director of Roper
Industries, Inc. and several privately held U.S. companies.

     Eriberto  R.  Scocimara  has been a director  of Harrow or its  predecessor
since 1972. Mr. Scocimara has been President and Chief Executive  Officer of the
Hungarian-American  Enterprise  Fund, a  privately-managed  investment  company,
since April 1994, and he has been the President of Scocimara & Company, Inc., an
investment  management company,  since 1984. Mr. Scocimara was a partner of G.L.
Ohrstrom  & Co.  from 1969 to 1984.  Mr.  Scocimara  is a director  of  Carlisle
Companies,  Incorporated,  Roper Industries, Inc., Quaker Fabric Corporation and
several privately owned companies.



<PAGE>



ITEM 11.        SUMMARY COMPENSATION TABLE

     The following table sets forth cash  compensation  earned during the fiscal
year ended December 1, 1996 for the chief  executive  officer and the other four
most highly  compensated  executive  officers whose aggregate cash  compensation
exceeded $100,000.

<TABLE>
                                      Annual Compensation    Long-Term
Name and Principal      Fiscal Year      Salary    Bonus   Compensation*
   Position               Ended           $          $          $
<S>                       <C>           <C>       <C>        <C>
Donald G. Calder ......   1996          149,000      --
Chairman and CEO
Dudley C. Mecum .......   1996           96,000      --
Former Chairman and CEO   1995           16,000      --
Robert A. Hoagland ....   1996          170,500   130,092
President of H.B. Ives    1995          165,500   102,362
                          1994          159,100   119,325
Clifford A. Young, Jr .   1996          155,000   131,750    58,022
President of FHP ......   1995          149,700   127,245    12,280
                          1994          143,900   122,315    22,766
John S. Hogan .........   1996          144,500   122,825    28,485
Vice President & CFO ..   1995          140,300   100,525    20,743
                          1994          135,600    94,445     4,103
James C. McGovern .....   1996          131,100   109,731
President of Corona ...   1995          126,700   107,695
                          1994          123,000    87,453
James S. Dahlke .......   1996          115,385    62,500
President and COO
</TABLE>
*Payments  from  Long-Term  Growth  Account were for the purchase of performance
shares  under the prior bonus  plan.  Performance  shares were last  awarded for
fiscal 1990. Final payments under the prior plan were made in February 1996.

     All  directors  are  compensated  at $7,500 per annum in their  capacity as
directors of the Company.  Mr. Banks is compensated an additional $7,500 for his
involvement in various  committees.  Members of the Audit Committee receive $500
per meeting. The Chairman of the Audit Committee receives $750 per meeting.


<PAGE>



     Dudley C.  Mecum  was  Chairman  and CEO from  October  1,  1995  until his
resignation on October 8, 1996.  Donald G. Calder was acting  Chairman from that
date until January 30, 1997 when he was elected Chairman and CEO.

     James S. Dahlke was granted  options in 1996 to  purchase an  aggregate  of
20,000 shares of common stock, 4,000 shares of which were immediately vested and
exercisable,  and 16,000 shares which vest and become  exercisable  ratably from
1997 through 2000 at 4,000 shares per year.

Compensation Plans

      Bonus Plan

     Harrow maintains an  Executive/Middle  Management  Performance Program (the
"Bonus Plan") in which officers  (with the exception of George L. Ohrstrom,  Jr.
and Donald G. Calder) and  presidents  of divisions and  subsidiaries  of Harrow
designated by the  president of Harrow are  eligible.  An individual is eligible
only if he is a  full-time  employee  for the full 12 months of the fiscal  year
covered by the Bonus Plan.

     The Bonus Plan  includes  an annual (the  "Annual  Plan")  component  and a
long-term (the "Long-Term Plan") component.  Under the Annual Plan, participants
may earn a cash bonus of up to 55% of base salary,  based upon a  comparison  of
actual results with financial and nonfinancial  goals  established for the year.
The  incentive to be earned  ranges from 16% to 55% of salary,  if results equal
85% of established goals to 110% or more of goals.

     The Long-Term Plan provides incentive compensation for achievement of three
year objectives.  Under the Long-Term Plan participants may earn a cash bonus of
up to 30% of base salary based upon aggregate  profitability  (60% of total) and
individual  nonfinancial  strategic  objectives  (40% of total).  The  financial
portion of the bonus is based upon a  comparison  of three year  actual  results
with operating income targets.


Retirement Plans

     Harrow Products,  Inc., an indirect subsidiary of the Company,  maintains a
retirement plan, the Retirement Plan for the Employees of Harrow Products, Inc.,
("the HPI Retirement Plan") in which all eligible employees participate. It is a
non-contributory, defined benefit pension plan, under which a participant with a
vested  benefit  receives a benefit  at age 65 equal to 1.075% of Final  Average
Salary up to covered  compensation,  plus 1.7% of Final Average Salary in excess
of covered compensation,  times credited service (maximum of 30 years.) "Covered
Compensation" is the average of 35 years of Social Security wage bases ending in
the year of Social Security  Retirement age. "Final Average Salary" means salary
excluding   bonuses,   overtime  or  any  other   additional  or   non-recurring
compensation  and is  computed  using the  highest  60 of the last 120 months of
service prior to retirement,  or age 65, whichever is earlier.  Credited Service
starts at age 21 and Vesting Service at age 18. Employees retiring after age 55,
but  before age 65  receive  reduced  annual  benefits.  Benefits  under the HPI
Retirement Plan vest after five years of Vesting Service.


<PAGE>



     The table below shows the approximate annual retirement benefits payable to
executive officers for life from normal retirement date (age 65) pursuant to the
Retirement  Plan. For purposes of determining the pension benefits payable under
the HPI Retirement Plan, estimated years of Credited Service at age 65 under the
HPI Retirement Plan for the individuals  named in the compensation  table are as
follows: Mr. Calder, 29 years; Mr. Hoagland,  13 years; Mr. Young, 30 years; Mr.
Hogan, 30 years; Mr. McGovern, 17 years.

<TABLE>
Final
Average                                         Years of Service
Earnings*           10                 15                   20               25                  30
<S>              <C>                 <C>                 <C>               <C>                 <C>              
 $100,000        $15,300             $22,900             $30,600           $38,200             $45,800
  125,000         19,600              29,300              39,100            48,900              58,600
  150,000         23,800              35,700              47,600            59,500              71,400
  175,000         27,600              41,600              55,700            69,400              83,700
  200,000         31,500              47,600              63,700            79,900              96,000
  225,000         34,400              52,200              69,900            87,700             105,500
  250,000         34,400              52,200              69,900            87,700                  **
  275,000         34,400              52,200              69,900            87,700                  **
  300,000         34,400              52,200              69,900            87,700                  **
</TABLE>
*Earnings  used to  calculate  benefits  are  capped by the limit  described  in
Section 401(a)(17) of the Internal Revenue Code; the limit for 1996 is $150,000.

**Benefit is limited by Section 415 of the Internal  Revenue Code; the limit for
1996 is $120,000.






<PAGE>



ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT

     The  following  table sets forth  certain  information  as to the number of
shares of Harrow common stock  beneficially  owned as of the date of this report
by each  stockholder  known to  Harrow to own  beneficially  more than 5% of the
outstanding  shares for such common stock,  by each director and by all officers
and  directors  as  a  group.  Except  as  otherwise  indicated,   each  of  the
stockholders  named below has sole voting and  investment  power with respect to
the shares of common stock beneficially owned by him.


<TABLE>
                                                                  Company Common
                                                                    Stock Number
                                                                       of Shares
Name and Address of Beneficial Owner       Beneficially Owned         Percentage
<S>                                        <C>                        <C>
Blackburn Fund, Ltd.                         52,643                       5.52%
P.O. Box 10654
Tampa, FL 33674
Citicorp Venture Capital, Ltd.               57,429                       6.03%
153 East 53rd Street
New York, NY 10043
Robert Fleming and Co. Ltd.                 126,788 (1) (2)              13.30%
25 Copthall Avenue
London EC2R 7DR
England
Guarantee Reassurance                        76,642                       8.04%
 Corporation
P.O. Box 550640
Jacksonville, FL 32255
Wittelsbacher Ausgleichsfonds                51,992 (5)                   5.46%
Schumannstrasse 10
D81679 Munchen
Federal Republic of Germany
W. Lawrence Banks                             1,000 (2)                     *
David H. Benson                               1,520                         *
Donald G.Calder                              22,632 (3)                   2.37%
Gary L. Humphreys                             5,000                         *
John S. Hogan                                26,000                       2.73%



<PAGE>
George F. Ohrstrom                            7,761                        *
George L. Ohrstrom, Jr.                      29,914 (4)                   3.14%
Betsy F. Raymond                             11,692                       1.23%
Georg Graf Schall-Riaucour                          (5)
Eriberto R. Scocimara                        28,526 (6)                   2.99%
All Directors and Officers as a group       152,545 (7)                  16.01%

*Less than 1%.
</TABLE>
(1) The Company has entered into four separate  agreements with Robert Fleming &
Co. Limited  ("Fleming"),  dated April 23, 1996, June 14, 1996,  August 28, 1996
and January 2, 1997,  respectively,  each of which  granted the Company  certain
options to  purchase  shares of stock of the  Company  (66,150  shares of common
stock in the April 23, 1996 Agreement, 16,000 shares of common stock in the June
14, 1996 Agreement,  80,436 shares of junior  preferred stock and 112,706 shares
of common  stock in the  August 28,  1996  Agreement,  and 39,000  shares of the
junior  preferred  stock and 78,902 shares of the common stock in the January 2,
1997 Agreement.) Fleming purchased the shares of stock covered by the Agreements
from certain  current  and/or  former  officers or directors  (or  affiliates or
family  members  thereof) of the Company.  Fleming  holds  deposits  made by the
Company which can be used to offset the purchase price payable upon the exercise
of the options.  As of February 28, 1997,  the options  granted in the April 23,
1996  Agreement,  the June 14, 1996  Agreement  and the options  with respect to
80,436  shares of the junior  preferred  stock and  64,820  shares of the common
stock  covered by the August  28,  1996  Agreement  have been  exercised  by the
Company, for a total purchase price of $3,195,000,  and such shares of stock are
now treasury stock of the Company. It is the current intention of the Company to
exercise the remaining options contained in the aforementioned agreements as and
when  they  are  exercisable,   assuming  the  conditions  precedent  have  been
fulfilled.

(2) W.  Lawrence  Banks,  a director of the Company,  is the Deputy  Chairman of
Robert Fleming & Co.,  Limited,  and as such, has voting and investment power on
these shares. Mr. Banks disclaims any beneficial interest in the shares.

(3) Does not include  total of 28,511  shares  owned by his wife and his wife as
custodian for minor children and in which he disclaims any beneficial ownership.

(4)  Includes 631 shares held in a trust of which he is a  co-fiduciary  sharing
voting and investment powers and in which he disclaims any beneficial interest.

(5) Georg  Graf  Schall-Riaucour,  a director  of the  Company,  is the  general
director of  Wittelsbacher  Ausgleichsfonds,  and as such, is authorized to vote
and  dispose  of such  shares.  Mr.  Schall-Riaucour  disclaims  any  beneficial
interest in the shares.




<PAGE>



(6) Does not include  10,500 shares owned by his wife, and in which he disclaims
any beneficial ownership.

(7) Does not include  disclaimed  shares  referred to in Notes (2),  (3), (5) or
(6).


ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                None.


                                    PART IV.

ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
                FORM 8-K

a)    1 and 2.  List of Financial Statements and Financial Statement Schedules:

                The  response  to this  portion  of Item  14 is  submitted  as a
                separate section of this report.

      3.        Exhibit Index:

                Reference  is made to the  Exhibit  Index  which  is  found as a
                separate section of this report.

b)              Reports on Form 8-K:

                No reports on Form 8-K have been filed during the fourth quarter
                of the fiscal year ended December 1, 1996.

c)              Exhibits:

                Exhibits  pertaining  to  this  Form  10-K  are  submitted  as a
                separate section of this report.

d)              Financial Statement Schedules:

                The  response  to this  portion  of Item  14 is  submitted  as a
                separate section of this report.




<PAGE>



                                   SIGNATURES


     Pursuant to the requirement of Section 13 of the Securities Exchange Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the 28th day of February, 1997.

                                                 HARROW INDUSTRIES, INC.
                                                 (Registrant)


                                                 By     /s/Donald G. Calder
                                                        Donald G. Calder
                                                        Chairman of the Board


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934 this
report has been signed by the following  persons in the capacities  indicated on
the 28th day of February, 1996:

          Signature                              Title


      /s/Donald G. Calder                        Chairman of the Board
         Donald G. Calder                        (Chief Executive Officer)


      /s/James S. Dahlke                         President and Director
         James S. Dahlke

      /s/John S. Hogan                           Treasurer
         John S. Hogan                           (Chief Financial Officer)


      /s/Gary L. Humphreys                       Controller
         Gary L. Humphreys                       (Chief Accounting Officer)


                                                 Director
         W. Lawrence Banks


      /s/David H. Benson                         Director
         David H. Benson



<PAGE>





      /s/George F. Ohrstrom                      Director
         George F. Ohrstrom


                                                 Director
         George L. Ohrstrom, Jr.


      /s/Eriberto R. Scocimara                   Director
         Eriberto R. Scocimara


      /s/Georg Graf Schall-Riaucour              Director
         Georg Graf Schall-Riaucour

      /s/Derrick N. Key                          Director
         Derrick N. Key



<PAGE>




                      (THIS PAGE LEFT BLANK INTENTIONALLY.)





<PAGE>



                                  Exhibit Index

                                                                           Page

    *3.1     Certificate of Incorporation ..................................
   **3.2     By laws........................................................
   **4.1     Indenture with United States Trust Company of New York.........
     4.3     Loan and Security Agreement with Fleet Capital Corporation..... 51
  **10.1     Securities Purchase Agreement..................................
 ***10.3     Harrow Industries, Inc. Executive/Middle Management
              Performance Plan..............................................
  **10.4     Harrow Products, Inc. Retirement Plan..........................
  **10.6     Deferred Compensation Agreement between Harrow Products, Inc.
              and Stanley B. O'Kane.........................................
    10.8     Employment Agreement with James S. Dahlke......................119
    10.9     Employment Agreement with Donald D. Fenstermacher..............122
  10.10      Employment Agreement with John S. Hogan........................127
  10.11      Employment Agreement with Gary L. Humphreys....................132
  10.12      Employment Agreement with Betsy F. Raymond.....................137
  10.13      Option Agreement, dated April 23, 1996, between Robert 
              Fleming & Co. Limited and Harrow Industries, Inc..............142
  10.14      Option Agreement, dated June 14, 1996, between Robert
              Fleming & Co. Limited and Harrow Industries, Inc..............153
  10.15      Option Agreement, dated August 28, 1996, between Robert
              Fleming & Co. Limited and Harrow Industries, Inc..............154
  10.16      Option Agreement, dated December 31, 1996, between
              Robert Fleming & Co. Limited and Harrow Industries, Inc.......167
     11      Computation of earnings per share..............................176
     12      Computation of ratio of earnings to fixed charges..............177
 ****21      List of Subsidiaries...........................................






<PAGE>


*Incorporated herein by reference to Form 10-K for year ended November 27, 1987.

**Incorporated  herein by  reference  to Harrow  Industries,  Inc.  Registration
Statement (No. 33-12266) on Form S-1 filed April 16, 1987.

***Incorporated  herein by  reference  to Form 10-K for the  fiscal  year  ended
December 1, 1991.

****Incorporated  herein by  reference  to Form 10-K for the  fiscal  year ended
December 3, 1995.






<PAGE>



             Form 10-K--Item 8, Item 14(a)(1) and (2), (c) and (d)

                    Harrow Industries, Inc. and Subsidiaries

         List of Financial Statements and Financial Statement Schedule


The following consolidated financial statements of Harrow Industries, Inc. and
subsidiaries are included in Item 8:

     *Consolidated balance sheets--December 1, 1996 and December 3, 1995

     *Consolidated  statements of stockholders' equity  (deficit)--Fiscal  years
     ended December 1, 1996, December 3, 1995 and November_27, 1994

     *Consolidated  statements  of  operations--Fiscal  years ended  December 1,
     1996, December 3, 1995 and November 27, 1994

     *Consolidated  statements  of cash  flows--Fiscal  years ended  December 1,
     1996, December 3, 1995 and November 27, 1994

     *Notes to consolidated financial  statements--December 1, 1996, December 3,
     1995 and November 27, 1994

The following  consolidated  financial  statement schedule of Harrow Industries,
Inc. and subsidiaries is included in Item 14(d):

     *Schedule II--Valuation and qualifying accounts

All other  schedules for which  provision is made in the  applicable  accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.






<PAGE>
                         Report of Independent Auditors

Board of Directors
Harrow Industries, Inc.

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Harrow
Industries,  Inc. and  subsidiaries as of December 1, 1996 and December 3, 1995,
and the related  consolidated  statements  of  stockholders'  equity  (deficit),
operations and cash flows for each of the three fiscal years in the period ended
December 1, 1996.  Our audits also  included the  financial  statement  schedule
listed in the Index at Item 14(a).  These financial  statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Harrow
Industries,  Inc. and subsidiaries at December 1, 1996 and December 3, 1995, and
the  consolidated  results of their  operations and their cash flows for each of
the three fiscal years in the period ended  December 1, 1996 in conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information set forth therein.


Ernst & Young LLP

Grand Rapids, Michigan
January 10, 1997



<PAGE>
<TABLE>
<CAPTION>


                    Harrow Industries, Inc. and Subsidiaries

                          Consolidated Balance Sheets


                                                    December 1,      December 3,
                                                       1996             1995
Assets
<S>                                                 <C>              <C>
Current assets:
Cash and cash equivalents ....................      $ 3,088,000      $   676,000
Accounts receivable, less allowances
 (1996--$1,043,000; 1995--$824,000) ..........       19,085,000       16,453,000
Inventories:
Finished products ............................        3,735,000        3,524,000
Work in process ..............................        4,321,000        3,956,000
Raw materials ................................        3,488,000        2,926,000
                                                     11,544,000       10,406,000
Deferred income taxes ........................        2,175,000        1,790,000
Other current assets .........................          631,000          831,000
Total current assets .........................       36,523,000       30,156,000
Property, plant and equipment:
Land .........................................        2,312,000        2,312,000
Buildings ....................................       11,105,000       11,059,000
Machinery and equipment ......................       28,546,000       25,859,000
                                                     41,963,000       39,230,000
Less accumulated depreciation ................       24,239,000       21,662,000
                                                     17,724,000       17,568,000
Other assets:
Intangible assets, less
accumulated amortization
(1996--$6,911,000; 1995--$5,797,000) .........       12,613,000       13,892,000
Prepaid pension costs ........................        7,595,000        6,875,000
Other ........................................          265,000          498,000
                                                     20,473,000       21,265,000
                                                    $74,720,000      $68,989,000

</TABLE>
<PAGE>
<TABLE>


                                                       December 1,      December 3,
                                                          1996             1995
<S>                                                     <C>             <C>
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable ....................................   $  6,662,000    $  6,589,000
Accrued compensation ................................      5,057,000       4,883,000
Income taxes ........................................        615,000         410,000
Other accrued expenses ..............................      5,555,000       4,996,000
Total current liabilities ...........................     17,889,000      16,878,000
Long-term debt ......................................     47,388,000      46,365,000
Other noncurrent liabilities:
Deferred income taxes ...............................      5,405,000       5,540,000
Deferred compensation ...............................        547,000         605,000
                                                           5,952,000       6,145,000
Redeemable junior preferred
 and common stock ...................................      2,955,000
Stockholders' equity (deficit):
Junior preferred stock, par value $0.01 per share -
authorized: 470,000 shares; issued and outstanding,
excluding redeemable stock: 1996--319,528 shares;
1995--399,964 shares ................................          3,000           4,000
Common stock, par value $0.01 per share - authorized:
1,100,000 shares; issued and outstanding, including
treasury stock and excluding redeemable stock:
1996--987,294 shares; 1995--1,100,000 shares ........         10,000          11,000
Additional paid-in capital ..........................      3,370,000       4,006,000
Retained earnings ...................................     12,486,000       9,688,000
Cost of treasury stock (deduct) .....................     (1,225,000)
Deficit arising from restructuring
transactions ........................................    (14,108,000)    (14,108,000)
                                                             536,000        (399,000)
                                                        $ 74,720,000    $ 68,989,000

See accompanying notes to consolidated financial statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                    Harrow Industries, Inc. and Subsidiaries

           Consolidated Statements of Stockholders' Equity (Deficit)


                                                           Fiscal year ended 
                                               December 1,     December 3,     November 27,
                                                  1996             1995          1994
<S>                                            <C>             <C>             <C>
Junior preferred stock
Balance at beginning of year ...............   $      4,000    $      4,000    $      4,000
Reclassification of 80,436
 redeemable shares .........................         (1,000)
Balance at end of year .....................          3,000           4,000           4,000
Common stock
Balance at beginning of year ...............         11,000          11,000          11,000
Issuance of 13,315 shares
 of common stock in 1994 ...................                                            -0-
Reclassification of 112,706
 redeemable shares .........................         (1,000)
Balance at end of year .....................         10,000          11,000          11,000
Additional paid-in capital
Balance at beginning of year ...............      4,006,000       4,006,000       3,993,000
Issuance of common stock ...................                                         13,000
Reclassification of redeemable
 junior preferred shares ...................       (636,000)
Balance at end of year .....................      3,370,000       4,006,000       4,006,000
Retained earnings
Balance at beginning of year ...............      9,688,000       6,485,000       5,070,000
Net earnings ...............................      5,315,000       3,403,000       1,615,000
Reclassification of redeemable
 common shares .............................     (2,317,000)
Cash dividends on junior
 preferred stock ($0.50 per share) (200,000)       (200,000)       (200,000)
Balance at end of year .....................     12,486,000       9,688,000       6,485,000
Accumulated translation
 adjustments
Balance at beginning of year ...............                       (128,000)        (92,000)
Sale of foreign subsidiary .................                        128,000
Equity adjustment from foreign
 currency translation ......................                                        (36,000)
Balance at end of year .....................                            -0-        (128,000)
Cost of treasury stock
Purchase of 82,150 shares of
 common stock for treasury .................     (1,225,000)
Deficit arising from
 restructuring transactions
Balance at beginning and end of year .......    (14,108,000)    (14,108,000)    (14,108,000)
Stockholders' equity (deficit)
 at end of year ............................   $    536,000    $   (399,000)   $ (3,730,000)



( ) Denotes deduction.

See accompanying notes to consolidated financial statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                    Harrow Industries, Inc. and Subsidiaries

                     Consolidated Statements of Operations


                                                               Fiscal year ended
                                                                 December 1,    December 3,      November 27,
                                                                   1996           1995              1994
<S>                                                            <C>              <C>              <C>
Net sales ..................................................   $ 151,747,000    $ 134,657,000    $ 139,393,000
Cost of products sold ......................................      96,190,000       85,681,000       93,076,000
Gross margin ...............................................      55,557,000       48,976,000       46,317,000
Selling, administrative and
         general expenses ..................................      40,415,000       37,987,000       37,558,000
Operating income ...........................................      15,142,000       10,989,000        8,759,000
Other expenses (income):
Interest expense ...........................................       6,398,000        6,617,000        6,313,000
Interest income ............................................         (31,000)         (20,000)         (66,000)
Other ......................................................         (70,000)        (203,000)         (79,000)
                                                                   6,297,000        6,394,000        6,168,000
Earnings before income taxes ...............................       8,845,000        4,595,000        2,591,000
Income taxes ...............................................       3,530,000        1,192,000          976,000
Net earnings ...............................................   $   5,315,000    $   3,403,000    $   1,615,000
Earnings attributable
 to common stock ...........................................   $   5,115,000    $   3,203,000    $   1,415,000
Net earnings per share .....................................   $        4.76    $        2.91    $        1.29

See accompanying notes to consolidated financial statements 
</TABLE>
<PAGE>
<TABLE>
                    Harrow Industries, Inc. and Subsidiaries

                     Consolidated Statements of Cash Flows

                                                                 Fiscal year ended
                                                December 1,     December 3,     November 27,
                                                  1996              1995           1994
<S>                                             <C>             <C>             <C>
Operating activities
Net earnings ................................   $  5,315,000    $  3,403,000    $  1,615,000
Adjustments necessary to
 reconcile net earnings
 to net cash provided by
 operating activities:
Depreciation and amortization ...............      4,224,000       3,437,000       3,449,000
Pension income ..............................       (720,000)       (590,000)       (684,000)
Deferred income taxes (credit) ..............       (520,000)       (799,000)        172,000
Other .......................................        (58,000)       (278,000)        206,000
Changes in operating
 assets and liabilities:
Accounts receivable .........................     (2,632,000)       (974,000)     (1,233,000)
Inventories .................................     (1,138,000)       (995,000)     (1,686,000)
Other current assets ........................        200,000        (290,000)        295,000
Accounts payable and
 accrued expenses ...........................      1,011,000       3,452,000       1,115,000
Net cash provided by
 operating activities .......................      5,682,000       6,366,000       3,249,000
Investing activities
Additions to property,
 plant and equipment ........................     (3,059,000)     (3,612,000)     (4,261,000)
Purchase of business, less
 cash acquired ..............................                     (9,556,000)
Sale of business ............................                      5,351,000
Other .......................................        184,000          53,000        (172,000)
Net cash used in investing
 activities .................................     (2,875,000)     (7,764,000)     (4,433,000)
Financing activities
Proceeds from long-term borrowings 26,102,000     12,442,000       3,402,000
Payments of long-term debt ..................    (25,072,000)    (11,087,000)     (3,402,000)
Cash dividends on preferred stock ...........       (200,000)       (200,000)       (200,000)
Sale (repurchase) of common stock ...........     (1,225,000)                         13,000
Net cash provided by (used in)
 financing activities .......................       (395,000)      1,155,000        (187,000)
Effect of foreign exchange
 rate changes ...............................                                        (13,000)
Increase (decrease) in cash
 and cash equivalents .......................      2,412,000        (243,000)     (1,384,000)
Cash and cash equivalents
 at beginning of year .......................        676,000         919,000       2,303,000
Cash and cash equivalents
 at end of year .............................   $  3,088,000    $    676,000    $    919,000
Other cash flow information
Interest payments ...........................   $  6,324,000    $  6,320,000    $  6,000,000
Income tax payments .........................      3,906,000       1,798,000         525,000


( ) Denotes reduction in cash and cash equivalents.

See accompanying notes to consolidated financial statements.

</TABLE>
<PAGE>


                    Harrow Industries, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

            December 1, 1996, December 3, 1995 and November 27, 1994


Note A--Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Harrow Industries,
Inc. ("the Company") and its wholly owned subsidiaries. Upon consolidation,  all
intercompany accounts, transactions and profits are eliminated.

Fiscal Year

The  Company's  fiscal  year is the 52- or 53-week  period  ending on the Sunday
nearest the end of November. Fiscal 1996 and 1994 included 52 weeks; fiscal 1995
included 53 weeks.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  amounts  reported  in the  consolidated  financial  statements  and
accompanying notes.  Actual results could differ from those estimates.

Cash Equivalents

Cash and cash  equivalents  include  cash on deposit  and amounts due from banks
that mature within 90 days of purchase.

Inventories

The majority of inventories are stated at the lower of last-in, first-out (LIFO)
cost or market (see Note B). The remainder of  inventories  are valued using the
lower of first-in, first-out (FIFO) cost or market.

Property, Plant and Equipment

Property,  plant and  equipment  are  recorded  on the basis of cost and include
expenditures for new facilities, major renewals and betterments.  Normal repairs
and maintenance are expensed as incurred.

Depreciation of plant and equipment is computed using the  straight-line  method
over the estimated useful lives of the respective assets.

<PAGE>

                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note A--Summary of Significant Accounting Policies (continued)

Amortization of Intangible Assets

Goodwill  (the excess of purchase  price over net tangible  assets of businesses
acquired) is amortized principally over 20 years using the straight-line method.
Deferred loan issue costs are amortized  using the  effective  interest  method.
Other  intangible  assets are amortized over periods  ranging from 5 to 17 years
using the straight-line method.

Advertising Costs

Advertising costs are expensed as incurred and approximated 2% of net sales.

Income Taxes

The provision for income taxes is based on earnings reported in the consolidated
financial statements.  A deferred income tax asset or liability is determined by
applying  currently  enacted  tax laws and  rates  to the  cumulative  temporary
differences  between the carrying value of assets and  liabilities for financial
statement  and income tax  purposes.  Deferred  income tax  expense  (credit) is
measured by the change in the net deferred income tax asset or liability  during
the year.

Stock Options

The Company follows Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees,  and related  interpretations  in accounting  for
employee  stock  options.  Under APB  Opinion  No. 25,  compensation  expense is
recognized to the extent that the estimated market value of the underlying stock
exceeds the exercise price of the stock options at the date of grant.

Earnings Per Share

Earnings per share are computed  based on the weighted  average number of shares
of common stock  outstanding.  Net earnings  are reduced in the  computation  by
preferred stock dividend requirements.





<PAGE>



                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note A--Summary of Significant Accounting Policies (continued)

Financial Instruments and Risk Management

The  Company's  financial  instruments  consist  of cash and  cash  equivalents,
accounts receivable, accounts payable and long-term debt. The Company's estimate
of the fair value of these  financial  instruments  approximates  their carrying
amounts at December 1, 1996.  Fair value was determined  using  discounted  cash
flow analysis and current  interest rates for similar  instruments.  The Company
does not hold or issue financial instruments for trading purposes.

The Company does not generally  require  collateral  or other  security on trade
accounts receivable.

Reclassifications

Certain amounts reported in 1995 and 1994 have been reclassified to conform with
the presentation used in 1996.

Note B--Inventories

Inventories  of  $10,953,000  at December 1, 1996 and  $9,981,000 at December 3,
1995 are stated at cost,  determined by the LIFO method.  If the FIFO method had
been used, the amounts would have been  $3,004,000  and  $3,040,000  higher than
reported at December_1, 1996 and December 3, 1995, respectively.

Note C--Intangible Assets

Intangible  assets  consist of the following at December 1, 1996 and December 3,
1995:

<TABLE>

                         Cost                     Accumulated
                                                  Amortization
                  1996           1995           1996           1995
<S>             <C>           <C>           <C>           <C>
Goodwill ....   $11,784,000   $11,784,000   $ 1,966,000   $ 1,280,000
Patents .....     2,106,000     2,176,000       492,000       353,000
Deferred loan
 issue costs      3,064,000     3,145,000     2,301,000     2,179,000
Other .......     2,570,000     2,584,000     2,152,000     1,985,000
                $19,524,000   $19,689,000   $ 6,911,000   $ 5,797,000

</TABLE>
<PAGE>


                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


Note D--Long-term Debt

Long-term debt consists of the following obligations:

<TABLE>
                                   December 1,         December 3,
                                     1996                1995
<S>                              <C>                   <C>
Senior subordinated
 debentures, less
 unaccreted discount .........   $25,951,000           $37,975,000
Junior subordinated debentures     7,000,000
Revolving credit obligation ..    21,437,000             1,390,000
                                 $47,388,000           $46,365,000

</TABLE>

The senior subordinated debentures bear interest at 12.375%, mature on April 15,
2002 and may be redeemed at the option of the Company,  in whole or in part,  at
any time at par plus accrued interest to the date of redemption.  The debentures
require annual sinking fund payments of $6,500,000. Sinking fund payments may be
deferred to the extent that debentures purchased on the open market are tendered
for  cancellation.  As a  result  of  current  and  prior  year  repurchases  of
debentures,  no principal  maturities  are due until 2001,  when a net amount of
$6,477,000 is due. The indenture governing the debentures restricts, among other
things, the incurrence of additional senior indebtedness by both the Company and
its subsidiaries,  the sale of substantially all assets to another  corporation,
the payment of  dividends on common stock and the  redemption  of capital  stock
until such time as consolidated stockholders' equity exceeds $1,000,000.

The junior  subordinated  debentures  were  redeemed  on June 14,  1996 from the
proceeds of  borrowings  under the Company  revolving  credit  arrangement.  The
debentures,  which required interest payments at the rate of 14%, were otherwise
due July 15, 2002.

<PAGE>



                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note D--Long-term Debt (continued)

The revolving credit agreement,  which was renegotiated effective July 31, 1996,
allows for  borrowings of up to  $30,000,000  under a formula which  includes an
amount based on qualified accounts receivable and inventories,  plus a term loan
amount initially established at $15,000,000 and reducing thereafter at a rate of
$146,000  monthly.  Amounts  available  are  also  subject  to  various  reserve
requirements,  as  established  by the  lender.  As of  December  1,  1996,  the
available unused credit under the agreement approximated $8,100,000.  Borrowings
under the  agreement are  collateralized  by accounts  receivable,  inventories,
general  intangible assets and certain real estate, are due on July 31, 2001 and
bear interest  principally at LIBOR (5.375% at December 1, 1996) plus a variable
amount  (1.5% at  December 1, 1996)  based upon the  Company's  ratio of debt to
earnings.  The  Company is  required to pay an annual fee equal to 0.375% of the
total unused  credit under the  agreement.  The  agreement  also  provides for a
standby credit facility of $15,000,000 to finance possible future  acquisitions.
The Company is required to pay an annual fee equal to 0.25% of the unused credit
available  under this portion of the  agreement.  At the  expiration  date,  the
Company and the lender may agree to extend the agreement for successive one-year
terms.  The terms of the credit  agreement  require  the  Company,  among  other
things,  to maintain  certain  financial  ratios and  minimum  levels of working
capital,  cash flow and net worth.  The agreement  also  restricts the Company's
ability to merge or  consolidate,  issue  additional debt or purchase its common
stock. In addition, the agreement restricts leases,  acquisitions,  dispositions
and capital expenditures.

Note E--Leases

Certain office, warehouse and showroom space, machinery, motor vehicles and data
processing  equipment are leased under various operating lease  agreements.  The
Company is required to pay real estate taxes and other occupancy costs under the
facility leases.

Future minimum  rental  payments due under  noncancelable  leases at December 1,
1996 are as follows: 1997--$1,533,000;  1998--$1,085,000; 1999--$734,000; 2000--
$586,000; 2001--$481,000;  thereafter--$1,402,000. These minimum obligations are
net of the  following  sublease  rentals  related to certain  dealer  showrooms:
1997--$186,000;  1998--$198,000; 1999--$212,000; 2000--$194,000; 2001--$177,000;
thereafter-- $658,000.

Rent expense was $2,270,000 in 1996,  $2,126,000 in 1995 and $2,060,000 in 1994.
Contingent rentals were not significant in any of these years.





<PAGE>

                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note F--Pension Plan

The  Company  has a  noncontributory,  defined  benefit  pension  plan  covering
substantially all of its employees. The plan provides benefits that are based on
the  employee's  years of service and final average  earnings (as defined).  The
Company  intends to annually  contribute  amounts deemed  necessary,  if any, to
maintain the plan on a sound actuarial basis.

The following  summarizes the status of the Company's pension assets and related
obligations:

<TABLE>
                                     December 1,    December 3,
                                        1996           1995
<S>                                 <C>             <C>
Pension assets at fair value ....   $ 39,555,000    $ 35,504,000
Actuarial present value of
 accumulated plan benefits:
Vested ..........................     24,126,000      22,511,000
Nonvested .......................        641,000         617,000
                                      24,767,000      23,128,000
Effect of estimated future
 increases in compensation ......      5,120,000       4,473,000
Projected benefit obligation
 on service rendered to date ....     29,887,000      27,601,000
Net pension assets ..............   $  9,668,000    $  7,903,000
Components of net pension assets:
Prepaid pension costs recognized
  in other assets ...............   $  7,595,000    $  6,875,000
Unrecognized amounts, net
 of amortization:
Transition assets ...............      1,458,000       2,217,000
Prior service costs .............        (68,000)        (74,000)
Net actuarial gains (losses) ....        683,000      (1,115,000)
                                    $  9,668,000    $  7,903,000


</TABLE>

The assumed discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.25% at December 1, 1996 and December 3, 1995.
The assumed rate of increase in future compensation used in the computations was
4% for both  years.  The  adoption of updated  mortality  tables  increased  the
projected benefit obligation at December 1, 1996 by approximately $1,150,000.


<PAGE>

                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note F--Pension Plan (continued)

At December 1, 1996, plan assets were invested in equity securities (59%), fixed
income funds (32%),  real estate  investments (8%) and cash and cash equivalents
(1%). The expected  long-term return on pension assets was 9.5% for 1994 through
1996.

The following is a summary of net pension income recognized by the Company:

<TABLE>
                                             1996           1995           1994
<S>                                       <C>            <C>            <C>
Service cost pertaining
 to benefits earned
 during the year ......................   $ 1,057,000    $   840,000    $   969,000
Interest cost on projected
 benefit obligation ...................     1,949,000      1,832,000      1,694,000
Actual net investment income ..........    (5,626,000)    (6,704,000)      (334,000)
Net amortization and deferral 1,900,000     3,442,000     (3,013,000)
Net pension income ....................   $  (720,000)   $  (590,000)   $  (684,000)


</TABLE>
In addition,  the Company recognized a curtailment gain of $662,000 in 1995 as a
result  of  terminating  employees  in  connection  with the  sale of the  Leigh
business.  This  curtailment gain is included in the related gain on sale of the
business (see Note L).

Note G--Junior Preferred Stock

The junior  preferred  stock is nonvoting and may be redeemed for $10 per share,
at the  option of the  Company,  at any time after the  repayment  of the junior
subordinated  debentures  provided  that,  so  long as any  senior  subordinated
debentures are  outstanding,  such redemption may only be made with the proceeds
received by the Company from the issuance of equity  securities  of the Company,
from indebtedness that is junior in right of payment to the senior  subordinated
debentures  or  if,  after  giving  effect  to  such  redemptions,  consolidated
stockholders' equity exceeds $1,000,000.  Annual noncumulative  dividends on the
junior preferred stock are $0.50 per share.


<PAGE>


                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



Note H--Stock Repurchase and Option Agreements

On August 28, 1996,  Robert Fleming & Co. Limited  ("Flemings")  acquired 80,436
shares of the Company's  junior preferred stock and 112,706 shares of its common
stock  from  the  Company's  former  chairman  and  other  related  parties  for
$2,800,000 and simultaneously entered into an agreement with the Company whereby
Flemings has an option to sell such shares to the Company ("put option") and the
Company  has the option to acquire  such shares from  Flemings  ("call  option")
under  certain  conditions.  The put and call options are  exercisable  in three
equal  portions at prices  ranging from $985,000 if exercised  prior to December
31, 1996 to  $1,275,000  if exercised  after  December  31,  1998,  provided the
Company  shall have an equity of  $2,275,000  at time of  exercise.  The options
expire on  December  31,  1999.  The Company  has  interest-bearing  deposits of
$2,900,000  with  Flemings  in  support  of  the  agreement.  The  deposits  are
refundable  ratably as the options are  exercised.  A director of the Company is
also a director of Flemings.  The junior  preferred and common shares subject to
the put option are classified as redeemable  stock in the  consolidated  balance
sheet at December 1, 1996.

On December 2, 1996, the Company  exercised the first two portions of its option
and acquired all of the available  junior  preferred  stock and 64,820 shares of
the common stock.

On  January  2, 1997,  Flemings  acquired  an  additional  39,000  shares of the
Company's  junior  preferred  stock and 78,902  shares of its  common  stock for
$3,429,000 and simultaneously entered into similar put and call options with the
Company. The put and call options for the junior preferred stock are exercisable
at the price of $290,000  prior to March 31, 1997 and $360,000  thereafter.  The
junior  preferred  options must be exercised prior to the exercise of any common
stock options.  The put and call options related to common stock are exercisable
in three equal portions at prices ranging from  $1,150,000 if exercised prior to
June 30, 1997 to $1,400,000 if exercised  after December 31, 1998,  provided the
Company shall have an equity of $2,275,000 at the time of each exercise prior to
December 1, 1997 and $2,400,000  thereafter.  The options expire on December 31,
1999. The Company has  interest-bearing  deposits of $3,429,000 with Flemings in
support  of this  agreement  which are  refundable  ratably as the  options  are
exercised.

The  Company  also  granted  options in 1996 to a key  employee  to  purchase an
aggregate  of  20,000  shares  of  common  stock,  4,000  shares  of which  were
immediately  vested and  exercisable,  and 16,000  shares  which vest and become
exercisable  ratably  from 1997  through  2000 at 4,000  shares  per  year.  The
exercise  price of the options  approximates  the market price of the underlying
shares at the date of grant and,  therefore,  no  compensation  expense has been
recognized.


<PAGE>



                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note I--Income Taxes

The provisions for income taxes consist of the following:
<TABLE>

                                     1996             1995              1994
<S>                              <C>               <C>               <C>
Currently payable:
Federal ...................      $ 3,600,000       $ 1,690,000       $   550,000
State .....................          450,000           240,000           165,000
Canadian ..................                             61,000            89,000
                                   4,050,000         1,991,000           804,000
Deferred (credit):
Federal ...................         (460,000)         (748,000)          400,000
State .....................          (60,000)            6,000             6,000
Canadian ..................                            (57,000)         (234,000)
                                    (520,000)         (799,000)          172,000
                                 $ 3,530,000       $ 1,192,000       $   976,000


</TABLE>
A  reconciliation  of the  Company's  total  income tax  expense  and the amount
computed by applying the  statutory  federal  income tax rate of 34% to earnings
before income taxes is as follows:
<TABLE>

                                          1996           1995           1994
<S>                                    <C>            <C>            <C>
Income taxes at statutory rate .....   $ 3,007,000    $ 1,562,000    $  881,000
State income taxes, net of
 federal income tax reduction ......       257,000        162,000       113,000
Excess basis in stock of
 Canadian subsidiary sold ..........                     (292,000)
Foreign tax credits realized .......       (60,000)      (104,000)
Nondeductible goodwill amortization        233,000        100,000        53,000
Elimination of excess taxes
 provided in prior years ...........                     (205,000)     (108,000)
Other ..............................        93,000        (31,000)       37,000
                                       $ 3,530,000    $ 1,192,000   $   976,000

</TABLE>
<PAGE>


                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note I--Income Taxes (continued)

Significant  components of the Company's  deferred  income tax  liabilities  and
assets are as follows:

<TABLE>
                                                  December 1,       December 3,         
                                                     1996              1995
<S>                                                <C>              <C>
Deferred income tax liabilities:
Excess tax depreciation ......................     $ 2,321,000      $ 2,614,000
Prepaid pension costs ........................       2,833,000        2,564,000
Patents ......................................         534,000          637,000
Other ........................................           7,000          119,000
Total deferred income tax liabilities ........       5,695,000        5,934,000
Deferred income tax assets:
Accounts receivable and inventory
 valuation allowances ........................         739,000          687,000
Accrued liabilities ..........................       1,437,000        1,134,000
Deferred compensation accruals ...............         228,000          288,000
Foreign tax credit carryforwards .............         652,000          818,000
Other ........................................          61,000           75,000
Total deferred income tax assets .............       3,117,000        3,002,000
Valuation allowance for
 deferred income tax assets ..................        (652,000)        (818,000)
Net deferred income tax assets ...............       2,465,000        2,184,000
Net deferred income tax liabilities ..........     $ 3,230,000      $ 3,750,000

</TABLE>

At December  1, 1996,  the  Company  has  foreign  tax credit  carryforwards  of
$652,000  that are  available  to reduce U.S.  income  taxes on certain  foreign
source  income  through  2000.  For financial  reporting  purposes,  a valuation
allowance has been recognized to offset the deferred income tax asset related to
this  carryforward,  due to the uncertainty of the Company's  ability to realize
these benefits in the future.

<PAGE>

                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note J--Contingencies

The Company is involved in proceedings  with respect to  environmental  matters,
including  sites  where  the  Company  has  been  identified  as  a  potentially
responsible  party under federal and state  environmental  laws and regulations.
While it is not possible to quantify  with  certainty  the  potential  impact of
actions regarding environmental matters, particularly any future remediation and
other  compliance  efforts,  in the opinion of management,  compliance  with the
present environmental protection laws will not have a material adverse effect on
the financial  condition or competitive  position of the Company.  However,  the
Company's   efforts  to  comply  with   increasingly   stringent   environmental
regulations may have an adverse effect on the Company's future earnings.

The Company is also subject to legal  proceedings  and claims which arise in the
ordinary  course of its business.  In the opinion of  management,  the amount of
ultimate  liability with respect to these actions will not materially affect the
consolidated financial position of the Company.

Note K--Business Acquisition

Effective as of the  beginning of fiscal 1995,  the Company  acquired all of the
common stock of  Recognition  Systems,  Inc. (RSI) for a net cash purchase price
including  related  acquisition  expenses of $9,556,000.  RSI  manufactures  and
markets   biometric   identification   devices  based  on  the   measurement  of
three-dimensional  hand geometry and had net sales of  $3,300,000  in 1994.  The
acquisition,  which was  accounted for under the purchase  method,  was financed
principally  through  borrowings  under the Company's  revolving credit facility
(see Note D). Goodwill and other intangible assets recognized in the transaction
totaled  $9,734,000.  Pro forma consolidated net earnings for 1994, assuming the
acquisition had occurred as of the beginning of the fiscal year, would have been
$1,450,000 ($1.14 per share).





<PAGE>



                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note L--Sale of Business

On February 6, 1995,  the  Company  completed  the sale of the net assets of its
Leigh  business--consisting  of the Leigh  Products  Division  in  Coopersville,
Michigan  and a Canadian  subsidiary,  Leigh  Metal  Products,  Ltd.--to  Milcor
Limited  Partnership  for net cash proceeds of  $5,351,000.  Leigh  manufactures
specialty sheet metal products for the home remodeling,  do-it-yourself  and new
residential construction markets. Consolidated net sales for fiscal 1994 include
$24,304,000  related  to the  Leigh  business.  Operating  income  of the  Leigh
business was not significant in fiscal 1994.  Results of operations of the Leigh
business  for the 1995  period  prior to the  sale are  included  as part of the
$270,000 gain recognized on the sale.

Note M--Subsequent Event

On December 20, 1996,  the Company  entered into an agreement to purchase all of
the assets of Broadway Industries,  Inc. ("Broadway") for cash including related
expenses of approximately $3,500,000 under a transaction expected to be approved
by a bankruptcy court in February 1997.  Broadway  manufactures and markets high
quality  decorative  plumbing  fixtures  and  bath  and  cabinet  hardware.  The
acquisition,  which will be  accounted  for under the purchase  method,  will be
financed  principally  through  borrowings under the Company's  revolving credit
facility  (see Note D).  Broadway had net sales of  approximately  $9,500,000 in
1996. Pro forma consolidated net earnings for 1996, assuming the acquisition had
occurred  as of  the  beginning  of the  fiscal  year,  would  not  have  varied
significantly from the amount reported.

Note N--Restructuring Transactions

In connection with a series of mutually dependent transactions completed in 1987
to acquire the common stock of Harrow  Corporation,  a subsidiary of the Company
was merged with and into  Harrow  Corporation.  As a result of the  merger,  the
existing  stockholders of Harrow Corporation received cash and equity securities
that exceeded the book value of their interest in its net assets by $14,108,000.
This  excess  is  reflected  as a  reduction  of  stockholders'  equity  in  the
consolidated  balance  sheets.  The  consolidated  financial  statements  of the
Company have been prepared on a historical cost basis.





<PAGE>



                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note O--Quarterly Results of Operations (unaudited)

The following is a tabulation of the quarterly results of operations:

<TABLE>
                                                       Fiscal year ended
                                                December 1,         December 3,
                                                  1996                  1995
<S>                                            <C>                  <C>
Net sales
First quarter ........................         $ 38,124,000         $ 32,370,000
Second quarter .......................           39,155,000           33,517,000
Third quarter ........................           36,947,000           31,641,000
Fourth quarter .......................           37,521,000           37,129,000
                                               $151,747,000         $134,657,000
Gross margin
First quarter ........................         $ 13,271,000         $ 11,052,000
Second quarter .......................           14,044,000           12,216,000
Third quarter ........................           14,039,000           12,040,000
Fourth quarter .......................           14,203,000           13,668,000
                                               $ 55,557,000         $ 48,976,000
Net earnings
First quarter ........................         $    759,000         $  1,136,000
Second quarter .......................            1,792,000              760,000
Third quarter ........................            1,370,000              673,000
Fourth quarter .......................            1,394,000              834,000
                                               $  5,315,000         $  3,403,000
Net earnings per share
First quarter ........................         $       0.64         $       0.99
Second quarter .......................                 1.59                 0.64
Third quarter ........................                 1.22                 0.57
Fourth quarter .......................                 1.32                 0.71
                                               $       4.76         $       2.91

</TABLE>

The fourth  quarter of fiscal 1995  includes 14 weeks.  All other  quarters were
13-week  periods.  Quarterly net earnings per share for fiscal 1996 do not equal
the annual amount due to changes in average common stock outstanding.




<PAGE>



                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note O--Quarterly Results of Operations (unaudited) (continued)

The first quarter of fiscal 1995  included an estimated  gain of $800,000 on the
sale of the  Leigh  business  (see  Note L),  which  was  subsequently  adjusted
downward by $300,000 in the third  quarter and  $230,000 in the fourth  quarter.
The  fourth  quarter of fiscal  1995 also  included  a charge of  $1,000,000  to
provide for estimated postemployment benefits and certain other costs related to
the Company's  former  chairman and its president and chief  executive  officer.
Adjustments  to the  provisions  for income taxes  increased  fourth quarter net
earnings by $100,000 in 1995 and $150,000 in 1994.

Note P--Industry Segments

Beginning in fiscal 1996, the Company redefined its industry segments to include
(1) security products,  (2) hardware and tools and (3) other buildings products.
Segment  data  for  1995 and 1994  has  been  restated  to  conform  to the 1996
presentation.

Security Products Group

This segment includes the design, manufacture and distribution of electronic and
electromagnetic  security  products  and  systems and  biometric  identification
devices to the nonresidential  access control market.  Biometric  identification
devices  are  also   distributed   to  the  time  and  attendance  and  personal
identification  markets.  Sales are made through a combination of in-house sales
personnel and manufacturers' representatives.

Hardware and Tools Group

This segment  includes the manufacture and distribution of a diversified line of
brass and aluminum  architectural,  builder and consumer hardware, wire hardware
products  and storage  hooks and a broad line of forged  pruning and  harvesting
tools,  shears,  saws and other hand-held garden tools. A significant portion of
this  segment's  sales are to consumers that are served through a retail network
that includes a number of major home centers. Architectural and builder hardware
products are also sold through distributors to the contractor hardware market. A
line of professional  pruning and harvesting tools are sold through distributors
for  agricultural  applications  and  professional  landscaping.  Wire  hardware
products are also marketed to certain industrial customers.





<PAGE>



                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note P--Industry Segments (continued)

Other Building Products

This segment  includes the  manufacture  and  distribution  of water source heat
pumps and custom kitchen,  bath and other cabinetry.  Prior to the sale of Leigh
business (see Note L), this segment also included mailboxes,  medicine cabinets,
registers,  vents and other air control  products.  Heat pumps are sold  through
manufacturers'  representatives  to large  mechanical  contractors  and  through
multi-branch stocking  distributors who in turn sell to smaller dealers.  Custom
cabinetry is sold through an extensive dealer network to the home renovation and
new home construction markets.

The following is a summary of sales and operating income by industry segment:

<TABLE>

                                   1996             1995             1994
<S>                             <C>              <C>              <C>
Sales to unaffiliated customers:
Security products ...........   $  23,165,000    $  20,247,000    $  12,787,000
Hardware and tools ..........      84,202,000       74,967,000       68,181,000
Other building products .....      44,380,000       39,443,000       58,425,000
                                $ 151,747,000    $ 134,657,000    $ 139,393,000
Operating income:
Security products ...........   $   3,742,000    $   4,192,000    $   2,382,000
Hardware and tools ..........       9,475,000        8,169,000        7,665,000
Other building products .....       6,277,000        5,115,000        3,802,000
                                   19,494,000       17,476,000       13,849,000
Corporate:
Interest expense ............      (6,398,000)      (6,617,000)      (6,313,000)
Interest income .............          31,000           20,000           66,000
Nonoperating income (expense)          70,000          203,000           79,000
General expenses ............      (4,352,000)      (6,487,000)      (5,090,000)
Earnings before income taxes        8,845,000        4,595,000        2,591,000
Income taxes ................       3,530,000        1,192,000           76,000
Net earnings ................   $   5,315,000    $   3,403,000    $   1,615,000


</TABLE>
<PAGE>

                    Harrow Industries, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




Note P--Industry Segments (continued)

Other industry segment information is as follows:

<TABLE>
                                          1996           1995            1994
<S>                                    <C>            <C>            <C>
Identifiable assets:
Security products .................    $14,721,000    $13,988,000    $ 3,622,000
Hardware and tools ................     30,496,000     30,338,000     28,034,000
Other building products ...........     15,270,000     13,535,000     20,055,000
Corporate .........................     14,233,000     11,128,000      9,667,000
                                       $74,720,000    $68,989,000    $61,378,000
Depreciation and amortization:
Security products .................    $ 1,173,000    $   716,000    $   326,000
Hardware and tools ................      1,829,000      1,716,000      1,678,000
Other building products ...........        855,000        688,000      1,009,000
Corporate 367,000 .................        317,000        436,000
                                       $ 4,224,000    $ 3,437,000    $ 3,449,000
Capital additions:
Security products .................    $   644,000    $   505,000    $   326,000
Hardware and tools ................      1,481,000      1,879,000      2,009,000
Other building products ...........        925,000      1,120,000      1,908,000
Corporate .........................          9,000        108,000         18,000
                                       $ 3,059,000    $ 3,612,000    $ 4,261,000

</TABLE>




Corporate  assets  include cash and cash  equivalents,  deferred  income  taxes,
prepaid pension costs,  deferred loan issue expenses and other general corporate
assets.

Intersegment  sales and export  sales are not  significant  for the fiscal years
presented.  Sales to one major home center  approximated 10% of consolidated net
sales. No other single customer  accounts for more than 10% of the  consolidated
net sales.

<PAGE>


                    Harrow Industries, Inc. and Subsidiaries

                 Schedule II--Valuation and Qualifying Accounts


<TABLE>
Column A               Column B            Column C              Column D        Column E
                       Balance at          Additions
                       Beginning    (1)           (2)
Description            of Period    Charged to    Charged to     Deductions-     Balance
                                    Costs and     Other          Describe        at End of
                                    Expenses      Accounts-                      Period
                                                  Describe
<S>                    <C>          <C>           <C>            <C>             <C>
Fiscal year ended
December 1, 1996:
Allowance for
 doubtful accounts .   $  824,000   $  247,000         -         $   28,000 (A)   $1,043,000
Allowance for
 excess and
 obsolete inventory       660,000       93,000         -                -            753,000


Fiscal year ended
December 3, 1995:

Allowance for
 doubtful accounts .   $  674,000   $  381,000         -         $231,000 (A)       $824,000
Allowance for
excess and
obsolete inventory .      576,000      253,000         -         169,000 (A)         660,000


Fiscal year ended
November 27, 1994:

Allowance for
 doubtful accounts .   $  566,000   $  265,000         -         $157,000 (A)       $674,000
Allowance for
 excess and
 obsolete inventory       863,000      429,000         -         716,000 (B)         576,000



A--Accounts charged off, net of recoveries.

B--Excess and obsolete inventory disposed of.

</TABLE>
<PAGE>

                                 EXHIBIT 4.3


                              HARROW PRODUCTS, INC.


                           FIRST AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

                           Dated: As of July 31, 1996
                                   $45,000,000



                            FLEET CAPITAL CORPORATION




STL-506421.06



<PAGE>



                                TABLE OF CONTENTS

                                                                            Page

         SECTION 1.        CREDIT FACILITY                                 -1-
         1.1      Revolving Credit Loans                                   -1-
         1.2      Term and Acquisition Loans                               -2-
         1.3      Letters of Credit; LC Guaranties                         -2-

         SECTION 2.        INTEREST, FEES AND CHARGES                      -3-
         2.1      Interest                                                 -3-
         2.2      Computation of Interest and Fees                         -3-
         2.3      LIBOR Option                                             -4-
         2.4      Closing Fee                                              -5-
         2.5      Letter of Credit and LC Guaranty Fees                    -6-
         2.6      Unused Line Fee                                          -6-
         2.7      Collection Charges                                       -6-
         2.8      Audit and Appraisal Fees                                 -7-
         2.9      Reimbursement of Expenses                                -7-
         2.10     Bank Charges                                             -7-

         SECTION 3.        LOAN ADMINISTRATION                             -8-
         3.1      Manner of Borrowing Revolving Credit Loans               -8-
         3.2      Payments                                                 -9-
         3.3      Mandatory Prepayments                                   -10-
         3.4      Application of Payments and Collections                 -10-
         3.5      All Loans to Constitute One Obligation                  -11-
         3.6      Loan Account                                            -11-
         3.7      Statements of Account                                   -11-

         SECTION 4.        TERM AND TERMINATION                           -11-
         4.1      Term of Agreement                                       -11-
         4.2      Termination                                             -12-

         SECTION 5.        SECURITY INTERESTS                             -13-
         5.1      Security Interest in Collateral                         -13-
         5.2      Lien Perfection; Further Assurances                     -13-
         5.3      Lien on Realty                                          -14-

         SECTION 6.        COLLATERAL ADMINISTRATION                      -14-

         6.1      General                                                 -14-
         6.2      Administration of Accounts                              -15-
         6.3      Administration of Inventory                             -17-
         6.4      Administration of Equipment                             -18-
         6.5      Payment of Charges                                      -18-

         SECTION 7.        REPRESENTATIONS AND WARRANTIES                 -19-
         7.1      General Representations and Warranties                  -19-

7.2      Continuous Nature of Representations and
                  Warranties                                              -26-
         7.3      Survival of Representations and Warranties              -26-

STL-506421.06
<PAGE>



         SECTION 8.        COVENANTS AND CONTINUING AGREEMENTS            -26-
         8.1      Affirmative Covenants                                   -26-
         8.2      Negative Covenants                                      -29-
         8.3      Specific Financial Covenants                            -32-

         SECTION 9.        CONDITIONS PRECEDENT                           -32-
         9.1      Documentation                                           -33-
         9.2      No Default                                              -33-
         9.3      Other Loan Documents                                    -33-
         9.4      Availability                                            -33-
         9.5      No Litigation                                           -33-

         SECTION 10.       EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
                  DEFAULT                                                 -33-
         10.1     Events of Default                                       -33-
         10.2     Acceleration of the obligations                         -36-
         10.3     Other Remedies                                          -36-
         10.4     Remedies Cumulative; No Waiver                          -38-

         SECTION 11.                MISCELLANEOUS                         -38-
         11.1     Power of Attorney                                       -38-
         11.2     Indemnity                                               -39-
         11.3     Modification of Agreement; Sale of Interest             -40-
         11.4     Severability                                            -40-
         11.5     Successors and Assigns                                  -41-
         11.6     Cumulative Effect; Conflict of Terms                    -41-
         11.7     Execution in Counterparts                               -41-
         11.8     Notice                                                  -41-
         11.9     Lender's Consent                                        -42-
         11.10    Credit Inquiries                                        -42-
         11.11    Time of Essence                                         -42-
         11.12    Entire Agreement                                        -42-
         11.13    Interpretation                                          -42-
         11.14    GOVERNING LAW; CONSENT TO FORUM                         -43-
         11.15    WAIVERS BY BORROWER                                     -43-







STL-506421.06




<PAGE>



                           FIRST AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT


         THIS FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made the
31st day of July, 1996, by and between FLEET CAPITAL CORPORATION  ("Lender"),  a
Rhode  Island  corporation  with an office at 20800  Swenson  Drive,  Suite 350,
Waukesha,  Wisconsin 53186 and .HARROW PRODUCTS, INC., ("Borrower"),  a Delaware
corporation  with its chief executive  office and principal place of business at
2627 East Beltline,  S.E., Grand Rapids, Michigan 49546.  Capitalized terms used
in this  Agreement  have the  meanings  assigned to them in Appendix A,  General
Definitions. Accounting terms not otherwise specifically defined herein shall be
construed in accordance with GAAP consistently applied.

         PRELIMINARY STATEMENTS

     A. Barclays and Borrower  entered into a Loan and Security  Agreement dated
April 5, 1991,  as amended  from time to time (the "1991 Loan  Agreement"),  and
assigned to SCC, on or about December 31, 1994, which  subsequently  changed its
name to Fleet Capital Corporation ("Fleet-Connecticut").

     B. Lender subsequently  succeeded to all of the assets of Fleet-Connecticut
by merger effective as of May 1, 1996.

     C. Lender and  Borrower now desire to amend and restate in its entirety the
1991 Loan  Agreement to extend the maturity  date  thereof,  increase the credit
facility  available to Borrower  thereunder and to make certain other amendments
thereto.

     NOW,  THEREFORE,  Lender and Borrower  agree as follows:  

SECTION 1.     CREDIT FACILITY  

     Subject  to  the  terms  and  conditions  of,  and  in  reliance  upon  the
representations  and  warranties  made in,  this  Agreement  and the other  Loan
Documents,  Lender agrees to make a Total Credit  Facility of up to  $45,000,000
available upon Borrower's request therefor, as follows:








STL-506421.07



<PAGE>

1.1      Revolving Credit Loans.

     1.1.1 Loans and Reserves. Lender agrees, for so long as no Default or Event
of Default exists, to make Revolving Credit Loans to Borrower from time to time,
as requested by Borrower in the manner set forth in subsection 3.1.1 hereof,  up
to a maximum  principal  amount at any time  outstanding  equal to the Borrowing
Base at such time minus the LC Amount and  reserves,  if any.  Lender shall have
the right to  establish  reserves  in such  amounts,  and with  respect  to such
matters, as Lender shall deem necessary or appropriate, in its reasonable credit
judgment,  against  the amount of  Revolving  Credit  Loans which  Borrower  may
otherwise request under this subsection 1.1.1,  including,  without  limitation,
with respect to (i) price adjustments,  damages,  unearned  discounts,  returned
products or other matters for which credit  memoranda are issued in the ordinary
course of Borrower's  business;  (ii)  shrinkage,  spoilage and  obsolescence of
Inventory;  (iii) slow  moving  Inventory;  (iv) other sums  chargeable  against
Borrower's  Loan  Account as  Revolving  Credit  Loans under any section of this
Agreement;  (v) amounts owing by Borrower to any Person to the extent secured by
a Lien on, or trust over,  any Property of  Borrower,  not  otherwise  permitted
hereunder; and (vi) such other matters,  events,  conditions or contingencies as
to which Lender, in its reasonable credit judgment,  determines  reserves should
be established from time to time hereunder.

     1.1.2 Use of Proceeds.  The Revolving Credit Loans shall be used solely for
(i) the  making of an  advance  of up to  $12,000,000  to Harrow  Industries  in
accordance  with the terms of the  Distribution  Agreement  Amendment,  and (ii)
Borrower's  general  operating  capital  needs in a manner  consistent  with the
provisions of this Agreement and all applicable law.

1.2      Term and Acquisition Loans.

     1.2.1  Term  Loan.  Lender  agrees  to make a term  loan to  Borrower  upon
Borrower's  written  request  therefor within 60 days of the Closing Date in the
principal amount of $15,000,000, which shall be repayable in accordance with the
terms of the Term Note and shall be secured by all of the Collateral;  provided,
however,  that Lender's  obligation to make said Term Loan shall be  conditioned
upon, among other items set forth in this Agreement, Lender's determination that
Borrower shall have no less than  $3,000,000 of  Availability  both  immediately
before and immediately  after the funding of said Term Loan. The proceeds of the
Term Loan  shall be used  solely  for  purposes  for which the  proceeds  of the
Revolving Credit Loans are authorized to be used.

     1.2.2 Acquisition  Loans. So long as no Default or Event of Default exists,
Lender may, in its sole discretion, make

STL-506421.07

                                       -2-


<PAGE>

Loans  ("Acquisition  Loans") to  Borrower  from time to time from and after the
Closing Date through July 31, 2001, to finance the  Borrower's  acquisition of a
business  or  businesses.  Each  Acquisition  Loan,  if any,  shall  (i) be in a
principal amount mutually agreed upon, (ii) be secured by all of the Collateral,
and (iii) be made by Lender  increasing the maximum amount of the Borrowing Base
by an  amount  equal  to said  Acquisition  Loan;  provided,  however,  that the
principal amount of Acquisition Loans hereunder,  and the resulting  increase in
the maximum  amount of the Borrowing  Base shall not exceed,  in the  aggregate,
$15,000,000.  Lender may  condition the making of any  Acquisition  Loan on such
items as Lender deems  appropriate,  in its sole  discretion,  including,  among
other items,  if the  acquisition  of the business is a stock  acquisition,  the
pledge of the  stock  acquired  by the  Borrower  and the grant by the  acquired
entity of a security interest in its assets as Collateral hereunder.

     1.3 Letters of Credit;  LC  Guaranties.  Lender  agrees,  for so long as no
Default or Event of Default  exists and if requested  by Borrower,  to (i) issue
its, or cause to be issued its Affiliate's  Letters of Credit for the account of
Borrower or RSI, or (ii) execute LC  Guaranties by which Lender or its Affiliate
shall   guaranty  the  payment  or   performance  by  Borrower  or  RSI  of  its
reimbursement  obligations with respect to Letters of Credit,  provided that the
LC Amount at any time  shall not  exceed  $1,500,000.  No Letter of Credit or LC
Guarantee may have an expiration date that is after the last day of the Original
Term. Any amounts paid by Lender under any LC Guaranty or in connection with any
Letter of Credit shall be treated as Revolving Credit Loans, shall be secured by
all of the  Collateral  and shall bear  interest and be payable at the same rate
and in the same manner as Revolving Credit Loans.

SECTION 2.      INTEREST, FEES AND CHARGES

         2.1 Interest.

         2.1.1 Rates of Interest. 

          (i) Until such time as the Term Loan is funded, as provided in Section
     1.2.1  hereof,  interest  shall  accrue  on  the  principal  amount  of all
     Revolving Credit Loans  outstanding at the end of each day at a fluctuating
     rate per annum  equal to 1.625%  plus the Base Rate.  The rate of  interest
     shall  increase or decrease by an amount  equal to any increase or decrease
     in the Base Rate,  effective  as of the opening of business on the day that
     any such change in the Base Rate occurs.

          (ii) Once the Term Loan is funded as provided in Section 1.2.1 hereof,
     interest shall accrue as follows:

STL-506421.07

                                       -3-


<PAGE>


               (a) Interest shall accrue on the Term Loan in accordance with the
          terms of the Term Note.

               (b)  Interest  shall accrue on the  principal  amount of the Base
          Rate Revolving Credit Portion  outstanding at the end of each day at a
          fluctuating  rate  per  annum  equal  to the  Base  Rate.  The rate of
          interest shall increase or decrease by an amount equal to any increase
          or decrease in the Base Rate,  effective as of the opening of business
          on the day that any such change in the Base Rate  occurs.  If Borrower
          properly  exercises  its LIBOR  Option as  provided  in  Section  2.3,
          interest shall accrue on the principal  amount of the LIBOR  Revolving
          Credit Portions outstanding at the end of each day at a rate per annum
          equal to the Applicable LIBOR Margin plus the LIBOR Rate applicable to
          each  LIBOR  Revolving  Credit  Portion  for the  corresponding  LIBOR
          Period.

     2.1.2 Default Rate of Interest.  Upon and after the  occurrence of an Event
of Default,  and during the  continuation  thereof,  the principal amount of all
Loans shall bear  interest  at a rate per annum  equal to 2% above the  interest
rate otherwise applicable thereto (the "Default Rate").

     2.1.3 Maximum  Interest.  In no event whatsoever shall the aggregate of all
amounts  deemed  interest  hereunder  or under  the Term  Note  and  charged  or
collected  pursuant to the terms of this  Agreement or pursuant to the Term Note
exceed the highest  rate  permissible  under any law which a court of  competent
Jurisdiction  shall, in a final  determination,  deem applicable  hereto. If any
provisions of this Agreement or the Term Note are in  contravention  of any such
law, such provisions shall be deemed amended to conform thereto.

     2.2  Computation  of Interest and Fees.  Interest,  Letter of Credit and LC
Guaranty fees and unused line fees and  collection  charges  hereunder  shall be
calculated daily and shall be computed on the actual number of days elapsed over
a year of 360 days. For the purpose of computing interest  hereunder,  all items
of payment  received by Lender  shall be deemed  applied by Lender on account of
the  Obligations  (subject to final payment of such items) on the first Business
Day after  receipt  by Lender  of such  items in  Lender's  account  located  in
Chicago, Illinois.

2.3      LIBOR Option.

          (i) Upon the conditions that: (1) the Term Loan shall have been funded
     as provided in Section 1.2.1 hereof, (2) Lender shall have received a LIBOR
     Request from Borrower

STL-506421.07
                                       -4-




<PAGE>

     at  least  3  Business  Days  prior  to the  first day of the LIBOR  Period
     requested,  (3) there shall have occurred no change in applicable law which
     would make it unlawful for Lender to obtain deposits of U.S. dollars in the
     London interbank  foreign currency  deposits market,  (4) as of the date of
     the LIBOR Request and the first day of the LIBOR Period,  there shall exist
     no Default or Event of Default,  (5) Lender is able to determine  the LIBOR
     Rate in respect of the  requested  LIBOR Period or Lender is able to obtain
     deposits of U.S. dollars in the London interbank  foreign currency deposits
     market in the applicable  amounts and for the requested  LIBOR Period,  and
     (6) as of the  first  date of the  LIBOR  Period,  there are no more than 3
     outstanding  LIBOR  Portions  including the LIBOR Portion being  requested;
     then  interest on the LIBOR  Revolving  Credit  Portion  and/or  LIBOR Term
     Portion  requested  during the LIBOR Period  requested will be based on the
     applicable LIBOR Rate.

          (ii) Each LIBOR Request shall be irrevocable  and binding on Borrower.
     Borrower shall indemnify  Lender for any loss,  penalty or expense incurred
     by Lender due to the  failure on the part of  Borrower  to  fulfill,  on or
     before the date specified in any LIBOR Request,  the applicable  conditions
     set forth in this  Agreement  or due to the  prepayment  of the  applicable
     LIBOR Revolving  Credit Portion or LIBOR Term Portion prior to the last day
     of the applicable LIBOR Period,  including,  without  limitation,  any loss
     (including  loss of anticipated  profits on the LIBOR transaction(s)  based
     upon the applicable LIBOR Rate and Lender's cost of LIBOR funds) or expense
     incurred by reason of the  liquidation or redeployment of deposits or other
     funds acquired by Lender to fund or maintain the requested  LIBOR Revolving
     Credit Portion and/or LIBOR Term Portion.

          (iii) If any Legal  Requirement  shall (1) make it unlawful for Lender
     to fund through the purchase of U.S.  dollar  deposits any LIBOR  Revolving
     Credit  Portion or LIBOR Term  Portion,  or  otherwise  give  effect to its
     obligations as contemplated  under this Section 2.3, or (2) shall impose on
     Lender any costs based on or measured by the excess above a specified level
     of the amount of a category  of  deposits  or other  liabilities  of Lender
     which includes  deposits by reference to which the LIBOR Rate is determined
     as provided herein or a category of extensions of credit or other assets of
     Lender which  includes  any LIBOR  Revolving  Credit  Portion or LIBOR Term
     Portion,  or (3) shall impose on Lender any  restrictions  on the amount of
     such a category of  liabilities or assets which Lender may hold,  then,  in
     each such case,  Lender may, by notice  thereof to Borrower,  terminate the
     LIBOR Option.  Any LIBOR Revolving Credit Portion and/or LIBOR Term Portion
     subject thereto shall immediately bear

STL-506421.07

                                       -5-


<PAGE>


     interest  thereafter  at  the  rate  and  in  the manner  provided for Base
     Rate Portions pursuant to subsection 2.1.1. Borrower shall indemnify Lender
     against any loss,  penalty or expense incurred by Lender due to liquidation
     or  redeployment  of deposits or other funds  acquired by Lender to fund or
     maintain any LIBOR Revolving  Credit Portion and/or LIBOR Term Portion that
     is terminated hereunder.

          (iv) Lender  shall  receive  payments of amounts of  principal  of and
     interest on the  Revolving  Credit  Loans with  respect to LIBOR  Revolving
     Credit Portions,  and on the Term Note with respect to LIBOR Term Portions,
     free and clear of, and  without  deduction  for,  any Taxes.  If (1) Lender
     shall be  subject  to any Tax in  respect  of any  LIBOR  Revolving  Credit
     Portion or LIBOR Term Portion,  or any part thereof or, (2) Borrower  shall
     be required to withhold or deduct any Tax from any such  amount,  the LIBOR
     Rate  applicable  to such  LIBOR  Revolving  Credit  Portion  or LIBOR Term
     Portion  shall be  adjusted  by  Lender to  reflect  all  additional  costs
     incurred  by  Lender  in  connection  with the  payment  by  Lender  or the
     withholding  by Borrower of such Tax and Borrower shall provide Lender with
     a statement detailing the amount of any such Tax actually paid by Borrower.
     Determination  by Lender of the amount of such costs shall be conclusive in
     the absence of manifest error. If after any such adjustment any part of any
     Tax paid by  Lender is  subsequently  recovered  by  Lender,  Lender  shall
     reimburse Borrower to the extent of the amount so recovered.  A certificate
     of an officer of Lender  setting  forth the amount of such recovery and the
     basis therefor shall be conclusive in the absence of manifest error.

     2.4  Closing  Fee.  Borrower  shall pay to Lender a closing fee of $50,000,
which shall be fully earned and  nonrefundable  on the Closing Date and shall be
paid concurrently with the initial Loan hereunder.

     2.5 Letter of Credit and LC Guaranty Fees. Borrower shall pay to Lender:

          (i) for standby Letters of Credit and LC Guaranties of standby Letters
     of Credit,  a fee equal to 1.5% per annum of the  aggregate  face amount of
     such  Letters of Credit  and LC  Guaranties  outstanding  from time to time
     during the term of this  Agreement,  which fee shall be deemed fully earned
     and shall be due and payable upon issuance of each such Letter of Credit or
     execution  of such LC  Guaranty,  plus all  normal  and  customary  charges
     associated  with the issuance  thereof,  which charges shall also be deemed
     fully earned and shall be due and payable upon issuance of each such Letter
     of Credit or execution of such LC Guaranty (such fees and charges

STL-506421.07
                                       -6-




<PAGE>



     shall not be subject to rebate or proration  upon the  termination  of this
     Agreement for any reason); and

          (ii)  for   documentary   Letters  of  Credit  and  LC  Guaranties  of
     documentary  Letters of  Credit,  a fee equal to 1.5% per annum of the face
     amount of each such Letter of Credit or LC Guaranty,  and an additional fee
     equal to 1.5% per annum of the face  amount of such  Letter of Credit or LC
     Guaranty  for each renewal and each  extension  thereof plus the normal and
     customary charges  associated with the issuance and  administration of each
     such Letter of Credit or LC Guaranty (which fees and charges shall be fully
     earned upon  issuance,  renewal or  extension  (as the case may be) of each
     such Letter of Credit or LC Guaranty, shall be due and payable on the first
     Business Day of each month, and shall not be subject to rebate or proration
     upon the termination of this Agreement for any reason).

     2.6 Unused Line Fee. Borrower shall pay to Lender a fee equal to the sum of
(i) 0.375% per annum of the average monthly amount by which $30,000,000  exceeds
the sum of (A) the outstanding  principal balance of the Revolving Credit Loans,
(B) the outstanding  principal  balance of the Term Loan, and (C) the LC Amount,
plus (ii) 0.25% per annum of the  average  monthly  amount by which  $15,000,000
exceeds the outstanding  principal balance of the Acquisition  Loans. The unused
line fee shall be payable  monthly in arrears on the first day of each  calendar
month hereafter.

     2.7  Collection  Charges.  If items of payment on Accounts  are received by
Lender at a time when there are no Revolving Credit Loans outstanding but all or
a portion of the Term Loan is  outstanding,  then such items of payment shall be
subject to a collection charge equal to one day's interest on the amount thereof
at the rate then applicable to Revolving Credit Loans,  which collection charges
shall be payable on the first Business Day of each month.

     2.8 Audit  and  Appraisal  Fees.  Borrower  shall  pay to Lender  audit and
appraisal fees in accordance  with Lender's  current  schedule of fees in effect
from time to time in connection  with audits and appraisals of Borrower's  books
and records and such other  matters as Lender shall deem  appropriate,  plus all
out-of pocket  expenses  incurred by Lender in  connection  with such audits and
appraisals.  Audit fees shall be payable on the first day of the month following
the date of issuance by Lender of a request for payment thereof to Borrower.

     2.9  Reimbursement  of  Expenses.  If, at any time or times  regardless  of
whether  or not an Event of Default  then  exists,  Lender or any  Participating
Lender incurs reasonable legal or

STL-506421.07

                                       -7-


<PAGE>

accounting  expenses or any other costs or out-of-pocket  expenses in connection
with (i) the  negotiation  and preparation of this Agreement or any of the other
Loan Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents,  or any sale or attempted sale or any interest herein to a
Participating  Lender;  (ii) the  administration of this Agreement or any of the
other Loan Documents and the transactions contemplated hereby and thereby; (iii)
any litigation, contest, dispute, suit, proceeding or action (whether instituted
by Lender,  Borrower or any other Person) in any way relating to the Collateral,
this  Agreement or any of the other Loan Documents or Borrower's  affairs;  (iv)
any attempt to enforce any rights of Lender or any Participating  Lender against
Borrower or any other  Person which may be obligated to Lender by virtue of this
Agreement or any of the other Loan Documents, including, without limitation, the
Account  Debtors;  or (v) any attempt to  inspect,  verify,  protect,  preserve,
restore,  collect,  sell,  liquidate or otherwise dispose of or realize upon the
Collateral;  then all such reasonable legal and accounting expenses, other costs
and out of pocket  expenses of Lender shall be charged to Borrower.  All amounts
chargeable to Borrower under this Section shall be Obligations secured by all of
the  Collateral,  shall be payable on demand to Lender or to such  Participating
Lender, as the case may be, and shall bear interest from the date such demand is
made until paid in full at the rate  applicable  to Revolving  Credit Loans from
time to time.  Borrower  shall also  reimburse  Lender for expenses  incurred by
Lender in its  administration  of the Collateral to the extent and in the manner
provided in Section 6 hereof.

     2.10 Bank Charges.  Borrower  shall pay to Lender,  on demand,  any and all
fees, costs or expenses which Lender or any Participating  Lender pays to a bank
or other similar institution  (including,  without limitation,  any fees paid by
Lender to any Participating Lender) arising out of or in connection with (i) the
forwarding  to Borrower or any other Person on behalf of Borrower,  by Lender or
any  Participating  Lender,  of  proceeds  of Loans  made by Lender to  Borrower
pursuant to this Agreement and (ii) the depositing for collection,  by Lender or
any Participating  Lender, of any check or item of payment received or delivered
to Lender or any Participating Lender on account of the Obligations.

SECTION 3.     LOAN ADMINISTRATION.

     3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the credit
facility established pursuant to Section 1 hereof shall be as follows:

     3.1.1 Loan Requests.  A request for a Revolving  Credit Loan shall be made,
or shall be deemed to be made, in the

STL-506421.07
                                       -8-


<PAGE>


following  manner:  (i)  Borrower  may give Lender  notice of its  intention  to
borrow,  in which  notice  Borrower  shall  specify  the amount of the  proposed
borrowing,  which shall be no less than  $100,000,  and the  proposed  borrowing
date,  no later than 11:00 a.m.  central  time on the proposed  borrowing  date,
provided,  however, that no such request may be made at a time when there exists
a  Default  or an Event of  Default;  and (ii) the  becoming  due of any  amount
required to be paid under this  Agreement or the Term Note,  whether as interest
or for any other Obligation,  shall be deemed  irrevocably to be a request for a
Revolving  Credit  Loan  on the due  date in the  amount  required  to pay  such
interest or other Obligation. As an accommodation to Borrower, Lender may permit
telephonic  requests  for  loans and  electronic  transmittal  of  instructions,
authorizations,  agreements  or reports to Lender by Borrower.  Unless  Borrower
specifically  directs Lender in writing not to accept or act upon  telephonic or
electronic  communications  from  Borrower,  Lender  shall have no  liability to
Borrower  for any loss or damage  suffered  by  Borrower as a result of Lender's
honoring of any  requests,  execution  of any  instructions,  authorizations  or
agreements  or reliance  on any reports  communicated  to it  telephonically  or
electronically and purporting to have been sent to Lender by Borrower and Lender
shall  have no duty to  verify  the  origin  of any  such  communication  or the
authority of the person sending it.

     3.1.2  Disbursement.  Borrower  hereby  irrevocably  authorizes  Lender  to
disburse the proceeds of each Revolving  Credit Loan requested,  or deemed to be
requested,  pursuant to this  subsection  3.1.2 as follows:  (i) the proceeds of
each  Revolving  Credit  Loan  requested  under  subsection  3.1.1(i)  shall  be
disbursed  by  Lender  in  lawful  money of the  United  States  of  America  in
immediately available funds, in the case of the initial borrowing, in accordance
with the terms of the written disbursement letter from Borrower, and in the case
of each  subsequent  borrowing,  by wire transfer to such bank account as may be
agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to
a written  direction  from  Borrower;  and (ii) the  proceeds of each  Revolving
Credit Loan requested under subsection 3.1.1(ii) shall be disbursed by Lender by
way of direct payment of the relevant interest or other Obligation.

     3.1.3  Authorization.  Borrower hereby  irrevocably  authorizes  Lender, in
Lender's sole  discretion,  to advance to Borrower,  and to charge to Borrower's
Loan Account  hereunder as a Revolving  Credit Loan, a sum sufficient to pay all
interest accrued on the obligations  during the immediately  preceding month and
to pay all reasonable  costs,  fees and expenses at any time owed by Borrower to
Lender hereunder.

     3.2 Payments.  Except where evidenced by notes or other instruments  issued
or made by Borrower to Lender specifically

STL-506421.07


                                      -9-
<PAGE>

containing  payment  provisions  which are in conflict with this Section 3.2 (in
which event the conflicting  provisions of said notes or other instruments shall
govern and control), the Obligations shall be payable as follows:

     3.2.1  Principal.  Principal  payable on account of Revolving  Credit Loans
shall be payable by Borrower to Lender  immediately upon the earliest of (i) the
receipt by Lender or Borrower of any  proceeds  of any of the  Collateral  other
than Equipment or real Property, to the extent of said proceeds, except that, so
long as no Default or Event of Default exists,  if all Loans  outstanding at the
time of  receipt by  Borrower  of any such  proceeds  are LIBOR  Portions,  then
Borrower  may  direct  that such  proceeds  be held by Lender in a  non-interest
bearing  cash  collateral  account  maintained  by Lender to be  applied  to the
payment of  principal  on the last day of the LIBOR  Period  applicable  to each
LIBOR  Portion  in the order of  maturity,  (ii) the  occurrence  of an Event of
Default in  consequence  of which Lender elects to  accelerate  the maturity and
payment of the Obligations,  or (iii) termination of this Agreement  pursuant to
Section 4 hereof;  provided,  however, that if an Overadvance shall exist at any
time, Borrower shall, on demand, repay the Overadvance.

3.2.2    Interest.

          (i) Base Rate Revolving Credit Portion.  Interest accrued on Base Rate
     Revolving  Credit  Portions  shall be due on the  earliest of (1) the first
     calendar day of each month (for the immediately preceding month),  computed
     through the last calendar day of the preceding month, (2) the occurrence of
     an Event of Default in consequence of which Lender elects to accelerate the
     maturity  and  payment  of the  Obligations,  or (3)  termination  of  this
     Agreement pursuant to Section 4 hereof.

          (ii) LIBOR Revolving  Credit Portion.  Interest  accrued on each LIBOR
     Revolving  Credit  Portion  shall be due and payable on the earliest of (1)
     the first calendar day of each month (for the immediately preceding month),
     computed through the last calendar day of the preceding  month,  commencing
     on the first day of the month  immediately  following  the beginning of the
     LIBOR Period for such LIBOR Revolving Credit Portion, (2) the occurrence of
     an Event of Default in consequence of which Lender elects to accelerate the
     maturity  and  payment  of the  Obligations,  or (3)  termination  of  this
     Agreement pursuant to Section 4 hereof.

     3.2.3  Costs,  Fees and Charges.  All  reasonable  costs,  fees and charges
payable  pursuant  to this  Agreement  shall be payable by  Borrower as and when
provided in Section 2 hereof,

STL-506421.07

                                     - 10 -


<PAGE>

to Lender or to any other Person designated by Lender in writing.

     3.2.4 Other  Obligations.  The  balance of the  Obligations  requiring  the
payment of money,  if any,  shall be payable by  Borrower  to Lender as and when
provided in this Agreement,  the Other Agreements or the Security Documents,  or
on demand, whichever is later.

     3.3 Mandatory Prepayments. Except as provided in subsection 6.4.2 hereof:

          (i) if Borrower sells any of the Equipment and the proceeds payable to
     Borrower  in  consequence  thereof,  when  aggregated  with all other  such
     proceeds  payable to Borrower  during  Borrower's then current fiscal year,
     total $500,000 or less, then Borrower shall pay to Lender, unless otherwise
     agreed by Lender,  as and when  received  by  Borrower  and as a  mandatory
     prepayment  of the  Revolving  Credit  Loan,  a sum  equal to the  proceeds
     (including insurance payments) received by Borrower from such sale;

          (ii) if Borrower  sells any of the Equipment and the proceeds  payable
     to Borrower in consequence  thereof,  when  aggregated  with all other such
     proceeds  payable to Borrower  during  Borrower's then current fiscal year,
     total  more  than  $500,000,  then  Borrower  shall  pay to Lender,  unless
     otherwise  agreed by Lender,  as and when  received  by  Borrower  and as a
     mandatory  prepayment  of the  Term  Loan,  a sum  equal  to  the  proceeds
     (including insurance payments) received by Borrower from such sale; and

          (iii) if  Borrower  sells any of the real  Property,  or if any of the
     Collateral is lost, damage or destroyed or taken by condemnation,  Borrower
     shall  pay to  Lender,  unless  otherwise  agreed  by  Lender,  as and when
     received by Borrower and as a mandatory  prepayment of the Term Loan, a sum
     equal to the proceeds  (including  insurance payments) received by Borrower
     from such sale, damage, loss, destruction or condemnation.

     3.4 Application of Payments and Collections.  All items of payment received
by Lender by 12:00  noon,  central  time,  on any  Business  Day shall be deemed
received on that Business Day. All items of payment  received  after 12:00 noon,
central  time,  on any  Business Day shall be deemed  received on the  following
Business Day. Borrower irrevocably waives the right to direct the application of
any and all payments and collections at any time or times hereafter  received by
Lender from or on behalf of Borrower, and Borrower does hereby irrevocably agree
that, subject to subsection  3.2.1(i),  except with respect to payments credited
to the Revolving Credit Loan under Section 3.3, Lender

STL-506421.07


                                      -11-
<PAGE>

shall have the continuing  exclusive right to apply and reapply any and all such
payments and  collections  received at any time or times  hereafter by Lender or
its agent against the Obligations,  in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as the
result of  collections  of Accounts as authorized  by subsection  6.2.5 hereof a
credit balance exists in the Loan Account,  such credit balance shall not accrue
interest in favor of  Borrower,,  but shall be available to Borrower at any time
or times for so long as no  Default  or Event of  Default  exists.  Such  credit
balance  shall not be applied or be deemed to have been  applied as a prepayment
of the Term Loan,  except that  Lender  may,  at its option,  offset such credit
balance against any of the Obligations upon and after the occurrence of an Event
of Default.

     3.5 All Loans to Constitute One Obligation.  The Loans shall constitute one
general  Obligation of Borrower,  and shall be secured by Lender's Lien upon all
of the Collateral.

     3.6 Loan  Account.  Lender  shall  enter  all  Loans as  debits to the Loan
Account and shall also record in the Loan Account all payments  made by Borrower
on any  Obligations  and all  proceeds of  Collateral  which are finally paid to
Lender,  and  may  record  therein,  in  accordance  with  customary  accounting
practice,  other  debits and  credits,  including  interest  and all charges and
expenses properly chargeable to Borrower.

     3.7 Statements of Account.  Lender will Account to Borrower  monthly with a
statement of Loans,  charges and payments made pursuant to this  Agreement,  and
such account  rendered by Lender shall be deemed final,  binding and  conclusive
upon  Borrower  unless Lender is notified by Borrower in writing to the contrary
within 30 days of the date each  accounting  is mailed to Borrower.  Such notice
shall  only be deemed an  objection  to those  items  specifically  objected  to
therein.

SECTION 4.     TERM AND TERMINATION

     4.1 Term of Agreement.  Subject to Lender's  right to cease making Loans to
Borrower upon or after the  occurrence of any Default or Event of Default,  this
Agreement  shall be in  effect  for a period  of 5 years  from the date  hereof,
through and including  July 31, 2001 (the "Original  Term"),  and this Agreement
shall  automatically  renew itself for successive 1 year periods thereafter (the
"Renewal Terms"), unless terminated as provided in Section 4.2 hereof.




STL-506421.07
                                     - 12 -



<PAGE>


4.2      Termination.

     4.2.1  Termination by Lender.  Lender may terminate this Agreement  without
notice  upon or after the  occurrence  of an Event of  Default,  or upon 90 days
prior written  notice to Borrower at the end of the Original Term or any Renewal
Term.

     4.2.2  Termination by Borrower.  Upon at least 90 days prior written notice
to Lender,  Borrower may, at its option,  terminate  this  Agreement;  provided,
however,  no such termination  shall be effective until Borrower has paid all of
the Obligations in immediately  available funds and all Letters of Credit and LC
Guaranties   have  expired  or  have  been  cash   collateralized   to  Lender's
satisfaction.  Any notice of termination  given by Borrower shall be irrevocable
unless Lender otherwise  agrees in writing,  and Lender shall have no obligation
to make any Loans or issue or procure any Letters of Credit or LC  Guaranties on
or after the  termination  date  stated in such  notice.  Borrower  may elect to
terminate  this  Agreement in its entirety only. No section of this Agreement or
type of Loan available hereunder may be terminated singly.

     4.2.3 Effect of Termination.  All of the  obligations  shall be immediately
due and payable upon the termination date stated in any notice of termination of
this  Agreement.  All  undertakings,   agreements,   covenants,  warranties  and
representations  of Borrower  contained in the Loan Documents  shall survive any
such  termination and Lender shall retain its Liens in the Collateral and all of
its  rights  and  remedies  under  the  Loan  Documents   notwithstanding   such
termination  until  Borrower has paid the  Obligations  to Lender,  in full,  in
immediately  available  funds.  Notwithstanding  the  payment  in  full  of  the
Obligations, Lender shall not be required to terminate its security interests in
the Collateral unless,  with respect to any loss or damage Lender may incur as a
result of  dishonored  checks or other items of payment  received by Lender from
Borrower or any Account Debtor and applied to the Obligations,  Lender shall, at
its option, (i) have received a written  agreement,  executed by Borrower and by
any Person  whose loans or other  advances  to Borrower  are used in whole or in
part to  satisfy  the  Obligations,  indemnifying  Lender  from any such loss or
damage; or (ii) have retained such monetary reserves and Liens on the Collateral
for such  period  of time as  Lender,  in its  reasonable  discretion,  may deem
necessary to protect Lender from any such loss or damage.








STL-506421.07
                                     - 13 -


<PAGE>


SECTION S.         SECURITY INTERESTS

     5.1  Security  Interest  in  Collateral.  To secure the prompt  payment and
performance  to Lender of the  Obligations,  Borrower  hereby grants to Lender a
continuing  Lien upon all of Borrower's  assets,  including all of the following
Property and interests in Property of Borrower, whether now owned or existing or
hereafter created, acquired or arising and wheresoever located:

          (i) Accounts;

         (ii) Inventory;

        (iii) Equipment;

         (iv) General Intangibles;

          (v) All  monies and other  Property  of any kind now or at any time or
     times  hereafter  in the  possession  or under the  control  of Lender or a
     bailee or Affiliate of Lender;

          (vi)  All  accessions  to,  substitutions  for and  all  replacements,
     products  and  cash  and  non-cash  proceeds  of  (i)  through  (v)  above,
     including,  without  limitation,  proceeds of and  unearned  premiums  with
     respect to insurance policies insuring any of the Collateral; and

          (vii) All books and records (including,  without limitation,  customer
     lists,  credit files,  computer  programs,  print-outs,  and other computer
     materials  and records) of Borrower  pertaining  to any of (i) through (vi)
     above.

     5.2 Lien Perfection; Further Assurances.  Borrower shall execute such UCC-1
financing  statements  as are  required by the Code and such other  instruments,
assignments  or documents as are necessary to perfect  Lender's Lien upon any of
the Collateral and shall take such other action as may be required to perfect or
to  continue  the  perfection  of  Lender's  Lien  upon the  Collateral.  Unless
prohibited by applicable law,  Borrower hereby  authorizes Lender to execute and
file any such financing statement on Borrower's behalf. The parties agree that a
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a  financing  statement  and may be filed in any  appropriate  office in lieu
thereof.  At Lender's request,  Borrower shall also promptly execute or cause to
be executed and shall deliver to Lender any and all documents,  instruments  and
agreements  deemed  necessary by Lender to give effect to or carry out the terms
or intent of the Loan Documents.

5.3      Lien on Realty.  The due and punctual payment and

STL-506421.07

                                     - 14 -


<PAGE>


performance of the Obligations  shall also be secured by the Lien created by the
Mortgage  upon all real  Property of Borrower  described  therein.  The Mortgage
Amendment  shall be  executed  by  Borrower in favor of Lender and shall be duly
recorded, at Borrower's expense, in each office where such recording is required
to  constitute a fully  perfected  Lien on the real  Property  covered  thereby.
Borrower   shall  deliver  to  Lender,   at  Borrower's   expense,   appropriate
endorsements  to any and all  mortgagee  title  insurance  policies  in favor of
Lender relating to the Mortgage issued by a title insurance company satisfactory
to Lender, which shall be in form and substance satisfactory to Lender and shall
insure a valid first Lien in favor of Lender on the  Property  covered  thereby,
subject only to those exceptions acceptable to Lender and its counsel.  Borrower
shall deliver to Lender such other  documents,  including,  without  limitation,
as-built  survey  prints of the real  Property,  as Lender and its  counsel  may
request relating to the real Property subject to the Mortgage.

SECTION 6.     COLLATERAL ADMINISTRATION

         6.1 General

     6.1.1  Location of  Collateral.  All  Collateral,  other than  Inventory in
transit  and  motor  vehicles,  will at all  times be kept by  Borrower  and its
Subsidiaries  at one or more of the  business  locations  set forth in Exhibit B
hereto and shall not,  without the prior  written  approval of Lender,  be moved
therefrom except, prior to an Event of Default and Lender's  acceleration of the
maturity of the Obligations in consequence  thereof,  for (i) sales of Inventory
in the  ordinary  course of  business;  and (ii)  removals  in  connection  with
dispositions  of Equipment that are authorized by subsection  6.4.2 hereof;  and
(iii) the storage of Inventory at locations within the continental United States
other than those shown on Exhibit B if (A) Borrower  gives Lender written notice
of the new storage location at least thirty (30) days prior to storing Inventory
at such  location,  (B)  Lender's  security  interest in such  Inventory  is and
continues to be a duly perfected,  first priority Lien thereon  (subject only to
Permitted  Liens),  (C) neither  Borrower's nor Lender's right of entry upon the
premises  where such  Inventory is stored,  or its right to remove the Inventory
therefrom,  in any way is restricted,  (D) the owner of such premises  agrees in
writing  pursuant to a waiver  agreement,  in form and  substance  acceptable to
Lender, among other things, not to assert any landlord's, bailee's or other Lien
in respect of the  Inventory  for unpaid  rent or storage  charges,  and (E) all
negotiable  documents  and receipts in respect of any  Collateral  maintained at
such premises are delivered promptly to Lender.

         6.1.2      Insurance of Collateral.  Borrower shall

STL-506421.07
                                     - 15 -



<PAGE>

maintain and pay for insurance  upon all  Collateral  wherever  located and with
respect to Borrower's business,  covering casualty, hazard, public liability and
such  other  risks in such  amounts  and with such  insurance  companies  as are
reasonably  satisfactory to Lender.  Borrower shall deliver  photocopies of such
policies to Lender with satisfactory lender's loss payable endorsements,  naming
Lender as sole loss payee, assignee or additional insured, as appropriate.  Each
policy of insurance or endorsement  shall contain a clause requiring the insurer
to give not less  than 30 days  prior  written  notice to Lender in the event of
cancellation  of the policy for any reason  whatsoever  and a clause  specifying
that the interest of Lender shall not be impaired or  invalidated  by any act or
neglect of Borrower or the owner of the  Property  or by the  occupation  of the
premises for  purposes  more  hazardous  than are  permitted by said policy.  If
Borrower fails to provide and pay for such insurance, Lender may, at its option,
but shall not be required  to,  procure the same and charge  Borrower  therefor.
Upon  Lender's  request,  Borrower  agrees to  deliver to  Lender,  promptly  as
rendered,  true copies of all reports made in any  reporting  forms to insurance
companies.

     6.1.3  Protection  of  Collateral.  All  expenses of  protecting,  storing,
warehousing,  insuring,  handling,  maintaining and shipping the Collateral, and
any and all  excise,  property,  sales,  and use  taxes  imposed  by any  state,
federal,  or local  authority on any of the Collateral or in respect of the sale
thereof shall be borne and paid by Borrower.  If Borrower  fails to promptly pay
any portion  thereof  when due,  Lender  may,  at its  option,  but shall not be
required  to, pay the same and charge  Borrower  therefor.  Lender  shall not be
liable or responsible in any way for the safekeeping of any of the Collateral or
for any loss or  damage  thereto  (except  for  reasonable  care in the  custody
thereof  while any  Collateral  is in  Lender's  actual  possession)  or for any
diminution in the value thereof,  or for any act or default of any warehouseman,
carrier, forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.








STL-506421.07

                                     - 16 -




<PAGE>

6.2      Administration of Accounts.

     6.2.1 Records, Schedules and Assignments of Accounts. On or before the 20th
day of each  month from and after the date  hereof,  Borrower  shall  deliver to
Lender,  in form acceptable to Lender, a borrowing base certificate  relating to
Eligible Accounts,  together with a detailed aged trial balance of all Accounts,
as of the last day of the  immediately  preceding  month,  with such  supporting
materials as Lender shall reasonably request. If reasonably requested by Lender,
or if Borrower deems it advisable,  Borrower shall execute and deliver to Lender
borrowing base  certificates  with respect to Eligible  Accounts more frequently
than monthly.  Borrower shall keep accurate and complete records of its Accounts
and all  payments  and  collections  thereon and shall  submit to Lender on such
periodic  basis as Lender shall request a sales and  collections  report for the
preceding period,  in form  satisfactory to Lender. In addition,  the aged trial
balance  of  all  Accounts  shall  be  reconciled  to the  Borrower's  financial
statements on a monthly basis, and a report showing such reconciliation shall be
delivered to Lender.

     6.2.2  Taxes.  If an Account  includes a charge for any tax  payable to any
governmental taxing authority,  Lender is authorized, in its sole discretion, to
pay the  amount  thereof  to the  proper  taxing  authority  for the  account of
Borrower and to charge  Borrower  therefor, provided,  however that Lender shall
not be liable for any taxes to any governmental taxing authority that may be due
by Borrower.

     6.2.3 Account Verification. Whether or not a Default or an Event of Default
has  occurred,  any of Lender's  officers,  employees  or agents  shall have the
right, at any time or times  hereafter,  in the name of Lender,  any designee of
Lender or Borrower, to verify the validity,  amount or any other matter relating
to any Accounts by mail,  telephone,  telegraph  or  otherwise.  Borrower  shall
cooperate fully with Lender in an effort to facilitate and promptly conclude any
such verification process.

     6.2.4 Maintenance of Dominion  Account.  Borrower shall maintain a Dominion
Account pursuant to a lockbox  arrangement  acceptable to Lender with such banks
as may be selected by Borrower and be acceptable to Lender. Borrower shall issue
to all of such banks an irrevocable  letter of instruction  directing such banks
to deposit  all  payments  or other  remittances  received in the lockbox to the
Dominion  Account  for  application  on  account of the  Obligations.  All funds
deposited  in the  Dominion  Account  shall  immediately  become the property of
Lender and Borrower  shall obtain the agreement by such banks in favor of Lender
to waive any offset rights against the funds so deposited.

STL-506421.07

                                      -17-




<PAGE>
Lender  assumes  no  responsibility  for such  lockbox  arrangement,  including,
without limitation, any claim of accord and satisfaction or release with respect
to deposits accepted by any bank thereunder.

     6.2.5  Collection  of Accounts,  Proceeds of  Collateral.  All  remittances
received by Borrower on account of Accounts,  together  with the proceeds of any
other  Collateral,  shall be held as Lender's property by Borrower as trustee of
an express trust  for Lender's  benefit and Borrower shall  immediately  deposit
same in kind in the  Dominion  Account.  Lender  retains  the right at all times
after the  occurrence  of a Default  or an Event of  Default  to notify  Account
Debtors  that  Accounts  have been  assigned  to Lender and to collect  Accounts
directly  in its own name and to  charge  the  collection  costs  and  expenses,
including attorneys' fees to Borrower.

     6.3  Administration  of Inventory.  At such times as Lender may  reasonably
request,  but at least once each month not later than the 20th day of the month,
Borrower  shall deliver a borrowing  base  certificate  with respect to Eligible
Inventory (as of the last day of the immediately  preceding  month), in form and
detail reasonably  satisfactory to Lender and with such supporting  materials as
Lender  shall  reasonably  request.  In  addition,  Borrower  shall also deliver
therewith a  reconciliation  of the Eligible  Inventory  shown on such borrowing
base  certificate  to Borrower's  inventory  shown on its financial  statements.
Borrower shall conduct a physical inventory no less frequently than annually and
shall  provide to Lender,  if  requested,  a report based on each such  physical
inventory  promptly  thereafter,  together with such  supporting  information as
Lender shall request.

6.4      Administration of Equipment.

     6.4.1  Records and  Schedules of  Equipment.  Borrower  shall keep accurate
records itemizing and describing the kind, type, quality,  quantity and value of
its Equipment and all  dispositions  made in accordance  with  subsection  6.4.2
hereof,  and  shall  furnish  Lender  with a  current  schedule  containing  the
foregoing information if requested by Lender. Immediately on request therefor by
Lender,  Borrower shall deliver to Lender any and all evidence of ownership,  if
any, of any of the Equipment.

     6.4.2 Dispositions of Equipment. Borrower will not sell, lease or otherwise
dispose of or transfer  any of the  Equipment  or any part  thereof  without the
prior  written  consent  of  Lender;  provided,   however,  that  the  foregoing
restriction  shall not  apply,  for so long as no  Default  or Event of  Default
exists,  to (i)  dispositions of Equipment  which,  in the aggregate  during any
consecutive twelve-month period, has a fair market

STL-506421.07
                                     - 18 -


<PAGE>

value or book value,  whichever is less, of $200,000 or less,  provided that all
proceeds  thereof are remitted to Lender for  application to the Loans,  or (ii)
replacements of Equipment that is substantially  worn,  damaged or obsolete with
Equipment  of like kind,  function  and  value,  provided  that the  replacement
Equipment shall be acquired prior to or concurrently with any disposition of the
Equipment that is to be replaced,  the  replacement  Equipment shall be free and
clear of Liens other than Permitted Liens.

     6.5 Payment of Charges.  All amounts chargeable to Borrower under Section 6
hereof shall be Obligations  secured by all of the Collateral,  shall be payable
on demand and shall bear interest from the date such advance was made until paid
in full at the rate applicable to Revolving Credit Loans from time to time.

SECTION 7.     REPRESENTATIONS AND WARRANTIES

     7.1 General Representations and Warranties.  To induce Lender to enter into
this Agreement and to make advances hereunder, Borrower warrants, represents and
covenants to Lender that:

     7.1.1 Organization and Qualification. Each of Borrower and its Subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws  of the  jurisdiction  of its  incorporation.  Each  of  Borrower  and  its
Subsidiaries  is duly  qualified and is authorized to do business and is in good
standing  as a  foreign  corporation  in each  state or  jurisdiction  listed on
Exhibit C hereto and in all other states and  jurisdictions  where the character
of its  Properties  or the  nature of its  activities  make  such  qualification
necessary,  except  where the  failure to so  qualify  would not have a material
adverse effect on Borrower.

     7.1.2 Corporate  Power and Authority Each of Borrower and its  Subsidiaries
is duly  authorized  and empowered to enter into,  execute,  deliver and perform
this Agreement and each of the other Loan Documents to which it is a party.  The
execution, delivery and performance of this Agreement and each of the other Loan
Documents have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval of the shareholders of Borrower
or  any  of  its  Subsidiaries;   (ii)  contravene  Borrower's  or  any  of  its
Subsidiaries'  charter,  articles or  certificate of  incorporation  or by-laws;
(iii)  violate,  or cause Borrower or any of its  Subsidiaries  to be in default
under,  any  provision of any law,  rule,  regulation,  order,  writ,  judgment,
injunction,  decree,  determination  or award in effect having  applicability to
Borrower or any of its Subsidiaries;  (iv) result in a breach of or constitute a
default under any indenture or loan or credit

STL-506421.07
                                      -19-


<PAGE>

agreement or any other  agreement,  lease or instrument to which Borrower or any
of its  Subsidiaries is a party or by which it or its Properties may be bound or
affected;  or (v) result in, or require,  the creation or imposition of any Lien
(other than  Permitted  Liens) upon or with respect to any of the Properties now
owned or hereafter acquired by Borrower or any of its Subsidiaries.

     7.1.3 Legally  Enforceable  Agreement.  This  Agreement is, and each of the
other Loan Documents when delivered under this Agreement will be, a legal, valid
and binding  obligation  of each of Borrower  and its  Subsidiaries  enforceable
against it in accordance with its respective terms,  except as may be subject to
bankruptcy,  insolvency,  moratorium or other  similar laws in effect  affecting
creditors rights generally.

     7.1.4  Capital  Structure.  Exhibit D hereto states (i) the correct name of
each of the Subsidiaries of Borrower,  its jurisdiction of incorporation and the
percentage  of its  Voting  Stock  owned by  Borrower,  (ii) the name of each of
Borrower's  corporate  or  joint  venture  Affiliates  and  the  nature  of  the
affiliation,  (iii) the number, nature and holder of all outstanding  Securities
of Borrower and each  Subsidiary of Borrower and (iv) the number of  authorized,
issued and treasury shares of Borrower and each Subsidiary of Borrower. Borrower
has good title to all of the shares it  purports  to own of the stock of each of
its  Subsidiaries,  free and clear in each case of any Lien other than Permitted
Liens.   All  such  shares  have  been  duly  issued  and  are  fully  paid  and
non-assessable.  There are no outstanding options to purchase,  or any rights or
warrants to subscribe for, or any commitments or agreements to issue or sell, or
any  Securities  or  obligations  convertible  into,  or any powers of  attorney
relating to, shares of the capital stock of Borrower or any of its Subsidiaries.
There  are  no  outstanding  agreements  or  instruments  binding  upon  any  of
Borrower's  shareholders  relating  to the  ownership  of its  shares of capital
stock.

     7.1.5 Corporate  Names.  Neither  Borrower nor any of its  Subsidiaries has
been known as or used any  corporate,  fictitious  or trade names  except  those
listed on Exhibit E hereto.  Except as set forth on Exhibit E, neither  Borrower
nor any of its  Subsidiaries  has been the surviving  corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person.

     7.1.6  Business  Locations;  Agent for Process.  Each of Borrower's and its
Subsidiaries'  chief executive office and other places of business are as listed
on Exhibit B hereto. During the preceding one-year period,  neither Borrower nor
any of its  Subsidiaries  has had an  office,  place of  business  or agent  for
service of process other than as listed on Exhibit B. Except

STL-506421.07
                                     - 20 -


<PAGE>

as shown on Exhibit B, no  Inventory  is stored with a bailee,  warehouseman  or
similar party, nor is any Inventory consigned to any Person.

     7.1.7  Title to  Properties;  Priority of Liens.  Each of Borrower  and its
Subsidiaries  has good,  indefeasible  and  marketable  title to and fee  simple
ownership of, or valid and  subsisting  leasehold  interests in, all of its real
Property, and good title to all of the Collateral and all of its other Property,
in each case, free and clear of all Liens except Permitted  Liens.  Borrower has
paid or  discharged  all lawful  claims  which,  if unpaid,  might become a Lien
against any of Borrower's  Properties  that is not a Permitted  Lien.  The Liens
granted to Lender under Section 5 hereof are first priority Liens,  subject only
to Permitted Liens.

     7.1.8 Accounts. Lender may rely, in determining which Accounts are Eligible
Accounts, on all statements and representations made by Borrower with respect to
any Account or Accounts  and,  with respect to Accounts  shown on any  borrowing
base certificate as Eligible Accounts, such Accounts satisfy all requirements of
Eligible Accounts.

     7.1.9 Equipment.  The Equipment is in good operating  condition and repair,
and all necessary  replacements of and repairs thereto shall be made so that the
value  and  operating  efficiency  of the  Equipment  shall  be  maintained  and
preserved,  reasonable  wear and tear excepted.  Borrower will not permit any of
the Equipment to become affixed to any real Property  leased to Borrower so that
an  interest  arises  therein  under  the  real  estate  laws of the  applicable
jurisdiction  unless the landlord of such real  Property has executed a landlord
waiver or leasehold  mortgage in favor of and in form acceptable to Lender,  and
Borrower  will not permit any of the  Equipment  to become an  accession  to any
personal Property other than Equipment that is subject to first priority (except
for Permitted Liens) Liens in favor of Lender.

     7.1.10   Financial   Statements;   Fiscal  Year.   The   Consolidated   and
consolidating  balance  sheets of  Borrower  and such  other  Persons  described
therein  (including  the  accounts  of all  Subsidiaries  of  Borrower  for  the
respective periods during which a Subsidiary relationship existed) as of June 2,
1996, and the related statements of income, changes in stockholder's equity, and
changes in  financial  position for the periods  ended on such dates,  have been
prepared in accordance with GAAP, and present fairly the financial  positions of
Borrower and such Persons at such dates and the results of Borrower's operations
for such periods.  Since June 2, 1996, there has been no material adverse change
in the condition,  financial or otherwise, of Borrower and such other Persons as
shown on the Consolidated

STL-506421.07

                                      -21-




<PAGE>
balance sheet as of such date and no change in the aggregate  value of Equipment
and real Property owned by Borrower or such other Persons, except changes in the
ordinary course of business,  none of which individually or in the aggregate has
been  materially  adverse.   The  fiscal  year  of  Borrower  and  each  of  its
Subsidiaries ends on the Sunday nearest the last day of November of each year.

     7.1.11 Full Disclosure.  The financial statements referred to in subsection
7.1.10 hereof do not, nor does this Agreement or any other written  statement of
Borrower to Lender,  contain any untrue  statement of a material  fact or omit a
material fact necessary to make the statements  contained  therein or herein not
misleading.  There is no fact which Borrower has failed to disclose to Lender in
writing  which  materially  affects  adversely  or, so far as  Borrower  can now
foresee, will materially affect adversely the Properties,  business,  prospects,
profits  or  condition  (financial  or  otherwise)  of  Borrower  or  any of its
Subsidiaries  or the  ability of Borrower or its  Subsidiaries  to perform  this
Agreement or the other Loan Documents.

     7.1.12 Solvent Financial  Condition.  Each of Borrower and its Subsidiaries
is now and,  after  giving  effect  to the Loans to be made and the  Letters  of
Credit and LC Guaranties to be issued hereunder, at all times will be, Solvent.

     7.1.13 Surety  Obligations.  Except for the RSI Guaranty,  neither Borrower
nor any of its  Subsidiaries  is  obligated  as surety or  indemnitor  under any
surety or similar bond or other contract issued or entered into any agreement to
assure  payment,  performance or completion of performance of any undertaking or
obligation of any Person.

     7.1.14 Taxes.  Borrower's federal tax identification number is  38-2266858.
The federal tax  identification  number of each of  Borrower's  Subsidiaries  is
shown on Exhibit F hereto.  Borrower and each of its  Subsidiaries has filed all
federal,  state and local tax returns and other reports it is required by law to
file and has paid, or made provision for the payment of, all taxes, assessments,
fees, levies and other  governmental  charges upon it, its income and Properties
as and when such taxes,  assessments,  fees, levies and charges that are due and
payable,  unless and to the extent any thereof are being  actively  contested in
good faith and by  appropriate  proceedings  and Borrower  maintains  reasonable
reserves on its books therefor. The provision for taxes on the books of Borrower
and its  Subsidiaries  are  adequate  for all  years not  closed  by  applicable
statutes, and for its current fiscal year.

     7.1.15  Brokers.  There are no claims for brokerage  commissions,  finder's
fees or investment banking fees in

STL-506421.07

                                     - 22 -




<PAGE>

connection with the transactions contemplated by this Agreement.

     7.1.16 Patents,  Trademarks,  Copyrights and Licenses.  Except as otherwise
disclosed in Exhibit G, each of Borrower and its Subsidiaries  owns or possesses
all the patents, trademarks, service marks, trade names, copyrights and licenses
necessary for the present and planned future conduct of its business without any
known conflict with the rights of others. All such patents, trademarks,  service
marks, tradenames,  copyrights,  licenses and other similar rights are listed on
Exhibit G hereto.

     7.1.17  Governmental  Consents.  Each of Borrower and its Subsidiaries has,
and is in good standing with respect to, all governmental  consents,  approvals,
licenses,  authorizations,  permits,  certificates,  inspections  and franchises
necessary  to continue to conduct its business as  heretofore  or proposed to be
conducted by it and to own or lease and operate its  Properties  as now owned or
leased  by it,  except  where the  failure  to have  such  consents,  approvals,
authorizations,  permits, certificates,  inspections or franchises, individually
or in the  aggregate,  would not have a material  adverse  effect on  Borrower's
business operations or financial condition.

     7.1.18 Compliance with Laws. Each of Borrower and its Subsidiaries has duly
complied with,  and its  Properties,  business  operations and leaseholds are in
compliance in all material  respects with, the provisions of all federal,  state
and local laws, rules and regulations applicable to Borrower or such Subsidiary,
as applicable, its Properties or the conduct of its business and there have been
no citations,  notices or orders of  noncompliance  issued to Borrower or any of
its  Subsidiaries  under any such law,  rule or  regulation,  except  where such
noncompliance  will not have a material  adverse  effect on Borrower's  business
operations or financial  condition.  Each of Borrower and its  Subsidiaries  has
established  and  maintains  an  adequate  monitoring  system to insure  that it
remains in material compliance with all federal, state and local laws, rules and
regulations applicable to it. No Inventory has been produced in violation of the
Fair Labor Standards Act (29 U.S.C. ss. 201 et seq.), as amended.

     7.1.19  Restrictions.  Neither  Borrower nor any of its  Subsidiaries  is a
party or  subject to any  contract,  agreement,  or  charter or other  corporate
restriction,  which materially and adversely  affects its business or the use or
ownership of any of its Properties. Neither Borrower nor any of its Subsidiaries
is a party or subject to any contract or agreement  which restricts its right or
ability to incur Indebtedness, other than as set forth on Exhibit H hereto, none
of which  prohibit the  execution of or  compliance  with this  Agreement or the
other Loan Documents by Borrower or any of its Subsidiaries, as applicable.

STL-506421.07

                                     - 23 -

<PAGE>

     7.1.20  Litigation.  Except as set forth on Exhibit I hereto,  there are no
actions,  suits,  proceedings or investigations  pending, or to the knowledge of
Borrower,  threatened, against or affecting Borrower or any of its Subsidiaries,
or the  business,  operations,  Properties,  prospects,  profits or condition of
Borrower  or  any  of  its  Subsidiaries.   Neither  Borrower  nor  any  of  its
Subsidiaries  is in  default  with  respect  to  any  order,  writ,  injunction,
judgment,  decree or rule of any court,  governmental  authority or  arbitration
board or tribunal.

     7.1.21 No Defaults.  No event has  occurred  and no condition  exists which
would,  upon or after the execution and delivery of this Agreement or Borrower's
performance  hereunder,  constitute  a Default or an Event of  Default.  Neither
Borrower nor any of its  Subsidiaries  is in default,  and no event has occurred
and no condition exists which constitutes,  or which with the passage of time or
the giving of constitute, a default in the payment Person for Money Borrowed.

     7.1.22 Leases.  Exhibit J hereto is a complete  listing of all  capitalized
leases of  Borrower  and its  Subsidiaries  and  Exhibit K hereto is a  complete
listing  of all  operating  leases of  Borrower  and its  Subsidiaries.  Each of
Borrower and its  Subsidiaries  is in full  compliance  with all of the terms of
each of its respective capitalized and operating leases.

     7.1.23  Pension  Plans.  Except as disclosed  on Exhibit L hereto,  neither
Borrower  nor any of its  Subsidiaries  has any Plan.  Borrower  and each of its
Subsidiaries is in material  compliance  with the  requirements of ERISA and the
regulations  promulgated  thereunder  with  respect  to  each  Plan.  No fact or
situation  that  could  result in a  material  adverse  change in the  financial
condition of Borrower or any of its  Subsidiaries  exists in connection with any
Plan. Neither Borrower nor any of its Subsidiaries has any withdrawal  liability
in connection with a Multiemployer Plan.

     7.1.24 Trade Relations. There exists no actual or, to Borrower's knowledge,
threatened  termination,  cancellation or limitation of, or any  modification or
change in, the business relationship between Borrower or any of its Subsidiaries
and any customer or any group of customers  whose  purchases  individually or in
the  aggregate  are  material  to  the  business  of  Borrower  or  any  of  its
Subsidiaries,  or with any  material  supplier,  and  there  exists  no  present
condition  or state of facts or  circumstances  which  would  materially  affect
adversely  Borrower or any of its Subsidiaries or prevent Borrower or any of its
Subsidiaries from

STL-506421.07

                                     - 24 -



<PAGE>


conducting such business after the consummation of the transaction  contemplated
by this  Agreement in  substantially  the same manner in which it has heretofore
been conducted.

     7.1.25 Labor  Relations.  Except as described on Exhibit M hereto,  neither
Borrower nor any of its  Subsidiaries  is a party to any  collective  bargaining
agreement. There are no material grievances,  disputes or controversies with any
union  or any  other  organization  of  Borrower's  or any of its  Subsidiaries'
employees, or threats of strikes, work stoppages or any asserted pending demands
for collective bargaining by any union or organization.

     7.2   Continuous   Nature   of   Representations   and   Warranties.   Each
representation  and  warranty  contained  in this  Agreement  and the other Loan
Documents shall be continuous in nature and shall remain accurate,  complete and
not  misleading  at all times  during  the term of this  Agreement,  except  for
changes in the nature of Borrower's or its Subsidiaries'  business or operations
that  would  render  the  information  in any  exhibit  attached  hereto  either
inaccurate,  incomplete or  misleading,  so long as Lender has consented to such
changes or such changes are expressly permitted by this Agreement.

     7.3 Survival of Representations  and Warranties.  All  representations  and
warranties  of Borrower  contained  in this  Agreement  or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related  thereto,  until such time as all the Obligations are paid and performed
in full,  all the  Collateral  is  released,  and  Lender  shall have no further
potential liability hereunder.

SECTION B.      COVENANTS AND CONTINUING AGREEMENTS

     8.1  Affirmative  Covenants.   During  the  term  of  this  Agreement,  and
thereafter  for so long  as  there  are  any  Obligations  to  Lender,  Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:

     8.1.1 Visits and Inspections.  Permit  representatives of Lender, from time
to time,  as often  as may be  reasonably  requested,  but  only  during  normal
business hours and upon notice to Borrower,  to visit and inspect the Properties
of Borrower and each of its Subsidiaries,  inspect, audit and make extracts from
its books and records,  and discuss with its  officers,  its  employees  and its
independent  accountants,  Borrower's  and each of its  Subsidiaries'  business,
assets,  liabilities,  financial  condition,  business  prospects and results of
operations.

STL-506421.07

                                     - 25 -



<PAGE>

     8.1.2 Notices.  Promptly  notify Lender in writing of the occurrence of any
event or the existence of any fact which renders any  representation or warranty
in this Agreement or any of the other Loan Documents  inaccurate,  incomplete or
misleading.

     8.1.3  Financial  Statements.  Keep,  and cause  each  Subsidiary  to keep,
adequate records and books of account with respect to its business activities in
which  proper  entries  are made in  accordance  with  GAAP  reflecting  all its
financial  transactions;  and cause to be prepared  and  furnished to Lender the
following  (all to be prepared in  accordance  with GAAP applied on a consistent
basis,  unless  Borrower's  certified  public  accountants  concur in any change
therein and such change is disclosed to Lender and is consistent with GAAP):

          (i) not later  than 120 days  after the close of each  fiscal  year of
     Borrower, unqualified audited financial statements of Harrow Industries and
     Harrow Delaware,  and their  respective  Subsidiaries as of the end of such
     year, each on a Consolidated and consolidating  basis,  certified by a firm
     of independent certified public accountants of recognized standing selected
     by Borrower but  acceptable  to Lender  (except for a  qualification  for a
     change in accounting principles with which the accountant concurs);

          (ii) not later  than 30 days after  the end  of each month  hereafter,
     including  the last month of  Borrower's  fiscal  year,  unaudited  interim
     financial   statements  of  Harrow  Industries  and  Borrower,   and  their
     respective  Subsidiaries  as of the end of such month and of the portion of
     Borrower's financial year then elapsed, on a Consolidated and consolidating
     basis,  certified by the principal  financial officer of each such company,
     as appropriate,  as prepared in accordance with GAAP and fairly  presenting
     the  Consolidated  financial  position  and results of  operations  of such
     companies for such month and period  subject only to changes from audit and
     year-end  adjustments  and except  that such  statements  need not  contain
     notes;

          (iii)  promptly after the sending or filing  thereof,  as the case may
     be, copies of any proxy statements,  financial  statements or reports which
     Harrow  Industries  or any of its  Subsidiaries  has made  available to its
     shareholders  and copies of any regular,  periodic  and special  reports or
     registration  statements which Harrow Industries or any of its Subsidiaries
     files with the  Securities  and  Exchange  Commission  or any  governmental
     authority  which may be substituted  therefor,  or any national  securities
     exchange;


STL-506421.07

                                     - 26 -




<PAGE>

          (iv)  promptly,  upon  request  by Lender,  after the filing  thereof,
     copies of any annual report to be filed with ERISA in connection  with each
     Plan; and

          (v) such other  data and  information  (financial  and  otherwise)  as
     Lender, from time to time, may reasonably request,  bearing upon or related
     to the  Collateral  or  Harrow  Industries'  and each of its  Subsidiaries'
     financial condition or results of operations.

     Within 120 days of the delivery of the  financial  statements  described in
clause (i) of this subsection 8.1.3,  Borrower shall forward to Lender a copy of
the  accountants'  letter to management that is prepared in connection with such
financial  statements  and also shall cause to be prepared and shall  furnish to
Lender a certificate of the aforesaid certified public accountants certifying to
Lender that, based upon their examination of the financial  statements of Harrow
Industries and Harrow Delaware, and their respective Subsidiaries,  performed in
connection  with their  examination of said financial  statements,  they are not
aware of any Default or Event of Default,  or, if they are aware of such Default
or Event of Default,  specifying the nature  thereof,  and  acknowledging,  in a
manner  satisfactory  to Lender,  that they are aware that  Lender is relying on
such  financial  statements in making its  decisions  with respect to the Loans.
Concurrently  with  the  delivery  of  the  quarterly  and  year-end   financial
statements described above, or more frequently if requested by Lender,  Borrower
shall cause to be prepared and furnished to Lender a Compliance  Certificate  in
the  form of  Exhibit  N hereto  executed  by the  Chief  Financial  Officer  of
Borrower.

     8.1.4  Landlord and Storage  Agreements.  Provide Lender with copies of all
agreements  between  Borrower  or any of its  Subsidiaries  and any  landlord or
warehouseman  which owns any premises at which any  Inventory  may, from time to
time, be kept.

     8.1.5 Guarantor Financial  Statements.  Deliver or cause to be delivered to
Lender   financial   statements   for  each  Guarantor  in  form  and  substance
satisfactory  to Lender at such  intervals  and  covering  such time  periods as
Lender may request.

     8.1.6  Projections.  No later than 30 days prior to the end of each  fiscal
year of  Borrower,  deliver to Lender  Projections  of Borrower  and RSI for the
forthcoming 3 years, year by year, and for the forthcoming fiscal year, month by
month.

     8.2 Negative Covenants.  During the term of this Agreement,  and thereafter
for so long as there are any  Obligations to Lender,  Borrower  covenants  that,
unless Lender has first consented thereto in writing, it will not:

STL-506421.07

                                     - 27 -




<PAGE>

     8.2.1 Mergers; Consolidations;  Acquisitions. Except for a merger of Harrow
Corporation  into  Harrow  Industries,  merge  or  consolidate,  or  permit  any
Subsidiary  of  Borrower  to merge or  consolidate,  with any  Person,  except a
consolidation or merger involving only Borrower and RSI in which Borrower is the
sole  surviving  entity;  nor  acquire,  nor permit any of its  Subsidiaries  to
acquire, all or any substantial part of the Properties of any Person.

     8.2.2 Loans.  Make, or permit any Subsidiary of Borrower to make, any loans
or other  advances of money (other than for salary,  travel  advances,  advances
against  commissions  and  other  similar  advances  in the  ordinary  course of
business, and advances permitted by Section 4 of the Distribution  Agreement) to
any Person.

     8.2.3 Total  Indebtedness.  Create,  incur,  assume, or suffer to exist, or
permit any  Subsidiary  of  Borrower  to create,  incur or suffer to exist,  any
Indebtedness, except:

          (i) Obligations owing to Lender;

          (ii) Subordinated Debt existing on the date of this Agreement;

          (iii) Indebtedness of any Subsidiary of Borrower to Borrower;

          (iv)  accounts  payable  to  trade  creditors  and  current  operating
     expenses  (other than for Money  Borrowed) which are not aged more than 120
     days from billing date or more than 30 days from the due date, in each case
     incurred  in the  ordinary  course of  business  and paid  within such time
     period,  unless the same are being actively  contested in good faith and by
     appropriate and lawful  proceedings;  and Borrower or such Subsidiary shall
     have set aside such reserves,  if any, with respect thereto as are required
     by  GAAP  and  deemed  adequate  by  Borrower  or such  Subsidiary  and its
     independent accountants;

          (v) Obligations to pay Rentals permitted by subsection 8.2.13;

          (vi) Permitted Purchase Money Indebtedness;

          (vii) Capitalized Lease Obligations in connection with certain leases,
     in an aggregate amount not to exceed $1,000,000;

          (viii) The Intercompany Note as in effect on the

STL-506421.07
                                     - 28 -




<PAGE>

     date hereof;

          (ix) obligations under the Consulting Agreement;

          (x) contingent  liabilities  arising out of endorsements of checks and
     other  negotiable  instruments  for deposit or  collection  in the ordinary
     course of business; and

          (xi)  Indebtedness  not included in  paragraphs  (i) through (x) above
     which does not exceed at any time, in the aggregate, the sum of $300,000.

     8.2.4 Affiliate  Transactions.  Enter into, or be a party to, or permit any
Subsidiary of Borrower to enter into or be a party to, any transaction  with any
Affiliate  of  Borrower or  stockholder,  except in the  ordinary  course of and
pursuant to the  reasonable  requirements  of  Borrower's  or such  Subsidiary's
business and upon fair and reasonable  terms which are fully disclosed to Lender
and are no less  favorable to Borrower  than would obtain in a comparable  arm's
length  transaction with a Person not an Affiliate or stockholder of Borrower or
such Subsidiary.

     8.2.5  Limitation  on Liens.  Create or  suffer  to  exist,  or permit  any
Subsidiary  of Borrower  to create or suffer to exist,  any Lien upon any of its
Property, income or profits, whether now owned or hereafter acquired, except:

          (i) Liens at any time granted in favor of Lender;

          (ii) Liens for taxes  (excluding  any Lien imposed  pursuant to any of
     the  provisions  of ERISA) not yet due,  or being  contested  in the manner
     described in subsection  7.1.14  hereto,  but only if in Lender's  judgment
     such Lien does not  adversely  affect  Lender's  rights or the  priority of
     Lender's Lien in the Collateral;

          (iii) Liens arising in the ordinary  course of Borrower's  business by
     operation of law or regulation,  but only if payment in respect of any such
     Lien is not at the time  required and such Liens do not, in the  aggregate,
     materially detract from the value of the Property of Borrower or materially
     impair the use thereof in the operation of Borrower's business;

          (iv)  Purchase   Money  Liens   securing   Permitted   Purchase  Money
     Indebtedness;

STL-506421.07
                                     - 29 -


<PAGE>

          (v) Liens securing  Indebtedness of one of Borrower's  Subsidiaries to
     Borrower or another such Subsidiary;       

          (vi) such other Liens as appear on Exhibit 0 hereto; and      

          (vii) such other Liens as Lender may hereafter approve in writing.

     8.2.6  Subordinated  Debt.  Make,  or permit any  Subsidiary of Borrower to
make, any payment of any part or all of any Subordinated  Debt or take any other
action or omit to take any other  action in  respect of any  Subordinated  Debt,
except  in  accordance  with the  applicable  subordination  agreement  relative
thereto and the  prepayment of up to $12,000,000  of the  outstanding  principal
amount of the Intercompany Note as provided in subsection 1.1.2 hereof.

     8.2.7   Distributions.   Make,  or  permit  any  Subsidiary  to  make,  any
Distributions except as provided in the Distribution Agreement.

     8.2.8 Capital Expenditures.  Make Capital Expenditures (including,  without
limitation,  by way of  capitalized  leases)  which,  in  the  aggregate,  as to
Borrower  and its  Subsidiaries,  exceed  $6,000,000  during any fiscal  year of
Borrower.

     8.2.9 Disposition of Assets. Sell, lease or otherwise dispose of any of, or
permit any  Subsidiary of Borrower to sell,  lease or otherwise  dispose any of,
its  Properties,  including  any  disposition  of Property as part of a sale and
leaseback  transaction,  to or in  favor  of any  Person,  except  (i)  sales of
Inventory in the ordinary  course of business for so long as no Event of Default
exists  hereunder,  (ii) a transfer of Property to Borrower by a  Subsidiary  of
Borrower or (iii) dispositions expressly authorized by this Agreement.

     8.2.10 Stock of  Subsidiaries.  Permit any of its Subsidiaries to issue any
additional shares of its capital stock except director's qualifying shares.

     8.2.11  Bill-and-Hold  Sales,  Etc.  Make  a  sale  to  any  customer  on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.

     8.2.12  Restricted  Investment.  Make or have, or permit any  Subsidiary of
Borrower to make or have, any Restricted Investment.

STL-506421.07


                                      -30-




<PAGE>

     8.2.13  Leases.  Become,  or permit any of its  Subsidiaries  to become,  a
lessee under any operating lease (other than a lease under which Borrower or any
of its  Subsidiaries  is lessor) of Property if the  aggregate  Rentals  payable
during any current or future period of 12 consecutive  months under the lease in
question and all other leases under which Borrower or any of its Subsidiaries is
then lessee would exceed $4,000,000. The term "Rentals" means, as of the date of
determination, all payments which the lessee is required to make by the terms of
any lease.

     8.2.14 Tax Consolidation. File or consent to the filing of any consolidated
income  tax  return  with  any  Person  other  than  Harrow  Industries,  Harrow
Corporation, Harrow Delaware, Harrow Group International, and RSI.

     8.2.15  Compensation.  Except  as set  forth  on  Exhibit  8.2.15  and  the
incentive  compensation  paid pursuant to the terms of the Executive  Management
Incentive  Plan dated December 1, 1990, as in effect on the date hereof but with
such reasonable amendments to the amounts payable thereunder as may be made from
time  to  time,  permit  the  total  annual  compensation  (including,   without
limitation,  salaries,  fees, bonuses,  commissions and other payments,  whether
direct or indirect,  in money, or otherwise) of its officers,  shareholders  and
directors to exceed  during any fiscal year of Borrower  110% of the amount paid
during the preceding fiscal year.

     8.3 Specific Financial  Covenants.  During the term of this Agreement,  and
thereafter  for so long  as  there  are  any  Obligations  to  Lender,  Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:

     8.3.1 Book Net Worth.  Maintain at all times a Consolidated book net worth,
determined in accordance with GAAP, of not less than the amounts shown below for
the period corresponding thereto:


         Period                     Amount
         
         Fiscal  Year  1996         $1,000,000
         Fiscal  Year  1997         $1,000,000
         Fiscal  Year  1998         $3,000,000
         Fiscal  Year  1999         $5,000,000
         Fiscal  Year  2000         $7,000,000
         Fiscal  Year  2001         $9,000,000

     8.3.2 Current Ratio. Maintain at all times a ratio

STL-506421.07

                                      -31-




<PAGE>

of Consolidated  Current Assets to Consolidated  Current Liabilities of not less
than 1.5 to 1.0.

     8.3.3 Profitability.  Achieve Consolidated EBIT of not less than the amount
shown below during the period corresponding thereto:


         Period            Amount

         First Fiscal Quarter of each Fiscal Year             $1,600,000
         Second Fiscal Quarter of each Fiscal Year            $2,700,000
         Third Fiscal Quarter of each Fiscal Year             $2,000,000
         Fourth Fiscal Quarter of each Fiscal Year            $3,200,000
         Each Fiscal Year                                     $9,500,000

     8.3.4  Interest  Coverage.   Maintain  a  ratio  of  Consolidated  EBIT  to
Consolidated  Interest  Expense of not less than the ratio  shown  below for the
period corresponding thereto:


         Period            Ratio

         Third Fiscal Quarter of Fiscal Year 1996                   1.18 to 1.0
         Fourth Fiscal Quarter of Fiscal Year 1996                  2.13 to 1.0
         First Fiscal Quarter of each Fiscal Year 
               after Fiscal Year 1996                               1.10 to 1.0 
         Second Fiscal Quarter of each Fiscal Year
               after Fiscal Year 1996                               1.80 to 1.0
         Third Fiscal Quarter of each Fiscal Year
               after Fiscal Year 1996                               1.30 to 1.0
         Fourth Fiscal Quarter of each Fiscal Year
               after Fiscal Year 1996                               2.30 to 1.0

     8.3.5 Cash Flow. Maintain a ratio of Consolidated Cash Flow to Consolidated
Fixed   Charges  of  not  less  than  the  ratio  shown  below  for  the  period
corresponding thereto:

         Period                     Ratio

         Fiscal Year 1996                    1.0 to 1.0
         Fiscal Year 1997                    1.0 to 1.0
         Fiscal Year 1998                    1.1 to 1.0
         Fiscal Year 1998 and thereafter     1.2 to 1.0






STL-506421.07

                                      -32-
<PAGE>

SECTION 9.      CONDITIONS PRECEDENT

     Notwithstanding  any other  provision of this Agreement or any of the other
Loan Documents,  and without  affecting in any manner the rights of Lender under
the other sections of this  Agreement,  Lender shall not be required to make any
Loan under this Agreement unless and until each of the following  conditions has
been and continues to be satisfied:

     9.1  Documentation.  Lender  shall  have  received,  in form and  substance
satisfactory  to Lender and its counsel,  a duly executed copy of this Agreement
and  the  other  Loan  Documents,   together  with  such  additional  documents,
instruments,  certificates and opinions of Borrower's  counsel as Lender and its
counsel shall require in connection therewith from time to time, all in form and
substance satisfactory to Lender and its counsel.

     9.2 No Default. No Default or Event of Default shall exist.

     9.3 Other Loan Documents. Each of the conditions precedent set forth in the
other Loan Documents shall have been satisfied.

     9.4  Availability.  Lender shall have  determined  that  immediately  after
Lender has made the initial  Loans and issued the initial  Letters of Credit and
LC  Guaranties  contemplated  hereby,  and paid all  closing  costs  incurred in
connection with the transactions contemplated hereby,  Availability shall not be
less than $3,000,000.

     9.5 No  Litigation.  No action,  proceeding,  investigation,  regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin,  restrain or prohibit,  or to
obtain  damages  in  respect  of, or which is  related  to or arises out of this
Agreement or the consummation of the transactions contemplated hereby.

     9.6 Subordinated  Debt. Lender shall have determined that immediately after
Lender has made the initial  Loans and issued the initial  Letters of Credit and
LC Guaranties  contemplated hereby, Borrower shall have no less than $26,000,000
of Subordinated Debt.


SECTION 10.     EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT

     10.1  Events of Default.  The  occurrence  of one or more of the  following
events shall constitute an "Event of Default":


STL-506421.07

                                     - 33 -


<PAGE>

     10.1.1  Payment of Notes.  Borrower  shall fail to pay any  installment  of
principal,  interest or premium,  if any,  owing on the Term Note on or within 5
days of the due date of such installment.

     10.1.2 Payment of Other Obligations.  Borrower shall fail to pay any of the
Obligations  that are not  evidenced by the Term Note on or within 5 days of the
due date thereof (whether due at stated maturity,  on demand,  upon acceleration
or otherwise).

     10.1.3 Misrepresentations.  Any representation, warranty or other statement
made or  furnished  to Lender by or on behalf of  Borrower,  any  Subsidiary  of
Borrower or Guarantor in this Agreement,  any of the other Loan Documents or any
instrument,  certificate or financial  statement furnished in compliance with or
in reference  thereto  proves to have been false or  misleading  in any material
respect  when made or  furnished  or when  reaffirmed  pursuant  to Section  7.2
hereof.

     10.1.4  Breach of  Specific  Covenants.  Borrower  shall fail or neglect to
perform,  keep or observe any covenant  contained in Sections 5.2,  5.3,  6.1.1,
6.2,  8.1.1,  8.1.3,  8.2 or 8.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant.

     10.1.5  Breach  of Other  Covenants.  Borrower  shall  fail or  neglect  to
perform,  keep or observe any covenant contained in this Agreement (other than a
covenant which is dealt with specifically  elsewhere in Section 10.1 hereof) and
the breach of such other covenant is not cured to Lender's  satisfaction  within
30 days after the sooner to occur of Borrower's receipt of notice of such breach
from Lender or the date on which such failure or neglect  first becomes known to
any officer of Borrower.

     10.1.6  Default Under  Security  Documents/Other  Agreements.  Any event of
default  shall occur under,  or Borrower  shall  default in the  performance  or
observance of any term,  covenant,  condition or agreement  contained in, any of
the Security  Documents or the Other  Agreements and such default shall continue
beyond any applicable grace period.

     10.1.7 Other Defaults. There shall occur any default or event of default on
the part of  Borrower  under any  agreement,  document  or  instrument  to which
Borrower  is a party or by  which  Borrower  or any of its  Property  is  bound,
creating or relating to any  Indebtedness  (other than the  Obligations)  if the
payment or maturity of such  Indebtedness  is accelerated in consequence of such
event of default or demand for payment of such Indebtedness is made.

STL-506421.07

                                      -34-




<PAGE>
     10.1.8 Uninsured Losses. Any material loss, theft, damage or destruction of
any of the Collateral not fully covered  (subject to such  deductibles as Lender
shall have permitted) by insurance.

     10.1.9 Insolvency and Related Proceedings.  Borrower or any Guarantor shall
cease to be Solvent or shall  suffer the  appointment  of a  receiver,  trustee,
custodian or similar  fiduciary,  or shall make an assignment for the benefit of
creditors,  or any petition for an order for relief shall be filed by or against
Borrower or any Guarantor under the Bankruptcy Code (if against  Borrower or any
Guarantor,  the  continuation  of such  proceeding  for more than 30  days),  or
Borrower  or any  Guarantor  shall make any offer of  settlement,  extension  or
composition to their respective unsecured creditors generally.

     10.1.10 Business Disruption; Condemnation. There shall occur a cessation of
a substantial  part of the business of Borrower,  any  Subsidiary of Borrower or
any  Guarantor  for a period  which  significantly  affects  Borrower's  or such
Guarantor's  capacity  to continue  its  business,  on a  profitable  basis;  or
Borrower,  any Subsidiary of Borrower or any Guarantor  shall suffer the loss or
revocation of any material  license or permit now held or hereafter  acquired by
Borrower  or such  Guarantor  which is  necessary  to the  continued  or  lawful
operation  of its  business;  or Borrower or any  Guarantor  shall be  enjoined,
restrained  or in any way  prevented by court,  governmental  or  administrative
order from conducting all or any material part of its business  affairs;  or any
material lease or agreement  pursuant to which Borrower or any Guarantor leases,
uses or occupies  any  Property  shall be canceled  or  terminated  prior to the
expiration of its stated term and no substitute  lease shall have been executed;
or any part of the Collateral  shall be taken through  condemnation or the value
of such Property shall be impaired through condemnation and the proceeds thereof
shall not be considered adequate substitute collateral by Lender, based upon its
reasonable credit judgment.

     10.1.11  Change of  Ownership.  There shall occur a change of  ownership of
more than forty-nine percent (49%) of the voting stock of Harrow Industries,  or
Harrow  Industries  shall cease to own and control,  beneficially and of record,
directly or indirectly through the ownership of one or more  subsidiaries,  100%
of the issued and outstanding capital stock (voting and nonvoting) of Borrower.

     10.1.12  ERISA.  A Reportable  Event shall occur which Lender,  in its sole
discretion,   shall  determine  in  good  faith  constitutes   grounds  for  the
termination by the Pension Benefit  Guaranty  Corporation of any Plan or for the
appointment by the

STL-506421.07

                                      -35-

<PAGE>

appropriate  United States  district  court of a trustee for any Plan, or if any
Plan shall be terminated or any such trustee shall be requested or appointed, or
if Borrower,  any  Subsidiary  of Borrower or any  Guarantor is in "default" (as
defined  in  Section  4219(c)(5)  of  ERISA)  with  respect  to  payments  to  a
Multiemployer  Plan  resulting  from  Borrower's,   such  Subsidiary's  or  such
Guarantor's complete or partial withdrawal from such Plan.

     10.1.13 Challenge to Agreement. Borrower, any Subsidiary of Borrower or any
Guarantor,  or any Affiliate of any of them,  shall  challenge or contest in any
action, suit or proceeding the validity or enforceability of this Agreement,  or
any of the other Loan Documents,  the legality or  enforceability  of any of the
Obligations or the perfection or priority of any Lien granted to Lender.

     10.1.14 Repudiation of or Default Under Guaranty  Agreement.  Any Guarantor
shall  revoke  or  attempt  to  revoke  the  Guaranty  Agreement  signed by such
Guarantor,  or shall repudiate such Guarantor's liability thereunder or shall be
in default under the terms thereof.

     10.1.15 Default under  Distribution  Agreement or Pledge Agreement.  Harrow
Industries, Harrow Corporation,  Harrow Delaware or Borrower shall be in default
in any respect under the Distribution  Agreement, or Harrow Delaware shall be in
default in any respect under its Pledge Agreement in favor of Lender dated as of
April 5, 1991.

     10.1.16 Criminal Forfeiture. Borrower or any Guarantor or any Subsidiary of
Borrower or any Guarantor  shall be criminally  indicted or convicted  under any
law that could lead to a forfeiture of any Property of Borrower or any Guarantor
or any Subsidiary of Borrower or any Guarantor.

     10.1.17  Judgments.  Any material  money  judgment,  writ of  attachment or
similar  process is filed against  Borrower,  any  Subsidiary of Borrower or any
Guarantor, or any of their respective Property.

     10.2 Acceleration of the Obligations. Without in any way limiting the right
of Lender to demand payment of any portion of the Obligations  payable on demand
in accordance with Section 3.2 hereof,  upon or at any time after the occurrence
of an Event of Default,  all or any  portion of the  Obligations  shall,  at the
option of Lender and without  presentment,  demand  protest or further notice by
Lender,  become at once due and  payable and  Borrower  shall  forthwith  pay to
Lender, the full amount of such Obligations,  provided, that upon the occurrence
of an Event of Default specified in subsection 10.1.10 hereof, all of the

STL-506421.07

                                      -36-


<PAGE>

Obligations  shall become  automatically  due and payable  without  declaration,
notice or demand by Lender.

     10.3 Other Remedies.  Upon and after the occurrence of an Event of Default,
Lender shall have and may exercise  from time to time the  following  rights and
remedies:

     10.3.1 All of the rights and remedies of a secured  party under the Code or
under other  applicable  law, and all other legal and equitable  rights to which
Lender may be entitled, all of which rights and remedies shall be cumulative and
shall be in addition to any other rights or remedies contained in this Agreement
or any of the other Loan Documents, and none of which shall be exclusive.

     10.3.2 The right to take immediate possession of the Collateral, and to (i)
require Borrower to assemble the Collateral,  at Borrower's expense, and make it
available  to  Lender  at a place  designated  by  Lender  which  is  reasonably
convenient  to both  parties,  and (ii)  enter  any  premises  where  any of the
Collateral  shall  be  located  and to keep and  store  the  Collateral  on said
premises until sold (and if said premises be the Property of Borrower,  Borrower
agrees not to charge Lender for storage thereof).

     10.3.3 The right to sell or otherwise  dispose of all or any  Collateral in
its then condition, or after any further manufacturing or processing thereof, at
public or private sale or sales,  with such notice as may be required by law, in
lots or in bulk, for cash or on credit,  all as Lender,  in its sole discretion,
may deem  advisable.  Borrower agrees that 10 days written notice to Borrower of
any  public  or  private  sale or  other  disposition  of  Collateral  shall  be
reasonable  notice  thereof,  and such sale shall be at such locations as Lender
may designate in said notice.  Lender shall have the right to conduct such sales
on Borrower's premises, without charge therefor, and such sales may be adjourned
from time to time in accordance with applicable law. Lender shall have the right
to sell, lease or otherwise dispose of the Collateral,  or any part thereof, for
cash, credit or any combination thereof, and Lender may purchase all or any part
of the  Collateral at public or, if permitted by law,  private sale and, in lieu
of actual payment of such purchase  price,  may set off the amount of such price
against the Obligations.  The proceeds  realized from the sale of any Collateral
may be applied,  after  allowing 2 Business  Days for  collection,  first to the
costs,  expenses  and  attorneys'  fees  incurred  by Lender in  collecting  the
Obligations,  in enforcing the rights of Lender under the Loan  Documents and in
collecting, retaking, completing, protecting, removing, storing, advertising for
sale, selling and delivering any Collateral, second to the interest due upon any
of the Obligations; and third, to the principal of the Obligations.

STL-506421.07

                                      -37-




<PAGE>

 If any deficiency shall arise, Borrower and each Guarantor shall remain jointly
and severally liable to Lender therefor.

     10.3.4  Lender is hereby  granted a license or other right to use,  without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets,  tradenames,  trademarks and advertising  matter,  or any Property of a
similar nature,  as it pertains to the  Collateral,  in advertising for sale and
selling  any  Collateral  and  Borrower's  rights  under  all  licenses  and all
franchise agreements shall inure to Lender's benefit.

     10.3.5 Lender may, at its option,  require  Borrower to deposit with Lender
funds  equal to the LC Amount  and,  if  Borrower  fails to  promptly  make such
deposit,  Lender may advance such amount as a Revolving  Credit Loan (whether or
not an  Overadvance  is created  thereby).  Any such deposit or advance shall be
held by Lender as a reserve to fund future  payments on such LC  Guaranties  and
future  drawings  against  such  Letters  of  Credit.  At  such  time  as all LC
Guaranties  have been paid or  terminated  and all  Letters of Credit  have been
drawn upon or expired,  any amounts  remaining in such reserve  shall be applied
against  any  outstanding   Obligations,   or,  if  all  Obligations  have  been
indefeasibly paid in full, returned to Borrower.

     10.4 Remedies Cumulative; No Waiver. All covenants, conditions, provisions,
warranties,   guaranties,   indemnities,  and  other  undertakings  of  Borrower
contained in this  Agreement  and the other Loan  Documents,  or in any document
referred to herein or contained in any agreement  supplementary hereto or in any
schedule or in any Guaranty  Agreement given to Lender or contained in any other
agreement between Lender and Borrower,  heretofore,  concurrently,  or hereafter
entered  into,  shall  be  deemed   cumulative  to  and  not  in  derogation  or
substitution  of any of the  terms,  covenants,  conditions,  or  agreements  of
Borrower  herein  contained.  The  failure or delay of Lender to require  strict
performance  by Borrower of any  provision  of this  Agreement or to exercise or
enforce any rights,  Liens,  powers,  or remedies  hereunder or under any of the
aforesaid  agreements  or other  documents or security or  Collateral  shall not
operate as a waiver of such performance, Liens, rights, powers and remedies, but
all such  requirements,  Liens,  rights,  powers, and remedies shall continue in
full  force and  effect  until all Loans and all other  Obligations  owing or to
become owing from  Borrower to Lender shall have been fully  satisfied.  None of
the  undertakings,  agreements,  warranties,  covenants and  representations  of
Borrower  contained in this  Agreement or any of the other Loan Documents and no
Event of Default by Borrower  under this  Agreement or any other Loan  Documents
shall be  deemed to have  been  suspended  or  waived  by  Lender,  unless  such
suspension or waiver is by an instrument in writing  specifying  such suspension
or waiver and is

STL-506421.07

                                      -38-


<PAGE>
signed by a duly authorized representative of Lender and directed to Borrower.

SECTION 11.     MISCELLANEOUS

     11.1 Power of Attorney.  Borrower  hereby  irrevocably  designates,  makes,
constitutes  and  appoints  Lender  (and all  Persons  designated  by Lender) as
Borrower's true and lawful attorney (and  agent-in-fact) and Lender, or Lender's
agent,  may,  without  notice to Borrower  and in either  Borrower's or Lender's
name, but at the cost and expense of Borrower:

     11.1.1 At such time or times upon or after the  occurrence  of a Default or
an Event of  Default  as  Lender  or said  agent,  in its sole  discretion,  may
determine,  endorse Borrower's name on any checks, notes,  acceptances,  drafts,
money  orders or any other  evidence of payment or  proceeds  of the  Collateral
which come into the possession of Lender or under Lender's control.

     11.1.2 At such time or times  upon or after the  occurrence  of an Event of
Default as Lender or its agent in its sole discretion may determine:  (i) demand
payment  of the  Accounts  from the  Account  Debtors,  enforce  payment  of the
Accounts by legal  proceedings  or  otherwise,  and  generally  exercise  all of
Borrower's  rights and remedies with respect to the  collection of the Accounts;
(ii)  settle,  adjust,  compromise,  discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or  other  Collateral;  (iii)  sell or  assign  any of the  Accounts  and  other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems  advisable;  (iv) take control,  in any manner,  of any item of payment or
proceeds relating to any Collateral;  (v) prepare, file and sign Borrower's name
to a proof of claim in bankruptcy or similar document against any Account Debtor
or to any notice of lien, assignment or satisfaction of lien or similar document
in connection with any of the Collateral;  (vi) receive, open and dispose of all
mail  addressed  to  Borrower  and to notify  postal  authorities  to change the
address for  delivery  thereof to such  address as Lender may  designate;  (vii)
endorse  the name of  Borrower  upon any of the  items of  payment  or  proceeds
relating  to any  Collateral  and  deposit  the same to the account of Lender on
account of the Obligations; (viii) endorse the name of Borrower upon any chattel
paper, document,  instrument,  invoice,  freight bill, bill of lading or similar
document  or  agreement  relating  to the  Accounts,  Inventory  and  any  other
Collateral;  (ix) use  Borrower's  stationery  and sign the name of  Borrower to
verifications  of the Accounts and notices thereof to Account  Debtors;  (x) use
the information  recorded on or contained in any data  processing  equipment and
computer  hardware and software relating to the Accounts,  Inventory,  Equipment
and any other Collateral; (xi)

STL-506421.07

                                      -39-




<PAGE>
make and adjust claims under policies of insurance;  and (xii) do all other acts
and  things  necessary,  in  Lender's   determination,   to  fulfill  Borrower's
obligations under this Agreement.

     11.2 Indemnity.  Borrower hereby agrees to indemnify Lender and hold Lender
harmless  from  and  against  any  liability,  loss,  damage,  suit,  action  or
proceeding ever suffered or incurred by Lender (including  reasonable  attorneys
fees and legal expenses) as the result of Borrower's failure to observe, perform
or discharge  Borrower's  duties hereunder.  In addition,  Borrower shall defend
Lender  against and save it harmless  from all claims of any Person with respect
to the  Collateral.  Without  limiting the  generality of the  foregoing,  these
indemnities  shall extend to any claims  asserted  against  Lender by any Person
under any  Environmental  Laws or similar  laws by reason of  Borrower's  or any
other  Person's  failure to comply with laws  applicable  to solid or  hazardous
waste  materials  or  other  toxic  substances.   Notwithstanding  any  contrary
provision in this Agreement,  the obligation of Borrower under this Section 11.2
shall survive the payment in full of the Obligations and the termination of this
Agreement.

     11.3 Modification of Agreement; Sale of Interest. This Agreement may not be
modified,  altered or  amended,  except by an  agreement  in  writing  signed by
Borrower and Lender.  Borrower may not sell,  assign or transfer any interest in
this Agreement,  any of the other Loan Documents, or any of the Obligations,  or
any portion thereof,  including,  without limitation,  Borrower's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. Borrower hereby
consents  to  Lender's  participation,   sale,  assignment,  transfer  or  other
disposition,  at any time or times  hereafter,  of this Agreement and any of the
other Loan Documents,  or of any portion hereof or thereof,  including,  without
limitation,  Lender's rights,  title,  interests,  remedies,  powers, and duties
hereunder or thereunder. In selecting any Participating Lender hereunder, Lender
will consult with Borrower as to the identity of potential Participating Lenders
and will  not  unreasonably  withhold  its  consent  to a  Participating  Lender
recommended by Borrower. In the case of an assignment,  the assignee shall have,
to the extent of such assignment,  the same rights,  benefits and obligations as
it would if it were  "Lender"  hereunder  and Lender  shall be  relieved  of all
obligations  hereunder upon any such  assignments.  Borrower agrees that it will
use its  best  efforts  to  assist  and  cooperate  with  Lender  in any  manner
reasonably  requested  by  Lender  to effect  the sale of  participations  in or
assignments  of any of the Loan  Documents  or any  portion  thereof or interest
therein,  including,  without  limitation,   assisting  in  the  preparation  of
appropriate  disclosure  documents.  Borrower  further  agrees  that  Lender may
disclose  credit  information  regarding  Borrower and its  Subsidiaries  to any
potential participant or assignee.

STL-506421.07

                                     - 40 -

<PAGE>

     11.4  Severability.  Wherever  possible,  each  provision of this Agreement
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under  applicable law, such provision  shall be ineffective  only to the
extent of such prohibition or invalidity,  without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

     11.5 Successors and Assigns.  This Agreement,  the Other Agreements and the
Security  Documents  shall be  binding  upon and  inure  to the  benefit  of the
successors  and assigns of Borrower  and Lender  permitted  under  Section  11.3
hereof.

     11.6  Cumulative  Effect;  Conflict of Terms.  The  provisions of the Other
Agreements  and the  Security  Documents  are hereby  made  cumulative  with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof
and except as otherwise  provided in any of the other Loan Documents by specific
reference  to the  applicable  provision  of this  Agreement,  if any  provision
contained in this Agreement is in direct  conflict with, or  inconsistent  with,
any provision in any of the other Loan  Documents,  the  provision  contained in
this Agreement shall govern and control.

     11.7  Execution  in  Counterparts.  This  Agreement  may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and  delivered  shall be deemed to be an original
and all of which  counterparts  taken together shall  constitute but one and the
same instrument.

     11.8 Notice. Except as otherwise provided herein, all notices, requests and
demands to or upon a party  hereto,  to be  effective,  shall be in writing  and
shall be sent by certified or registered  mail,  return  receipt  requested,  by
personal  delivery  against receipt,  by overnight  courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served,  given or delivered  immediately  when delivered  against  receipt,  one
Business Day after deposit in the mail,  postage  prepaid,  or with an overnight
courier or, in the case of facsimile notice, when sent, addressed as follows:

         If to Lender:        Fleet Capital Corporation 
                              20800 Swenson Drive, Suite 350 
                              Waukesha, Wisconsin 53186 
                              Attention: Edward M. Bartkowski 
                              Facsimile No.: (414) 798-4882



STL-506421.07

                                      -41-




<PAGE>

         With a copy to:      Husch & Eppenberger
                              100 N. Broadway, Suite 1300
                              St. Louis, Missouri 63102
                              Attention: Maury B. Poscover, Esq.
                              Facsimile No.: (314) 421-0239

         If to Borrower:      Harrow Products, Inc.
                              2627 East Beltline, S.E.
                              Grand Rapids, Michigan 49546
                              Attention: President
                              Facsimile No.: 616-942-2170

         With a copy to:      Curtis, Mallet-Prevost, Colt & Mosle
                              101 Park Avenue
                              New York, New York 10178
                              Attention: John N. Marden, Esq.
                              Facsimile No.: 212-697-1559

or to such other  address as each party may designate for itself by notice given
in  accordance  with this  Section  11.8;  provided,  however,  that any notice,
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2 hereof
shall not be effective until received by Lender.

     11.9  Lender's  Consent.  Except as otherwise  expressly  provided  herein,
whenever  Lender's consent is required to be obtained under this Agreement,  any
of the Other  Agreements or any of the Security  Documents as a condition to any
action,  inaction,  condition or event,  Lender shall exercise reasonable credit
judgment  in  determining  whether to give or  withhold  such  consent,  and may
condition its consent upon the giving of additional  collateral security for the
Obligations,  the payment of money or such other matters as it deems appropriate
in the exercise of its reasonable credit judgment.

     11.10 Credit  Inquiries.  Borrower hereby  authorizes and permits Lender to
respond to usual and customary  credit  inquiries from third parties  concerning
Borrower or any of its Subsidiaries.

     11.11 Time of Essence. Time is of the essence of this Agreement,  the Other
Agreements and the Security Documents.

     11.12 Entire.  This Agreement and the other Loan  Documents,  together with
all other  instruments,  agreements and certificates  executed by the parties in
connection therewith or with reference thereto,  embody the entire understanding
and agreement between the parties hereto and thereto with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings and
inducements, whether express or implied, oral or written.

STL-506421.07

                                     - 42 -




<PAGE>

     11.13  Interpretation.  No provision of this  Agreement or any of the other
Loan Documents shall be construed  against or interpreted to the disadvantage of
any party  hereto by any court or other  governmental  or judicial  authority by
reason of such party having or being deemed to have  structured or dictated such
provision.

     11.14 GOVERNING LAW; CONSENT TO FORUM.  THIS AGREEMENT SHALL BE GOVERNED BY
AND  CONSTRUED IN ACCORDANCE  WITH THE LAWS OF THE STATE OF ILLINOIS:  PROVIDED,
HOWEVER,  THAT IF ANY OF THE  COLLATERAL  SHALL BE LOCATED  IN ANY  JURISDICTION
OTHER THAN  ILLINOIS,  THE LAWS OF SUCH  JURISDICTION  SHALL  GOVERN THE METHOD,
MANNER AND PROCEDURE FOR  FORECLOSURE OF LENDER'S LIEN UPON SUCH  COLLATERAL AND
THE  ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE
EXTENT THAT THE LAWS OF SUCH  JURISDICTION  ARE DIFFERENT  FROM OR  INCONSISTENT
WITH THE LAWS OF ILLINOIS.  AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED,
AND REGARDLESS OF ANY PRESENT OR FUTURE  DOMICILE OR PRINCIPAL PLACE OF BUSINESS
OF BORROWER OR LENDER,  BORROWER HEREBY CONSENTS AND AGREES THAT ANY STATE COURT
LOCATED IN COOK COUNTY,  ILLINOIS,  OR, AT LENDER'S  OPTION,  ANY UNITED  STATES
DISTRICT  COURT  LOCATED  IN  COOK  COUNTY,   ILLINOIS,   SHALL  HAVE  EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES  BETWEEN  BORROWER AND
LENDER  PERTAINING TO THIS  AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS AGREEMENT.  BORROWER  EXPRESSLY  SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION  IN ANY ACTION OR SUIT  COMMENCED  IN ANY SUCH COURT,  AND BORROWER
HEREBY WAIVES ANY OBJECTION  WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION,  IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING  OF SUCH LEGAL OR  EQUITABLE  RELIEF AS IS DEEMED  APPROPRIATE  BY SUCH
COURT.  BORROWER  HEREBY WAIVES PERSONAL  SERVICE OF THE SUMMONS,  COMPLAINT AND
OTHER PROCESS  ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED  TO  BORROWER  AT THE  ADDRESS  SET FORTH IN THIS  AGREEMENT  AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S  ACTUAL
RECEIPT  THEREOF  OR 5 DAYS  AFTER  DEPOSIT IN THE U.S.  MAILS,  PROPER  POSTAGE
PREPAID.  NOTHING  IN THIS  AGREEMENT  SHALL BE DEEMED OR  OPERATE TO AFFECT THE
RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER  PERMITTED BY LAW, OR
TO PRECLUDE THE  ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION  UNDER THIS  AGREEMENT  TO ENFORCE SAME IN ANY
OTHER APPROPRIATE FORUM OR JURISDICTION.

     11.15 WAIVERS BY BORROWER.  TO THE FULLEST  EXTENT  PERMITTED BY APPLICABLE
LAW,  BORROWER  WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH  LENDER HEREBY ALSO
WAIVES) IN ANY ACTION, SUIT,  PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT
OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE

STL-506421.07

                                     - 43 -


<PAGE>
COLLATERAL:  (ii)  PRESENTMENT,  DEMAND AND PROTEST  AND NOTICE OF  PRESENTMENT,
PROTEST,  DEFAULT,  NON  PAYMENT,  MATURITY,  RELEASE,  COMPROMISE,  SETTLEMENT,
EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS,  CONTRACT RIGHTS,
DOCUMENTS,  INSTRUMENTS  CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH  BORROWER  MAY IN ANY WAY BE LIABLE AND HEREBY  RATIFIES  AND  CONFIRMS
WHATEVER LENDER MAY DO IN THIS REGARD;  (iii) NOTICE PRIOR TO TAKING  POSSESSION
OR CONTROL OF THE  COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY
ANY COURT PRIOR TO ALLOWING  LENDER TO EXERCISE  ANY OF LENDER'S  REMEDIES;  AND
(iv) THE BENEFIT OF ALL VALUATION,  APPRAISEMENT  AND EXEMPTION  LAWS.  BORROWER
ACKNOWLEDGES  THAT THE FOREGOING  WAIVERS ARE A MATERIAL  INDUCEMENT TO LENDER'S
ENTERING  INTO THIS  AGREEMENT  AND THAT  LENDER IS RELYING  UPON THE  FOREGOING
WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER.  BORROWER  WARRANTS AND REPRESENTS
THAT IT HAS  REVIEWED  THE  FOREGOING  WAIVERS  WITH ITS LEGAL  COUNSEL  AND HAS
KNOWINGLY AND VOLUNTARILY  WAIVED ITS JURY TRIAL RIGHTS  FOLLOWING  CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.


                                   (Remainder of page intentionally left blank)








STL-506421.07

                                     - 44 -




<PAGE>



(Signature page of First Amended and Restated Loan and Security Agreement by and
between  Harrow  Products,  Inc.,  a  Delaware  corporation,  and Fleet  Capital
Corporation, a Rhode Island corporation)

         IN WITNESS  WHEREOF,  this  Agreement has been duly executed on the day
and year specified at the beginning of this Agreement.


                                                 HARROW PRODUCTS, INC.


                                                 By: /s/ John S. Hogan
                                                     Name:  John S. Hogan
                                                     Title: VP & CFO

     
                                                 FLEET CAPITAL CORPORATION
          

                                                 By: /s/ Edward M. Bartkowski
                                                     Edward M. Bartkowski 
                                                     Vice President








STL-506421.07
                                      45 -



<PAGE>



                                   APPENDIX A

                               GENERAL DEFINITIONS

     When used in the First  Amended and Restated  Loan and  Security  Agreement
dated as of July 31, 1996, by and between Fleet Capital  Corporation  and Harrow
Products,  Inc., the following  terms shall have the following  meanings  (terms
defined in the  singular  to have the same  meaning  when used in the plural and
vice versa):

          Account Debtor - any Person who is or may become obligated under or on
     account of an Account.

          Accounts - all accounts,  contract rights, chattel paper,  instruments
     and  documents,  whether  now owned or  hereafter  created or  acquired  by
     Borrower or RSI or in which  Borrower or RSI now have or hereafter  acquire
     any interest.

          Adjusted  Net  Earnings  From  Operations - with respect to any fiscal
     period,  means the net earnings (or loss) after  provision for income taxes
     for such fiscal period of Borrower, as reflected on the financial statement
     of Borrower  supplied to Lender  pursuant to subsection  8.1.3 hereof,  but
     excluding:

               (i) any gain or loss arising from the sale of capital assets;

               (ii) any gain arising from any write-up of assets;

               (iii)  earnings of any  Subsidiary  accrued  prior to the date it
          became a Subsidiary;

               (iv) earnings of any corporation, substantially all the assets of
          which have been  acquired in any manner by Borrower,  realized by such
          corporation prior to the date of such acquisition;

               (v) net earnings of any business entity (other than a Subsidiary)
          in which Borrower has an ownership  interest  unless such net earnings
          shall have  actually  been  received  by  Borrower in the form of cash
          distributions;

               (vi) any portion of the net earnings of any Subsidiary  which for
          any reason is unavailable for payment of dividends to Borrower;

               (vii) the  earnings of any Person to which any assets of Borrower
          shall have been sold, transferred or

STL-506421.06

<PAGE>


          disposed of, or into which Borrower shall have merged, or been a party
          to any  consolidation  or other form of  reorganization, prior  to the
          date of such transaction;

               (viii) any gain arising from the acquisition of any Securities of
          Borrower; and

               (ix) any gain arising from extraordinary or nonrecurring items.

          Affiliate - a Person (other than a Subsidiary):  (i) which directly or
     indirectly through one or more  intermediaries  controls,  or is controlled
     by, or is under common control with, a Person; (ii) which beneficially owns
     or holds 5% or more of any class of the Voting Stock of a Person;  or (iii)
     5% or more of the Voting  Stock (or in the case of a Person  which is not a
     corporation,  5% or more of the equity  interest) of which is  beneficially
     owned or held by a Person or a Subsidiary of a Person.

          Agreement - the First Amended and Restated Loan and Security Agreement
     referred to in the first sentence of this Appendix A, all Exhibits  thereto
     and this Appendix A.

          Applicable  LIBOR Margin - the margin rate of interest set forth below
     opposite  the  applicable  ratio  of  Borrower's  Funded  Debt  to  EBITDA,
     calculated on a Consolidated basis, for the six month periods ending May 31
     and  November 30 of each  year (in the table below,  "X" is the  calculated
     amount of the ratio):

                   Ratio               Margin

                                X greater than or equal to 3.5:1.0       2.00%
  3.0:1.0 less than or equal to X less than                3.5:1.0       1.75%
  2.5:1.0 less than or equal to X less than                3.0:1.0       1.50%
  2.0:1.0 less than or equal to X less than                2.5:1.0       1.25%
                                X less than                2.0:1.0       1.00%

          The  applicable  margin  shall  then be  effective  for the six  month
     periods beginning June 1 and December 31, respectively, of each year.

          Availability  - the amount of money  which  Borrower  is  entitled  to
     borrow from time to time as Revolving  Credit Loans,  such amount being the
     difference derived when the sum of the principal amount of Revolving Credit
     Loans then  outstanding  (including  any amounts which Lender may have paid
     for the account of Borrower pursuant to any of the Loan Documents and which
     have not been  reimbursed by Borrower) and the LC Amount is subtracted from
     the Borrowing Base. If

STL-506421.07

                                       -2-

<PAGE>

     the amount  outstanding  is equal to or greater  than the  Borrowing  Base,
     Availability is 0.

          Bank - Fleet National Bank.

          Barclays - Barclays Business Credit, Inc., a Connecticut corporation.

          Base Rate - the rate of interest generally announced or quoted by Bank
     from time to time as its base rate for  commercial  loans,  whether  or not
     such  rate  is the  lowest  rate  charged  by Bank  to its  most  preferred
     borrowers;  and if such base rate for commercial  loans is  discontinued by
     Bank as a standard,  a comparable  reference  rate  designated by Bank as a
     substitute therefor shall be the Base Rate.

          Base Rate Portion - a Base Rate Term Portion or a Base Rate  Revolving
     Credit Portion.

          Base Rate  Revolving  Credit  Portion - the  portion of the  Revolving
     Credit Loans that is not subject to a LIBOR Option.

          Base Rate Term  Portion  - that  portion  of the Term Loan that is not
     subject to a LIBOR Option.

          Borrowing Base - as at any date of  determination  thereof,  an amount
     equal to the lesser of:

               (i) $30,000,000  minus the unpaid  principal  balance of the Term
          Loan at such date; or

               (ii) an amount equal to:

                    (a) 85% of the net amount of Eligible  Accounts  outstanding
               at such date;  provided,  however,  that not more than $3,000,000
               shall be advanced at any one time against the Borrower's Eligible
               Extended  Term  Accounts  and not more than  $4,000,000  shall be
               advanced at any one time against the  Borrower's  Eligible  Dated
               Term Accounts;

                                      PLUS

                    (b) the lesser of (1) $6,000,000 or (2) 55%, of the value of
               Eligible  Inventory at such date  calculated on the lower of cost
               or market, on a first-in, first-out basis.

          For purposes hereof, the net amount of Eligible

STL-506421.07
                                       -3-




<PAGE>



     Accounts at any time  shall be the face  amount of such  Eligible  Accounts
     less any  and  all  returns,  rebates,  discounts (which  may,  at Lender's
     option,  be calculated  on shortest terms),  credits,  allowances or excise
     taxes of any nature at any time issued, owing,  claimed by Account Debtors,
     granted, outstanding  or payable in  connection  with such Accounts at such
     time.

          Business Day - (i) when used with respect to the LIBOR  Option,  shall
     mean a day on which  dealings may be effected in deposits of United  States
     Dollars in the London  interbank  foreign  currency  deposits market and on
     which Lender is conducting and other banks may conduct  business in London,
     England,  or the State of Illinois,  and (ii) when used with respect to any
     other provision of the Agreement,  any day excluding  Saturday,  Sunday and
     any day which is a legal holiday under the laws of the State of Illinois or
     is a day on which banking institutions located in such state are closed.

          Capital  Expenditures - expenditures made or liabilities  incurred for
     the  acquisition  of  any  fixed  assets  or  improvements,   replacements,
     substitutions  or additions  thereto  which have a useful life of more than
     one year,  including  the total  principal  portion  of  Capitalized  Lease
     Obligations.

          Capitalized  Lease  Obligation  -  any  Indebtedness   represented  by
     obligations  under a lease that is required to be capitalized for financial
     reporting purposes in accordance with GAAP.

          Cash Flow - for any period, means Borrower's Consolidated (i) Adjusted
     Net Earnings From  Operations  for such period plus (ii)  depreciation  and
     amortization  expenses for such period,  plus (iii) deferred taxes for such
     period, all as determined in accordance with GAAP.

          Closing  Date - the date on which all of the  conditions  precedent in
     Section 9 of the  Agreement  are  satisfied and the initial Loan is made or
     the initial Letter of Credit or LC Guaranty is issued under the Agreement.

          Code - the  Uniform  Commercial  Code as  adopted  and in force in the
     State of Illinois, as from time to time in effect.

          Collateral - all of the Property and  interests in Property  described
     in Section 5 of the  Agreement,  and all other  Property  and  interests in
     Property that now or hereafter secure the payment and performance of any of
     the
<PAGE>



     Obligations.

          Consolidated  - the  consolidation  in  accordance  with  GAAP  of the
     accounts or other items as to which such term applies.

          Consulting  Agreement - That certain  Consulting/NonCompete  Agreement
     dated  on or  about  January  4,  1995 among  Borrower,  RSI and  David P.
     Sidlauskas.

          Copyright Assignment - The Copyright Collateral Assignment executed by
     Borrower  and dated as of April 5,  1991,  by which  Borrower  assigned  to
     Barclays and its assigns as security for the obligations  noted therein all
     of  Borrower's  right,  title  and  interest  in  and  to  certain  of  its
     copyrights.

          Copyright  Assignment  Amendment  - the  amendment  to  the  Copyright
     Assignment  to be executed by Borrower in favor of Lender and dated of even
     date herewith.

          Current  Assets - at any date  means  the  amount  at which all of the
     current  assets of a Person would be properly  classified as current assets
     shown on a balance sheet at such date in  accordance  with GAAP except that
     amounts due from Affiliates and investments in Affiliates shall be excluded
     therefrom.

          Current Liabilities - at any date means the amount at which all of the
     current  liabilities  of a Person would be properly  classified  as current
     liabilities on a balance sheet at such date in accordance with GAAP.

          Default - an event or condition the  occurrence  of which would,  with
     the lapse of time or the  giving  of  notice,  or both,  become an Event of
     Default.

          Default Rate - as defined in subsection 2.1.2 of the Agreement.

          Distribution - in respect of any corporation  means and includes:  (i)
     the payment of any dividends or other distributions on capital stock of the
     corporation (except distributions in such stock) and (ii) the redemption or
     acquisition  of  Securities  unless  made  contemporaneously  from  the net
     proceeds of the sale of Securities.

          Distribution  Agreement - that certain Distribution Agreement dated as
     of April 5, 1991,  among  Harrow  Industries,  Harrow  Corporation,  Harrow
     Delaware,  Borrower  and  Lender,  as the same may be amended  from time to
     time.

STL-506421.07

                                      -5-

<PAGE>
          Distribution  Agreement  Amendment - that certain  First  Amendment to
     Distribution   Agreement   dated  of  even  date  herewith,   among  Harrow
     Industries, Harrow Corporation, Harrow Delaware, Borrower and Lender.

          Dominion Account - a special account of Lender established by Borrower
     pursuant to this  Agreement at a bank selected by Borrower,  but acceptable
     to Lender in its  reasonable  discretion,  and over which Lender shall have
     sole and exclusive access and control for withdrawal purposes.

          EBIT - with respect to any fiscal  period,  Adjusted Net Earnings From
     Operations  for such  period,  plus  amounts  deducted  in the  computation
     thereof for Interest Expense and for federal, state and local income taxes.

          EBITDA - with  respect to any  fiscal  period,  the sum of  Borrower's
     Consolidated  net  earnings  (or  loss)  before  interest  expense,  taxes,
     depreciation  and  amortization for said period as determined in accordance
     with GAAP.

          Eligible  Account  - an  Account  arising  in the  ordinary  course of
     Borrower's or RSI's business (as the case may be) from the sale of goods or
     rendition of services which Lender,  in its sole credit judgment,  deems to
     be an Eligible  Account.  Without limiting the generality of the foregoing,
     no Account shall be an Eligible Account if:

               (i)  it  arises  out  of a  sale  made  by  Borrower  or RSI to a
          Subsidiary  or  an  Affiliate  of  Borrower  or  RSI  or  to a  Person
          controlled by an Affiliate of either; or

               (ii)  except  for  Eligible  Dated  Term  Accounts  and  Eligible
          Extended Term Accounts, it is stated to be due more than 30 days after
          the original invoice date;

               (iii) it is unpaid for more than 90 days after the  original  due
          date shown on the invoice; or

               (iv) 25% or more of the Accounts from the Account  Debtor are not
          deemed Eligible Accounts hereunder; or

               (v) the total unpaid Accounts of the Account Debtor exceed 25% of
          the net amount of all Eligible Accounts, to the extent of such excess;
          or

               (vi) any covenant, representation or

STL-506421.07

                                       -6-




<PAGE>



          warranty  contained in the Agreement  with respect to such Account has
          been breached; or

               (vii) the Account Debtor is also  Borrower's or RSI's creditor or
          supplier, or the Account Debtor has disputed liability with respect to
          such Account, or the Account Debtor has made any claim with respect to
          any other Account due from such Account  Debtor to Borrower or RSI, or
          the Account  otherwise is or may become subject to any right of setoff
          by the Account Debtor; or

               (viii) the Account  Debtor has  commenced a voluntary  case under
          the federal  bankruptcy laws, as now constituted or hereafter amended,
          or made an  assignment  for the benefit of  creditors,  or a decree or
          order for relief has been  entered by a court having  jurisdiction  in
          the premises in respect of the Account Debtor in an  involuntary  case
          under the federal  bankruptcy  laws, as now  constituted  or hereafter
          amended,  or any other petition or other  application for relief under
          the federal bankruptcy laws has been filed against the Account Debtor,
          or if the Account Debtor has failed, suspended business,  ceased to be
          Solvent, or consented to or suffered a receiver,  trustee,  liquidator
          or  custodian  to be  appointed  for  it or for  all or a  significant
          portion of its assets or affairs; or

               (ix) it  arises  from a sale to an  Account  Debtor  outside  the
          United  States or  Canada,  unless  the sale is on  letter of  credit,
          guaranty or acceptance terms, in each case acceptable to Lender in its
          sole discretion; or

               (x) it  arises  from a sale  to the  Account  Debtor  on a  bill-
          and-hold,    guaranteed   sale,   sale-or-return,    sale-on-approval,
          consignment or any other repurchase or return basis; or

               (xi) the  Account  Debtor is the United  States of America or any
          department,  agency or instrumentality thereof, unless Borrower or RSI
          (as the case may be) assigns  its right to payment of such  Account to
          Lender,  in a manner  satisfactory to Lender, so as to comply with the
          Assignment  of Claims  Act of 1940  (31  U.S.C.  ss.203  et seq.,  as
          amended); or

               (xii) the  Account is  subject  to a Lien other than a  Permitted
          Lien; or

STL-506421.07
                                       -7-




<PAGE>

               (xiii)  the  goods  giving  rise to such  Account  have  not been
          delivered to and accepted by the Account Debtor or the services giving
          rise to such  Account  have not been  performed by Borrower or RSI (as
          the case may be) and  accepted  by the  Account  Debtor or the Account
          otherwise does not represent a final sale; or

               (xiv) the Account is evidenced by chattel  paper or an instrument
          of any kind, or has been reduced to judgment; or

               (xv)  Borrower  or RSI has made any  agreement  with the  Account
          Debtor for any deduction therefrom, except for discounts or allowances
          which are made in the ordinary  course of business for prompt  payment
          and which  discounts or allowances are reflected in the calculation of
          the face value of each invoice related to such Account; or

               (xvi)  Borrower  or RSI has made an  agreement  with the  Account
          Debtor to extend the time of payment thereof.

          If RSI is in default in any respect under its Guaranty Agreement, then
     Accounts of RSI shall not be Eligible Accounts hereunder.

          Eligible Dated Term Account. An Account, stated to be due more than 30
     days after the original  invoice  date,  arising  solely out of the sale of
     goods or the rendering of services by Borrower's  Corona  Clipper  division
     which would be an Eligible  Account but for the  application of clause (ii)
     of the definition of "Eligible  Account" herein, and which is not more than
     30 days past due.

          Eligible  Extended  Term  Account - An Account,  stated to be due more
     than 30 days after the original invoice date arising solely out of the sale
     of goods or services by  Borrower's  H.B.  Ives,  Rutt,  FHP or  Locknetics
     Security  Engineering  divisions which would be an Eligible Account but for
     the  application  of clause (ii) of the  definition  of "Eligible  Account"
     herein,  and  which  remains  unpaid  for not more than 150 days  after the
     original invoice date.

          Eligible  Inventory - such Inventory  (other than packaging  materials
     and supplies) of Borrower or RSI (as the case may be) which Lender,  in its
     reasonable  credit  judgment,  deems  to  be  Eligible  Inventory.  Without
     limiting the  generality of the foregoing,  no Inventory  shall be Eligible
     Inventory if:


STL-506421.07

                                       -8-




<PAGE>

               (i) it is not raw  materials  or  finished  goods,  that are,  in
          Lender's opinion, readily marketable in its current form; or

               (ii) it is not in good, new and saleable condition; or

               (iii) it is slow-moving, obsolete or unmerchantable; or

               (iv) it does not meet all  standards  imposed  by any  applicable
          governmental agency or authority; or

               (v) it does not  conform in all  respects to the  warranties  and
          representations set forth in the Agreement,

               (vi) it is not at all times subject to Lender's  duly  perfected,
          first priority  security interest and no other Lien except a Permitted
          Lien; or

               (vii) it is not  situated  at a location in  compliance  with the
          Agreement or is in transit.


          Environmental  Laws  - all  federal,  state  and  local  laws,  rules,
     regulations,  ordinances,  programs, permits, guidances, orders and consent
     decrees relating to health, safety and environmental matters.

          Equipment - all machinery,  apparatus, equipment, fittings, furniture,
     fixtures,  motor vehicles and other tangible  personal Property (other than
     Inventory) of every kind and description  used in Borrower's  operations or
     owned by Borrower or in which  Borrower has an interest,  whether now owned
     or  hereafter  acquired by Borrower and  wherever  located,  and all parts,
     accessories and special tools and all increases and accessions  thereto and
     substitutions and replacements therefor.

          ERISA - the  Employee  Retirement  Income  Security  Act of  1974,  as
     amended,  and all  rules  and  regulations  from  time to time  promulgated
     thereunder.

          Event of Default - as defined in Section 10.1 of the Agreement.

          Fixed Charges - for any  accounting  period,  the sum of (i) scheduled
     principal  payments  required  to be made  during such period in respect to
     Indebtedness, plus (ii) Capital

STL-506421.07

                                       -9-




<PAGE>



     Expenditures   not  financed  by  borrowings   under  any  other  financing
     arrangement otherwise  permitted  hereunder  during any such period, all as
     determined in accordance with GAAP.

          Fleming - Robert Fleming & Co. Limited,  an English  merchant  banking
     firm.

          Florida  Facility  - the  facility  utilized  by  the  Borrower's  FHP
     Manufacturing Division located in Fort Lauderdale, Florida.

          Funded Debt - the sum of all Indebtedness of Borrower to Lender,  plus
     all Subordinated Debt.

          GAAP - generally accepted  accounting  principles in the United States
     of America in effect from time to time.

          General  Intangibles  - all personal  property of Borrower  (including
     things in action) other than goods,  Accounts,  chattel  paper,  documents,
     instruments and money,  whether now owned or hereafter  created or acquired
     by Borrower.

          Guarantors  - RSI and any other  Person  who may  hereafter  guarantee
     payment or performance of the whole or any part of the Obligations.

          Guarantor  Security  Agreement - the  Security  Agreement  dated as of
     January  4,  1995,  executed  by RSI,  by which RSI,  as  security  for its
     obligations  to Lender  under its Guaranty  Agreement,  granted to Lender a
     security  interest in all of RSI's  presently  owned or hereafter  acquired
     accounts, inventory, and certain general intangibles.

          Guaranty Agreement - the Guaranty executed by RSI and dated January 4,
     1995, by which RSI unconditionally guarantees payment of the Obligations.

          Harrow Corporation - Harrow Corporation, a Delaware corporation.

          Harrow  Delaware  -  Harrow  Products,  Inc.  (Delaware),  a  Delaware
     corporation.

          Harrow Industries - Harrow Industries, Inc., a Delaware corporation.

          Indebtedness - as applied to a Person means,  without  duplication 

                    (i) all  items  which  in  accordance  with  GAAP  would  be
               included in determining total liabilities

STL-506421.07
                                      - 10-



<PAGE>

               as shown on the liability  side of a balance sheet of such Person
               as at the  date as of  which  Indebtedness  is to be  determined,
               including, without limitation, Capitalized Lease Obligations,

                    (ii) all  obligations of other Persons which such Person has
               guaranteed,

                    (iii)  all  reimbursement  obligations  in  connection  with
               letters of credit or letter of credit  guaranties  issued for the
               account of such Person, and

                    (iv) in the  case of  Borrower  (without  duplication),  the
               Obligations.

          Intercompany Note - that certain 13-1/2%  Partially  Subordinated Note
     due April 13, 2002 (No. 2) dated April 18, 1988 in the  original  principal
     amount of  $52,500,000,  and any note or notes issued in exchange  therefor
     from time to time.

          Interest  Expense - with  respect to any fiscal  period,  the interest
     expense incurred for such period as determined in accordance with GAAP plus
     the Letter of Credit and LC Guaranty fees owing for such period.

          Inventory  - all  inventory  of  Borrower  or RSI, as the case may be,
     whether now owned or hereafter acquired including,  but not limited to, all
     goods intended for sale or lease by Borrower or RSI, as the case may be, or
     for display or  demonstration;  all work in process;  all raw materials and
     other materials and supplies of every nature and description  used or which
     might  be used in  connection  with  the  manufacture,  printing,  packing,
     shipping,  advertising,  selling,  leasing or  furnishing  of such goods or
     otherwise used or consumed in Borrower's or RSI's business, as the case may
     be; and all documents evidencing and General Intangibles relating to any of
     the foregoing,  whether now owned or hereafter acquired by Borrower or RSI,
     as the case may be.

          LC Amount - at any time,  the  aggregate  undrawn  face  amount of all
     Letters of Credit and LC Guaranties then outstanding.

          LC Guaranty - any guaranty  pursuant to which Lender or any  Affiliate
     of Lender  shall  guaranty  the payment or  performance  by Borrower of its
     reimbursement obligation under any letter of credit.

          Legal Requirement - any requirement imposed upon Lender

STL-506421.07


<PAGE>



          by any law of the United States of America or the United Kingdom or by
          any regulation,  order,  interpretation,  ruling or official directive
          (whether  or not having  the force of law) of the  Board,  the Bank of
          England  or  any  other  board,   central  bank  or   governmental  or
          administrative  agency,  institution or authority of the United States
          of America, the United Kingdom or any political  subdivision of either
          thereof.

          Letter  of Credit - any  letter  of credit  issued by Lender or any of
     Lender's Affiliates for the account of Borrower.

          LIBOR  Interest  Payment  Date - with  respect to any LIBOR  Revolving
     Credit  Portion or any LIBOR Term  Portion,  the last day of each  calendar
     month during the applicable LIBOR Period.

          LIBOR Option - the option  granted  pursuant to subsection 2.3 to have
     the interest on all or any portion of the principal amount of the Revolving
     Credit Loans or the Term Loan based on a LIBOR Rate.

          LIBOR Period - any period of 30 days, 60 days or 90 days commencing on
     a Business  Day,  selected  as  provided in  subsection  2.3(i);  provided,
     however  that no  LIBOR  Period  shall  extend  beyond  the last day of the
     original  Term,  unless  Borrower and Lender have agreed to an extension of
     the Original Term beyond the expiration of the LIBOR Period in question and
     that,  with respect to any LIBOR Term Portion,  no applicable  LIBOR Period
     shall extend beyond the scheduled  installment  payment date for such LIBOR
     Term Portion.  If any LIBOR Period so selected  shall end on a date that is
     not a  Business  Day,  such  LIBOR  Period  shall  instead  end on the next
     preceding or succeeding  Business Day as determined by Lender in accordance
     with the then current banking practice in London;  provided,  that Borrower
     shall not be required  to pay double  interest,  even though the  preceding
     LIBOR  Period ends and the new LIBOR  Period  begins on the same day.  Each
     determination  by Lender of the  LIBOR  Period  shall,  in the  absence  of
     manifest error, be conclusive.

          LIBOR  Portion - a LIBOR  Revolving  Credit  Portion  or a LIBOR  Term
     Portion.

          LIBOR Rate - with  respect to any LIBOR  Revolving  Credit  Portion or
     LIBOR Term Portion for the related LIBOR Period, an interest rate per annum
     (rounded upwards, if necessary,  to the next higher 1/8 of 1%) equal to the
     product of (i) the Base LIBOR Rate (as hereinafter defined) multiplied by

STL-506421.07
                                     - 12 -




<PAGE>



               (ii) Statutory  Reserves.  For purposes of this  definition,  the
          term "Base LIBOR Rate" shall mean the rate (rounded to the nearest 1/8
          of 1% or, if there is no nearest 1/8 of 1%, the next higher 1/8 of 1%)
          at which  deposits of U.S.  dollars  approximately  equal in principal
          amount to the LIBOR Revolving Credit Portion or the LIBOR Term Portion
          specified  in the  applicable  LIBOR  Request are offered to Lender by
          prime banks in the London interbank  foreign currency  deposits market
          at approximately 11:00 a.m., London time, 2 Business Days prior to the
          commencement  of such LIBOR  Period,  for delivery on the first day of
          such  LIBOR  Period.  Each  determination  by Lender of any LIBOR Rate
          shall, in the absence of manifest error, be conclusive.

          LIBOR  Request - a notice in writing  (or by  telephone  confirmed  by
     telex,  telecopy  or other  facsimile  transmission  on the same day as the
     telephone  request) from Borrower to Lender  requesting  that interest on a
     Revolving  Credit  Loan  or a  Term  Loan  be  based  on  the  LIBOR  Rate,
     specifying:  (i) the first day of the LIBOR Period;  (ii) the length of the
     LIBOR Period  consistent  with the  definition of that term;  and (iii) the
     dollar amount of the LIBOR  Revolving  Credit Portion or LIBOR Term Portion
     consistent with the definition of such terms.

          LIBOR Revolving  Credit Portion - that portion of the Revolving Credit
     Loans  specified  in a LIBOR  Request  (including  any portion of Revolving
     Credit  Loans which is being  borrowed by Borrower  concurrently  with such
     LIBOR Request) which is not less than $500,000 and is an integral  multiple
     of  $100,000,  which does not exceed the  outstanding  balance of Revolving
     Credit Loans not already  subject to a LIBOR Option and,  which,  as of the
     date of the LIBOR Request  specifying such LIBOR Revolving  Credit Portion,
     has met the conditions for basing  interest on the LIBOR Rate in subsection
     2.3 hereof and the LIBOR Period of which was commenced and not terminated.

          LIBOR  Term  Portion - that  portion of the Term Loan  specified  in a
     LIBOR Request which is not less than $1,000,000 and is an integral multiple
     of $100,000, which does not exceed the outstanding balance of the Term Loan
     not already  subject to a LIBOR  Option and,  which,  as of the date of the
     LIBOR Request  specifying  such LIBOR Term Portion,  has met the conditions
     for  basing  interest  on the LIBOR Rate in  subsection  2.3 hereof and the
     LIBOR Period of which was commenced and not terminated.

          Lien - any interest in Property  securing an obligation  owed to, or a
     claim by, a Person  other  than the  owner of the  Property,  whether  such
     interest is based on common law,

STL-506421.07
                                     - 13 -




<PAGE>



     statute or  contract.  The term  "Lien"  shall also  include  reservations,
     exceptions, encroachments, easements, rights-of-way, covenants, conditions,
     restrictions,  leases and other title exceptions and encumbrances affecting
     Property. For the purpose of the Agreement,  Borrower shall be deemed to be
     the owner of any  Property  which it has  acquired  or holds  subject  to a
     conditional sale agreement or other arrangement  pursuant to which title to
     the  Property  has been  retained  by or  vested  in some  other  Person or
     security purposes.

          Loan  Account - the loan  account  established  on the books of Lender
     pursuant to Section 3.6 of the Agreement.

          Loan Documents - the Agreement,  the Other Agreements and the Security
     Documents.

          Loans - all loans and advances of any kind made by Lender  pursuant to
     the Agreement.

          Money  Borrowed - means (i)  Indebtedness  arising from the lending of
     money by any Person to Borrower;  (ii) Indebtedness,  whether or not in any
     such case arising from the lending by any Person of money to Borrower,  (A)
     which is  represented  by notes  payable or drafts  accepted  that evidence
     extensions of credit, (B) which constitutes obligations evidenced by bonds,
     debentures,  notes or  similar  instruments,  or (C)  upon  which  interest
     charges are  customarily  paid (other  than  accounts  payable) or that was
     issued  or  assumed  as  full  or  partial  payment  for  Property;   (iii)
     Indebtedness  that  constitutes  a  Capitalized   Lease  Obligation;   (iv)
     reimbursement  obligations  with respect to letters of credit or guaranties
     of letters of credit and (v) Indebtedness of Borrower under any guaranty of
     obligations  that would  constitute  Indebtedness  for Money Borrowed under
     clauses (i) through (iii) hereof, if owed directly by Borrower.

          Mortgage - the mortgage  executed by Borrower and dated as of April 5,
     1991,  in favor of  Lender,  by which  Borrower  granted  and  conveyed  to
     Barclays and its assigns, as security for the obligations of Borrower noted
     therein, a Lien upon the Florida Facility.

          Mortgage  Amendment - the  amendment to the Mortgage to be executed by
     Borrower in favor of Lender and dated of even date herewith.

          Multiemployer  Plan - has the meaning set forth in Section  4001(a)(3)
     of ERISA.


STL-506421.07

                                      -14-



<PAGE>



          Obligations - all Loans and all other  advances,  debts,  liabilities,
     obligations,  covenants and duties,  together  with all interest,  fees and
     other  charges  thereon,  owing,  arising,  due or payable from Borrower to
     Lender of any kind or nature,  present or future,  whether or not evidenced
     by any  note,  guaranty  or other  instrument,  whether  arising  under the
     Agreement or any of the other Loan Documents or otherwise whether direct or
     indirect (including those acquired by assignment),  absolute or contingent,
     primary or  secondary,  due or to become due,  now  existing  or  hereafter
     arising and however acquired.

          Original Term - as defined in Section 4.1 of the Agreement.

          Other  Agreements - any and all agreements,  instruments and documents
     (other than the Agreement and the Security Documents),  heretofore,  now or
     hereafter  executed by Borrower,  any  Subsidiary  of Borrower or any other
     third  party  and  delivered  to  Lender  in  respect  of the  transactions
     contemplated by the Agreement.

          Overadvance - the amount,  if any, by which the outstanding  principal
     amount of Revolving  Credit Loans plus the LC Amount  exceeds the Borrowing
     Base.

          Participating  Lender - each  Person who shall be granted the right by
     Lender to  participate  in any of the Loans  described in the Agreement and
     who shall have entered into a participation agreement in form and substance
     satisfactory to Lender.

          Patent  Assignment  - the Patent  Collateral  Assignment  executed  by
     Borrower  and dated as of April 5,  1991,  by which  Borrower  assigned  to
     Barclays and its assigns as security for the obligations  noted therein all
     of Borrower's right, title and interest in and to certain of its patents.

          Patent  Assignment  Amendment - the amendment to the Patent Assignment
     to be  executed  by  Borrower  in favor of  Lender  and  dated of even date
     herewith.

          Permitted Liens - any Lien of a kind specified in subsection  8.2.5 of
     the Agreement.

          Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
     Borrower  incurred  after the date  hereof  which is  secured by a Purchase
     Money Lien and which,  when  aggregated  with the  principal  amount of all
     other such  Indebtedness and Capitalized  Lease  Obligations of Borrower at
     the time outstanding, does not exceed $1,500,000. For

STL-506421.07
                                     - 15 -




<PAGE>



     the purposes of this definition, the principal amount of any Purchase Money
     Indebtedness  consisting  of  capitalized  leases  shall be  computed  as a
     Capitalized Lease Obligation.

          Person - an individual,  partnership,  corporation,  limited liability
     company, joint stock company, land trust, business trust, or unincorporated
     organization, or a government or agency or political subdivision thereof.

          Plan - an  employee  benefit  plan  now or  hereafter  maintained  for
     employees of Borrower that is covered by Title IV of ERISA.

          Projections - Borrower's forecasted Consolidated and consolidating (a)
     balance sheets,  (b) profit and loss statements,  (c) cash flow statements,
     and (d) capitalization  statements, all prepared on a consistent basis with
     Borrower's  historical  financial  statements,  together  with  appropriate
     supporting details and a statement of underlying assumptions.

          Property - any  interest  in any kind of  property  or asset,  whether
     real, personal or mixed, or tangible or intangible.

          Purchase  Money  Indebtedness  - means and includes  (i)  Indebtedness
     (other  than the  Obligations)  for the  payment  of all or any part of the
     purchase price of any fixed assets,  (ii) any Indebtedness  (other than the
     Obligations)  incurred  at the time of or within 10 days  prior to or after
     the acquisition of any fixed assets for the purpose of financing all or any
     part of the purchase price thereof,  and (iii) any renewals,  extensions or
     refinancings  thereof,  but  not any  increases  in the  principal  amounts
     thereof outstanding at the time.

          Purchase Money Lien - a Lien upon fixed assets which secures  Purchase
     Money  Indebtedness,  but only if such Lien shall at all times be  confined
     solely to the fixed assets the purchase price of which was financed through
     the incurrence of the Purchase Money Indebtedness secured by such Lien.

          RSI - Recognition Systems, Inc. , a California corporation.

          Renewal Terms - as defined in Section 4.1 of the Agreement.

          Rentals - as defined in subsection 8.2.13 of the Agreement.

STL-506421.07

                                      -16-




<PAGE>



          Reportable  Event - any of the events set forth in Section  4043(b) of
     ERISA.

          Restricted  Investment - any investment made in cash or by delivery of
     Property to any Person,  whether by acquisition of stock,  Indebtedness  or
     other obligation or Security,  or by loan, advance or capital contribution,
     or otherwise, or in any Property except the following:

               (i)  investments in one or more  Subsidiaries  of Borrower to the
          extent existing on the Closing Date;

               (ii) Property to be used in the ordinary course of business;

               (iii) Current  Assets arising from the sale of goods and services
          in the ordinary course of business of Borrower and its Subsidiaries;

               (iv)  investments  in direct  obligations of the United States of
          America, or any agency thereof or obligations guaranteed by the United
          States of America,  provided that such  obligations  mature within one
          year from the date of acquisition thereof;

               (v) investments in  certificates  of deposit  maturing within one
          year from the date of  acquisition  issued by a bank or trust  company
          organized  under the laws of the  United  States or any state  thereof
          having  capital  surplus and undivided  profits  aggregating  at least
          $100,000,000;

               (vi)  investments in commercial paper given the highest rating by
          a national  credit  rating  agency and maturing not more than 270 days
          from the date of creation thereof; and

               (vii)   deposits   with  Fleming  in  an  amount  not  to  exceed
          $5,000,000, to be held by Fleming and applied in payment for shares of
          common capital stock of Harrow Industries,  par value $0.01 per share,
          and $.50 junior  preferred  stock,  par value $0.01 per share,  all in
          accordance  with the terms  previously  disclosed to Lender,  provided
          that the  permitted  deposit  of  $5,000,000  shall be  reduced by any
          amounts  applied in payment for shares of the common  capital stock or
          the junior preferred stock referred to in this clause (vii).


STL-506421.07

                                     - 17 -




<PAGE>

          Revolving  Credit  Loan - a Loan made by Lender as provided in Section
     1.1 of the Agreement.

          SCC - Shawmut Capital Corporation, a Connecticut corporation.

          Security  - shall  have the same  meaning  as in  Section  2(l) of the
     Securities Act of 1933, as amended.

          Security Documents - the Guaranty Agreement,  the Mortgage, the Patent
     Assignment,  the Trademark  Assignment,  the Copyright  Assignment  and all
     other instruments and agreements now or at any time hereafter  securing the
     whole or any part of the Obligations.

          Senior  Debentures  -  The  debentures  of  Harrow  Industries  issued
     pursuant to an  Indenture  dated as of April 15, 1987,  with United  States
     Trust Company of New York, as trustee.

          Solvent - as to any Person,  such Person (i) owns Property  whose fair
     saleable  value is  greater  than the  amount  required  to pay all of such
     Person's Indebtedness (including contingent debts), (ii) is able to pay all
     of its  Indebtedness  as such  Indebtedness  matures  and (iii) has capital
     sufficient to carry on its business and  transactions  and all business and
     transactions in which it is about to engage.

          Statutory Reserves - a fraction (expressed as a decimal) the numerator
     of which is the number one, and the  denominator of which is the number one
     minus the aggregate of the maximum reserve percentages (including,  without
     limitation,  any marginal,  special,  emergency or supplemental  reserves),
     expressed  as a  decimal,  established  by the  Board of  Governors  of the
     Federal Reserve System and any other banking authority to which Bank or any
     Lender is subject for Eurocurrency  Liabilities (as defined in Regulation D
     of the Board of Governors of the Federal  Reserve  System or any  successor
     thereto). Such reserve percentages shall include, without limitation, those
     imposed under such Regulation D. LIBOR  Revolving  Credit Portions or LIBOR
     Term Portions shall be deemed to constitute Eurocurrency Liabilities and as
     such  shall be deemed to be subject to such  reserve  requirements  without
     benefit  of or credit for  proration,  exceptions  or offsets  which may be
     available from time to time to Bank or any Lender under such  Regulation D.
     Statutory  Reserves  shall  be  adjusted  automatically  on  and  as of the
     effective date of any change in any reserve percentage.

          Subordinated  Debt - Indebtedness  of Borrower that is subordinated to
     the Obligations in a manner satisfactory to

STL-506421.07

                                     - 18 -




<PAGE>



     Lender.  Subordinated  Debt  shall  include,  but not be  limited  to,  the
     Intercompany Note.

          Subsidiary  - any  corporation  of which a Person  owns,  directly  or
     indirectly through one or more intermediaries,  more than 50% of the Voting
     Stock at the time of determination.

          Tax - in relation to any LIBOR Revolving  Credit Portion or LIBOR Term
     Portion  and the  applicable  LIBOR  Rate,  any tax,  levy,  impost,  duty,
     deduction,  withholding or charges of whatever nature required by any Legal
     Requirement (i) to be paid by Lender and/or (ii) to be withheld or deducted
     from any payment otherwise required hereby to be made by Borrower to Lender
     provided,  that the term "Tax" shall not include any taxes imposed upon the
     net income of Lender by the United States of America, United Kingdom or any
     political subdivision thereof.

          Term Loan - the Loan described in subsection 1.2.1 of the Agreement.

          Term Note - the Secured  Promissory Note to be executed by Borrower on
     or about the  Closing  Date in favor of Lender to  evidence  the Term Loan,
     which shall be in the form of Exhibit A-1 to the Agreement.

          Total Credit Facility - $45,000,000.

          Total Liabilities - at any date means all amounts properly  classified
     as  liabilities  on a balance sheet at such date in  accordance  with GAAP,
     plus all reserves for contingencies and all other potential liabilities for
     which no reserves have previously  been  established on such balance sheet,
     to the extent such amounts are not already  classified  as  liabilities  in
     accordance with GAAP.

          Trademark Assignment - the Trademark Collateral Assignment executed by
     Borrower  and dated as of April 5,  1991,  by which  Borrower  assigned  to
     Barclays and its assigns as security for the obligations  noted therein all
     of  Borrower's  right,  title  and  interest  in  and  to  certain  of  its
     trademarks.

          Trademark  Assignment  Amendment  - the  amendment  to  the  Trademark
     Assignment  to be executed by Borrower in favor of Lender and dated of even
     date herewith.

          Voting Stock - Securities of any class or classes of a corporation the
     holders of which are ordinarily, in the absence of contingencies,  entitled
     to elect a majority of

STL-506421.07

                                     - 19 -




<PAGE>



     the corporate directors (or Persons performing similar functions).

          Other Terms.  All other terms  contained in the Agreement  shall have,
     when the context so indicates, the meanings provided for by the Code to the
     extent the same are used or defined therein.

          Certain  Matters of  Construction.  The terms  "herein",  "hereof" and
     "hereunder"  and other words of similar  import refer to the Agreement as a
     whole and not to any  particular  section,  paragraph or  subdivision.  Any
     pronoun  used shall be deemed to cover all  genders.  The  section  titles,
     table of contents  and list of exhibits  appear as a matter of  convenience
     only  and  shall  not  affect  the  interpretation  of the  Agreement.  All
     references to statutes and related regulations shall include any amendments
     of same and any successor  statutes and regulations.  All references to any
     of the Loan Documents shall include any and all  modifications  thereto and
     any and all extensions or renewals thereof.





STL-506421.07
                                      -20-
<PAGE>

                                  EXHIBIT 10.8



                             HARROW INDUSTRIES, INC.
                            2627 East Beltline, S.E.
                          Grand Rapids, Michigan 49546



                                                May 1, 1996

Mr. James S. Dahlke
S23 W23187 East Broadway
Waukesha, WI 53186

Dear Jim:

         This letter confirms our offer to employ you on the following terms and
conditions.

         We agree to employ  you and you have  agreed to  accept  employment  as
President and Chief Operating Officer of Harrow Industries, Inc. (the "Company")
and its subsidiary, Harrow Products, Inc. ("Harrow Products"),  commencing on or
about June 17, 1996 (the "Commencement Date").

         You  will be paid a base  salary  at the  rate of  $25O,000  per  year,
payable in accordance with normal payroll practices, less withholding taxes.

         In  addition  to  your  salary,  you  will be  eligible  to  receive  a
performance  bonus at the end of the  fiscal  year of up to  50%.  of your  base
salary,  less  withholding  taxes,  in accordance with  performance  goals to be
agreed upon,  provided  that for the fiscal year ending  November 30, 1996,  you
will be paid a bonus amount at the rate of 50% of your base salary  prorated for
the portion of the fiscal year that you are actually  employed  with the Company
and Harrow Products.

         The Company will issue you options  ("Options") to buy ordinary  shares
("Shares")  of common stock of Harrow  Industries,  Inc.  (the  "Stock"),  at an
exercise price of $21.70 per Share, as follows: you will be granted an aggregate
of 20,000  options to purchase an  aggregate  of 20,000  Shares,  4,000 of which
Options will vest and become immediately exercisable upon your signing




<PAGE>



of this  letter,  and 4,000 of which  Options  will vest and become  immediately
exercisable on each of the first,  second, third and fourth anniversaries of the
Commencement  Date,  provided  that you are still  employed with the Company and
Harrow Products at such times. Notwithstanding the foregoing, if your employment
relationship with the Company and Harrow Products ceases for any reason prior to
the fifth  anniversary  of the  Commencement  Date, (i) any and all Options then
outstanding,  whether  vested  or not  vested,  shall  immediately  cease  to be
exercisable  and shall be of no further  force or  effect,  and (ii) any and all
Stock that you have acquired as a result of exercise of Options pursuant to this
paragraph  must be sold back to the Company (or a third party  designated by the
Company) as soon as practicable  following such time as your employment with the
Company and Harrow Products ceases, at a price per share as determined by Robert
Fleming & Co. Limited (or such other  financial  advisor as may be designated by
the  Board  of  Directors  of the  Company),  as of  the  date  your  employment
relationship  with the Company and Harrow Products ceases.  If the Company shall
effect an initial public  offering of its Stock before the fifth  anniversary of
the Commencement Date, the "sellback"  provision in the preceding sentence shall
be of no force and effect from and after the closing date of such initial public
offering. You further agree to execute such customary agreements and instruments
as the Company deems  reasonably  necessary to effectuate the  arrangements  set
forth in this paragraph.

         You  will  also  be  provided  with  an  allowance  for a  car,  a club
membership, and fringe benefits such as health insurance and retirement benefits
in  accordance  with the  applicable  plans and policies as amended from time to
time.

         You  acknowledge  and agree that your  employment  with the Company and
Harrow  Products is "at will" and may be terminated by you or the Company at any
time and for any reason, with or without cause and with or without prior notice.

         Finally,  you  represent  that you are not  subject  to any  employment
contract,  express or implied,  or any other  restriction that would prevent you
from  becoming  employed  with the Company and Harrow  Products on the terms and
conditions set forth above.

                                        2




<PAGE>



         The terms of this letter are personal to you and may not be assigned by
you. Any disagreements as to the meaning of this letter shall be resolved by the
application  of the laws of the State of Delaware,  without regard to its choice
of law rules.

         If you  agree  that  this  letter  fully and  accurately  reflects  our
understanding, please sign the enclosed copy and return it to the undersigned.

                                                            Very truly yours,

                                                            /s/Dudley C. Mecum
                                                               Dudley C. Mecum
                                                               Chairman


AGREED AND ACCEPTED:

     James S. Dahlke
         (Signature)

          5-7-96
         (Date)








                                        3
<PAGE>
                                  EXHIBIT 10.9



HARROW Products, Inc.




June 5, 1996



Mr. Donald D. Fenstermacher
2627 E. Beltline, SE
Grand Rapids, MI 49546

Dear Don:

         This will confirm our agreement with you effective 6/27/96 as follows:


1.       Employment

     1.1.  Employment  & Duties.  We agree to employ  you as Vice  President  of
Harrow Products,  Inc.  ("Company") and you will act in such capacity and devote
your full business time, skill,  attention and best efforts to carrying out your
duties and promoting the best interests of the Company. At all times during your
employment, you will be subject to the instructions and control of the President
and Chief Operating Officer of the Company.

2.       Employment Terms

     2.1 Conduct. You agree to conduct your business activities in such a manner
as to maintain and enhance Harrow's ethical, moral, and professional standards.

     2.2.  Conflicts of Interest.  It is understood and agreed that you will not
at any time during your period of employment with the Company, without the prior
written  consent of the Executive  Committee of the Board of Directors of Harrow
Industries,  Inc.,  knowingly  acquire any  financial  interest in,  directly or
indirectly, or perform any services for or on behalf of any business, person, or
enterprise  which  undertakes any business in substantial  competition  with the
businesses  of the  Company  or sells  to or buys  from or  otherwise  transacts
business with the Company,  provided,  however, that you may acquire and own not
more  than one  percent  (1%) of the  outstanding  capital  stock of any  public
corporation which sells to or buys from or otherwise transacts business with the
Company.

     2.3  Confidentiality.  You  specifically  acknowledge  and  agree  that any
business plans, technical product data, proprietary information, customer lists,
strategic planning documents,


HARROW company

2627 East Beltline, S.E., Grand Rapids, Michigan 49546, Phone 616/942-1440, 
Fax 616/942-2170




<PAGE>



inventions,  forms,  procedures,  copyrightable  subject  matter,  etc.  are the
exclusive  property of the Company and may not be disclosed by you to any person
outside of Harrow,  nor will you make any  unauthorized  use of same  during the
period of your employment or thereafter.

3.       Compensation & Benefits

     3.1 Cash  Compensation.  The Company agrees to pay for all your services to
or on behalf of the  Company  in each full  fiscal  year,  or a portion  thereof
(prorated as to the portion)  payable in  approximately  equal  installments  in
accordance with the customary  payroll practices of the Company (your "salary").
This salary shall be subject to annual  review and  adjustment  by the Executive
/Compensation Committee of the Board of Directors of Harrow Industries,  Inc. in
accordance  with standard  executive  compensation  procedures of the Company in
effect from time to time.  As of 12/l/95,  your annual  salary will be $125,600.
You shall be entitled to participate in the Executive  Management Incentive Plan
or such other program for which  executives  are or shall become  eligible,  and
receive such bonus  compensation  as may become due you pursuant to the terms of
that Plan.

     3.2 Benefit Plans/Vacation.  The payments provided above are in addition to
any  benefits  to which  executives  may be, or may become,  entitled  under any
welfare  benefit plan,  retirement  plan, or fringe  benefit  program of Harrow,
including,  without  limitation,  pension,  401(k),  vacation,  company vehicle,
medical/dental/executive  medical coverage,  life insurance,  long term care, or
disability benefits.  You shall be eligible to receive during the period of your
employment  with the Company,  all such benefits for which other  executives are
eligible under such plans or programs to the extent  permissible under the terms
and provisions of the plans.

     3.3  Expenses.  You  will  be  entitled  to  reimbursement  for  reasonable
out-of-pocket  expenses  incurred by you in the performance of your duties under
this Agreement subject to presentment of appropriate  vouchers or receipts,  per
Corporate Procedure # 352.2.

4.       Termination

     4.1  General.  Your  employment  with  the  Company  as set  forth  in this
Agreement may be terminated  any time,  subject to the  provisions  set forth in
Section 4.2 and 4.3:

     4.2  Termination  for Cause.  In addition to any such remedies which Harrow
may  have at law or in  equity,  the  Company  may  immediately  terminate  your
employment under this Agreement by giving you written notice of such termination
upon or at any time  following the  occurrence  of any of the following  events.
Each such event shall constitute a termination "for cause:"

               A. criminal conduct on your part which results in conviction of a
          felony; or

               B. conduct on your part  involving  your willful  malfeasance  or
          gross negligence or

                                        2




<PAGE>



          failure to act involving material  non-feasance or gross negligence on
          your part,  which  conduct  or  failure to act has a material  adverse
          effect on the business of the Company; or

               C. your misappropriation of funds or property of the Company; or

               D.  the  material  breach  by  you  of  any  of  your  covenants,
          agreements or other obligations contained in this Agreement.

     Upon the  occurrence of termination  of your  employment  "for cause" under
this Section  4.2, the Company  shall pay to you an amount equal to your accrued
salary  through the effective  date of  termination at the rate in effect at the
time such notice of termination is given, accrued vacation through the effective
date of  termination,  and any approved  expense  reimbursement  amounts accrued
through the effective date of termination.  Upon payment of such amounts, Harrow
shall have no further obligation to you under this Agreement.


     4.3  Termination  without Cause.  The Company may terminate your employment
under  this  Agreement  at any time  without  cause,  provided  sixty (60) day's
written  notice of such intent to  terminate  is provided to you by the Company.
For purposes of illustration,  termination  "without cause" shall be defined as,
but not limited to, the following events:

               A. Bona fide  decision by the Company to  terminate  its business
          and liquidate its assets; or

               B. Change in control of Harrow  Industries,  Inc,  such change in
          control being defined as  acquisition by a bidder of 51% of the voting
          shares of the Company or a sale of substantially  all of the company's
          assets; or

               C.  Material  adverse  alteration in the nature or status of your
          responsibilities and duties as Vice President of the Company.  (Should
          such material  alteration be made at your request,  the obligations of
          the Company under this Section 4.3 are not triggered); or

               D.  Reorganization  or elimination of the area of the business in
          which you work; or

               E. Relocation of the Company's  principal  executive offices to a
          location more than 50 miles from its current location in Grand Rapids,
          Michigan, regardless of whether you are offered an equivalent position
          at the new location.  While the Company has no obligation to offer you
          an  equivalent  position,  should you be offered  the  opportunity  to
          relocate and you decline, such declination shall be


                                       3
<PAGE>

         be  regarded  as an  event  of  termination  "without  cause"  and  the
         obligations of the Company under this Section 4.3 are triggered.

     Upon the occurrence of termination of your employment "without cause" under
this Section 4.3 and at the expiration of the 60 day notice period,  the Company
shall provide to you the  following:  severance pay equal to 18 months salary at
the rate in effect at commencement of such severance  payments,  an amount equal
to  your  entitlement  under  the  Executive  Management  Incentive  Plan or its
equivalent  (calculation  to be made based on the results of the Company through
the month ending with your  departure from active  responsibilities  and payment
accordingly  pro-rated  if  such  period  is  less  than a full  year),  benefit
continuation or conversion at company expense for the 18 month severance period,
accrued  vacation  through  the  date of  termination,  outplacement  counseling
provided  at  company  expense  (amount  not to exceed  15% of annual  salary at
termination),  use of your company vehicle during the 18 month severance period,
and the option to purchase  said vehicle at the end of the  severance  period at
book value.  No further  Vesting  Credit or Service  Credit under the Retirement
Plan for the  Employees of Harrow  Products,  Inc.  shall accrue to your benefit
following your departure from active responsibilities.

5.       Miscellaneous

     5.1 Term of Agreement.   The initial term of this  Agreement  shall be from
June 27, 1996 through  November  30,  1997.  The  Agreement  shall  subsequently
terminate  unless the Company notifies you in writing prior to the expiration of
the  initial  or a  subsequent  term of its  intent to renew the  Agreement  for
another one year term (all terms  subsequent to the initial term shall be of one
year  duration).  Authority  to take  action to renew is vested  solely with the
Executive/Compensation Committee of the Board of Directors of Harrow Industries,
Inc. In the event of non-renewal of the Agreement any severance due you shall be
per the provisions of the Executive Severance Policy of Harrow Products only.

     5.2 Assignment.  Neither party may transfer, assign, encumber, or otherwise
dispose of,  voluntarily or involuntarily,  any of your rights to receive any of
the payments provided herein, which rights are expressly declared  nonassignable
and nontransferable. The provisions of this Agreement are binding upon and inure
to  the  benefit  of  the   parties   hereto  and  their   respective   personal
representatives or successors.

     5.3  Amendments.  No provision of this Agreement may be modified or amended
unless such amendment is agreed to in writing by both you and the Company.

     5.4  Waivers.  No  waiver  at any  time of any  term or  provision  of this
Agreement  shall be construed as a waiver of any other term or provision of this
Agreement.

     5.5  Governing  Law. This  Agreement  shall be governed by and construed in
accordance with the laws of the State of Michigan.

                                        4




<PAGE>



     5.6 Arbitration.  Any and all differences or disputes that may arise during
or  following  your  employment  with the Company  shall be brought and resolved
utilizing a final and binding,  impartial arbitration process. The parties shall
follow the specific procedures set forth by the American Arbitration Association
for arbitration of disputes.  If arbitration is sought, the parties specifically
empower the arbitrator to apply the substantive  applicable law and agree he/she
shall have exclusive authority to resolve all differences,  provide all remedies
and due process protections as afforded under the applicable law.

     5.7 Inclusion of Entire Agreement Herein. This Agreement supersedes any and
all prior or contemporaneous agreements,  either oral or in writing, between you
and the Company  with respect to the subject  matter  hereof and contains all of
the  covenants and  agreements  between you and the Company with respect to your
employment by the Company, or your right to receive severance benefits.



     5.8  Notices.   For  purposes  of  this   Agreement   notice  and  all  the
communications  provided for in this Agreement  shall be in writing and shall be
deemed to have been duly given when hand  delivered  or mailed by US  registered
mail,  return receipt  requested,  postage prepaid,  addressed to the respective
addressees at their addresses as set forth in the Agreement.

     5.9  Severabilitiy.  Should any  provision  of this Agreement be held to be
invalid,  such  invalidity  shall not  affect  the  enforceability  of any other
provision.

     Please  confirm  your  understanding  and  acceptance  of the  foregoing by
signing and returning to the Company a signed copy of this letter.

                                                 HARROW PRODUCTS, INC.



                                                 By  /s/Dudley C. Mecum
                                                     Dudley C. Mecum
                                                     Its Chairman and CEO


Agreed:


/s/ Donald D. Fensterinacher
Donald D. Fensterinacher, VP


                                        5

<PAGE>

                                 EXHIBIT 10.10



HARROW Products, Inc.




June 5, 1996



Mr. John S. Hogan
2627 E. Beltline, SE
Grand Rapids, MI 49546

Dear John:

     This will confirm our agreement with you effective 6/27/96 as follows:


1.       Employment

     1.1.  Employment  & Duties.  We agree to employ  you as Vice  President  of
Harrow Products,  Inc.  ("Company") and you will act in such capacity and devote
your full business time, skill,  attention and best efforts to carrying out your
duties and promoting the best interests of the Company. At all times during your
employment, you will be subject to the instructions and control of the President
and Chief Operating Officer of the Company.

2.       Employment Terms

     2.1 Conduct. You agree to conduct your business activities in such a manner
as to maintain and enhance Harrow's ethical, moral and professional standards.

     2.2.  Conflicts of Interest.  It is understood and agreed that you will not
at any time during your period of employment with the Company, without the prior
written  consent of the Executive  Committee of the Board of Directors of Harrow
Industries,  Inc.,  knowingly  acquire any  financial  interest in,  directly or
indirectly, or perform any services for or on behalf of any business, person, or
enterprise  which  undertakes any business in substantial  competition  with the
businesses  of the  Company  or sells  to or buys  from or  otherwise  transacts
business with the Company,  provided,  however, that you may acquire and own not
more than one  percent  (1 %) of the  outstanding  capital  stock of any  public
corporation which sells to or buys from or otherwise  conducts business with the
Company.

     2.3  Confidentiality.  You  specifically  acknowledge  and  agree  that any
business plans, technical product data, proprietary information, customer lists,
strategic planning documents,



                                        1

Harrow company
2627 East Beltline, S.E., Grand Rapids, Michigan 49546, Phone 6l6/942-1440, 
Fax 616/942-2170




<PAGE>



inventions,  forms,  procedures,  copyrightable  subject  matter,  etc.  are the
exclusive  property of the Company and may not be disclosed by you to any person
outside of Harrow,  nor will you make any  unauthorized  use of same  during the
period of your employment or thereafter.

3.       Compensation & Benefits

     3.1 Cash  Compensation.  The Company agrees to pay for all your services to
or on behalf of the  Company  in each full  fiscal  year,  or a portion  thereof
(prorated as to the portion)  payable in  approximately  equal  installments  in
accordance with the customary  payroll practices of the Company (your "salary").
This salary shall be subject to annual  review and  adjustment  by the Executive
/Compensation Committee of the Board of Directors of Harrow Industries,  Inc. in
accordance  with standard  executive  compensation  procedures of the Company in
effect from time to time.  As of 12/l/95,  your annual  salary will be $144,500.
You shall be entitled to participate in the Executive  Management Incentive Plan
or such other program for which  executives  are or shall become  eligible,  and
receive such bonus  compensation  as may become due you pursuant to the terms of
that Plan.

     3.2 Benefit Plans/Vacation.  The payments provided above are in addition to
any  benefits  to which  executives  may be, or may become,  entitled  under any
welfare  benefit plan,  retirement  plan, or fringe  benefit  program of Harrow,
including,  without  limitation,  pension,  401(k),  vacation,  company vehicle,
medical/dental/executive  medical coverage,  life insurance,  long term care, or
disability benefits.  You shall be eligible to receive during the period of your
employment  with the Company,  all such benefits for which other  executives are
eligible under such plans or programs to the extent  permissible under the terms
and provisions of the plans.

     3.3  Expenses.  You  will  be  entitled  to  reimbursement  for  reasonable
out-of-pocket  expenses  incurred by you in the performance of your duties under
this Agreement subject to presentment of appropriate  vouchers or receipts,  per
Corporate Procedure # 352.2.

4.       Termination

     4.1  General.  Your  employment  with  the  Company  as set  forth  in this
Agreement may be terminated  any time,  subject to the  provisions  set forth in
Section 4.2 and 4.3:

     4.2  Termination  for Cause.  In addition to any such remedies which Harrow
may  have at law or in  equity,  the  Company  may  immediately  terminate  your
employment under this Agreement by giving you written notice of such termination
upon or at any time  following the  occurrence  of any of the following  events.
Each such event shall constitute a termination "for cause:"

               A. criminal conduct on your part which results in conviction of a
          felony; or

               B. conduct on your part  involving  your willful  malfeasance  or
          gross negligence or

                                        2




<PAGE>



         failure to act involving  material  non-feasance or gross negligence on
         your part which conduct or failure to act has a material adverse effect
         on the business of the Company; or

               C. your misappropriation of funds or property of the Company; or

               D.  the  material  breach  by  you  of  any  of  your  covenants,
          agreements or other obligations contained in this Agreement.

     Upon the  occurrence of termination of your  employment  "for cause,  under
this Section  4.2, the Company  shall pay to you an amount equal to your accrued
salary  through the effective  date of  termination at the rate in effect at the
time such notice of termination is given, accrued vacation through the effective
date of  termination,  and any approved  expense  reimbursement  amounts accrued
through the effective date of termination.  Upon payment of such amounts, Harrow
shall have no further obligation to you under this Agreement.


     4.3  Termination  without Cause.  The Company may terminate your employment
under  this  Agreement  at any time  without  cause,  provided  sixty (60) day's
written  notice of such intent to  terminate  is provided to you by the Company.
For purposes of illustration,  termination  "without cause" shall be defined as,
but not limited to, the following events:

               A. Bona fide  decision by the Company to  terminate  its business
          and liquidate its assets; or

               B. Change in control of Harrow  Industries,  Inc,  such change in
          control being defined as  acquisition by a bidder of 51% of the voting
          shares of the Company or a sale of substantially  all of the company's
          assets; or

               C.  Material  adverse  alteration in the nature or status of your
          responsibilities and duties as Vice President of the Company.  (Should
          such material  alteration be made at your reques4 the  obligations  of
          the Company under this Section 4.3 are not triggered); or

               D.  Reorganization  or elimination of the area of the business in
          which you work; or

               E. Relocation of the Company's  principal  executive offices to a
          location more than 50 miles from its current location in Grand Rapids,
          Michigan, regardless of whether you are offered an equivalent position
          at the new location.  While the Company has no obligation to offer you
          an  equivalent  position,  should you be offered  the  opportunity  to
          relocate and you decline, such declination shall be


                                        3




<PAGE>



         be  regarded  as an  event  of  termination  "without  cause"  and  the
         obligations of the Company under this Section 4.3 are triggered.

     Upon the occurrence of termination of your employment "without cause" under
this Section 4.3 and at the expiration of the 60 day notice period,  the Company
shall provide to you the  following:  severance pay equal to 18 months salary at
the rate in effect at commencement of such severance  payments,  an amount equal
to  your  entitlement  under  the  Executive  Management  Incentive  Plan or its
equivalent  (calculation  to be made based on the results of the Company through
the month ending with your  departure from active  responsibilities  and payment
accordingly  pro-rated  if  such  period  is  less  than a full  year),  benefit
continuation or conversion at company expense for the 18 month severance period,
accrued  vacation  through  the  date of  termination,  outplacement  counseling
provided  at  company  expense  (amount  not to exceed  15% of annual  salary at
termination),  use of your company vehicle during the 18 month severance period,
and the option to purchase  said vehicle at the end of the  severance  period at
book value.  No further  Vesting  Credit or Service  Credit under the Retirement
Plan for the  Employees of Harrow  Products,  Inc.  shall accrue to your benefit
following your departure from active responsibilities.

5.       Miscellaneous

     5.1 Term of  Agreement.  The initial term of this  Agreement  shall be from
June 27, 1996 through  November  30,  1997.  The  Agreement  shall  subsequently
terminate  unless the Company notifies you in writing prior to the expiration of
the  initial  or a  subsequent  term of its  intent to renew the  Agreement  for
another one year term (all terms  subsequent to the initial term shall be of one
year  duration).  Authority  to take  action to renew is vested  solely with the
Executive/Compensation Committee of the Board of Directors of Harrow Industries,
Inc. In the event of non-renewal of the Agreemen4 any severance due you shall be
per the provisions of the Executive Severance Policy of Harrow Products only.

     5.2 Neither party may transfer,  assign, encumber, or otherwise dispose of,
voluntarily or involuntarily,  any of your rights to receive any of the payments
provided  herein,   which  rights  are  expressly  declared   nonassignable  and
nontransferable.  The provisions of this Agreement are binding upon and inure to
the benefit of the parties hereto and their respective personal  representatives
or successors.

     5.3  Amendments.  No provision of this Agreement may be modified or amended
unless such amendment is agreed to in writing by both you and the Company.

     5.4  Waivers.  No  waiver  at any  time of any  term or  provision  of this
Agreement  shall be  construed as a waiver of an other term or provision of this
Agreement.

     5.5  Governing  Law. This  Agreement  shall be governed by and construed in
accordance with the laws of the State of Michigan.


                                        4




<PAGE>



     5.6 Arbitration.  Any and all differences or disputes that may arise during
or  following  your  employment  with the Company  shall be brought and resolved
utilizing a final and binding,  impartial arbitration process. The parties shall
follow the specific procedures set forth by the American Arbitration Association
for arbitration of disputes.  If arbitration is sought, the parties specifically
empower the arbitrator to apply the substantive  applicable law and agree he/she
shall have exclusive authority to resolve all differences,  provide all remedies
and due process protections as afforded under the applicable law.

     5.7 Inclusion of Entire Agreement Herein. This Agreement supersedes any and
all prior or contemporaneous agreements,  either oral or in writing, between you
and the Company  with respect to the subject  matter  hereof and contains all of
the  covenants and  agreements  between you and the Company with respect to your
employment  by the Company,  or your right to receive  severance  benefits.  You
specifically acknowledge the purported employment agreement dated August 3, 1995
and  entered  into  by you  and the  former  Chairman  of the  Board  of  Harrow
Industries, Inc., Philip A. Uzielli, has and had no force and effect.

     5.8  Notices.   For  purposes  of  this   Agreement   notice  and  all  the
communications  provided for in this Agreement  shall be in writing and shall be
deemed to have been duly given when hand  delivered  or mailed by US  registered
mail,  return receipt  requested,  postage prepaid,  addressed to the respective
addressees at their addresses as set forth in the Agreement.

     5.9  Severability.  Should any  provision  of this  Agreement be held to be
invalid,  such  invalidity  shall not  affect  the  enforceability  of any other
provision.

     Please  confirm  your  understanding  and  acceptance  of the  foregoing by
signing and returning to the Company a signed copy of this letter.

                                                  HARROW PRODUCTS, INC.



                                                  By  /s/Dudley C. Mecum
                                                      Dudley C. Mecum
                                                      Its Chairman and CEO

Agreed:



/s/John S. Hogan
John S. Hogan, Vice President





                                        5

<PAGE>

                                 EXHIBIT 10.11



HARROW Products, Inc.




June 5, 1996



Mr. Gary L Humphreys
2627 E. Beltline, SE
Grand Rapids, MI 49546

Dear Gary:

     This will confirm our agreement with you effective 6/27/96 as follows:


1.       Employment

     1.1.  Employment  & Duties.  We agree to employ  you as Vice  President  of
Harrow Products,  Inc.  ("Company") and you will act in such capacity and devote
your full business time, skill,  attention and best efforts to carrying out your
duties and promoting the best interests of the Company. At all times during your
employment you will be subject to the  instructions and control of the President
and Chief Operating Officer of the Company.

2.       Employment Terms

     2.1 Conduct. You agree to conduct your business activities in such a manner
as to maintain and enhance Harrow's ethical, moral, and professional standards.

     2.2.  Conflicts of Interest.  It is understood and agreed that you will not
at any time during your period of employment with the Company, without the prior
written  consent of the Executive  Committee of the Board of Directors of Harrow
Industries,  Inc.,  knowingly  acquire any  financial  interest in,  directly or
indirectly, or perform any services for or on behalf of any business, person, or
enterprise  which  undertakes any business in substantial  competition  with the
businesses  of the  Company  or sells  to or buys  from or  otherwise  transacts
business with the Company,  provided,  however, that you may acquire and own not
more  than one  percent  (1%) of the  outstanding  capital  stock of any  public
corporation which sells to or buys from or otherwise transacts business with the
Company.

     2.3  Confidentiality.  You  specifically  acknowledge  and  agree  that any
business plans, technical product data, proprietary information, customer lists,
strategic planning documents,


                                        1

HARROW company
2627 East Beltline, S.E., Grand Rapids, Michigan 49546, Phone 6l6/942-1440, 
Fax 616/942-2170




<PAGE>



inventions,  forms,  procedures,  copyrightable  subject  matter,  etc.  are the
exclusive  property of the Company and may not be disclosed by you to any person
outside of Harrow,  nor will you make any  unauthorized  use of same  during the
period of your employment or thereafter.

3.       Compensation & Benefits

     3.1 Cash  Compensation.  The Company agrees to pay for all your services to
or on behalf of the  Company  in each full  fiscal  year,  or a portion  thereof
(prorated as to the portion)  payable in  approximately  equal  installments  in
accordance with the customary  payroll practices of the Company (your "salary").
This salary shall be subject to annual  review and  adjustment  by the Executive
/Compensation Committee of the Board of Directors of Harrow Industries,  Inc. in
accordance  with standard  executive  compensation  procedures of the Company in
effect from time to time.  As of 12/l/95,  your annual  salary will be $127,300.
You shall be entitled to participate in the Executive  Management Incentive Plan
or such other program for which  executives  are or shall become  eligible,  and
receive such bonus  compensation  as may become due you pursuant to the terms of
that Plan.

     3.2 Benefit Plans/Vacation.  The payments provided above are in addition to
any  benefits  to which  executives  may be, or may become,  entitled  under any
welfare  benefit plan,  retirement  plan, or fringe  benefit  program of Harrow,
including,  without  limitation,  pension,  401(k),  vacation,  company vehicle,
medical/dental/executive  medical coverage,  life insurance,  long term care, or
disability benefits.  You shall be eligible to receive during the period of your
employment  with the Company,  all such benefits for which other  executives are
eligible under such plans or programs to the extent  permissible under the terms
and provisions of the plans.

     3.3  Expenses.  You  will  be  entitled  to  reimbursement  for  reasonable
out-of-pocket  expenses  incurred by you in the performance of your duties under
this Agreement subject to presentment of appropriate  vouchers or receipts,  per
Corporate Procedure # 352.2.

4.       Termination

     4.1  General.  Your  employment  with  the  Company  as set  forth  in this
Agreement may be terminated  any time,  subject to the  provisions  set forth in
Section 4.2 and 4.3:

     4.2  Termination  for Cause.  In addition to any such remedies which Harrow
may  have at law or in  equity,  the  Company  may  immediately  terminate  your
employment under this Agreement by giving you written notice of such termination
upon or at any time  following the  occurrence  of any of the following  events.
Each such event shall constitute a termination "for cause:"

               A. criminal conduct on your part which results in conviction of a
          felony; or

               B. conduct on your part  involving  your willful  malfeasance  or
          gross negligence or

                                        2




<PAGE>



         failure to act involving  material  non-feasance or gross negligence on
         your part,  which  conduct  or  failure  to act has a material  adverse
         effect on the business of the Company; or

               C. your misappropriation of funds or property of the Company; or

               D.  the  material  breach  by  you  of  any  of  your  covenants,
          agreements or other obligations contained in this Agreement.

     Upon the  occurrence of termination  of your  employment  "for cause" under
this Section  4.2, the Company  shall pay to you an amount equal to your accrued
salary  through the effective  date of  termination at the rate in effect at the
time such notice of termination is given, accrued vacation through the effective
date of  termination,  and any approved  expense  reimbursement  amounts accrued
through the effective date of termination.  Upon payment of such amounts, Harrow
shall have no further obligation to you under this Agreement.


     4.3  Termination-Without Cause. The Company may  terminate  your employment
under  this  Agreement  at any time  without  cause,  provided  sixty (60) day's
written  notice of such intent to  terminate  is provided to you by the Company.
For purposes of illustration,  termination  "without cause" shall be defined as,
but not limited to, the following events:

               A. Bona fide  decision by the Company to  terminate  its business
          and liquidate its assets; or

               B. Change in control of Harrow  Industries,  Inc,  such change in
          control being defined as  acquisition by a bidder of 51% of the voting
          shares of the Company or a sale of substantially  all of the company's
          assets; or

               C.  Material  adverse  alteration in the nature or status of your
          responsibilities and duties as Vice President of the Company.  (Should
          such material  alteration be made at your request the  obligations  of
          the Company under this Section 4.3 are not triggered); or

               D.  Reorganization  or elimination of the area of the business in
          which you work; or

               E. Relocation of the Company's  principal  executive offices to a
          location more than 50 miles from its current location in Grand Rapids,
          Michigan, regardless of whether you are offered an equivalent position
          at the new location.  While the Company has no obligation to offer you
          an  equivalent  position,  should you be offered  the  opportunity  to
          relocate and you decline, such declination shall be


                                        3




<PAGE>



         be  regarded  as an  event  of  termination  "without  cause"  and  the
         obligations of the Company under this Section 4.3 are triggered.

     Upon the occurrence of termination of your employment "without cause" under
this Section 4.3 and at the expiration of the 60 day notice period,  the Company
shall provide to you the  following:  severance pay equal to 18 months salary at
the rate in effect at commencement of such severance  payments,  an amount equal
to  your  entitlement  under  the  Executive  Management  Incentive  Plan or its
equivalent  (calculation  to be made based on the results of the Company through
the month ending with your  departure from active  responsibilities  and payment
accordingly  pro-rated  if  such  period  is  less  than a full  year),  benefit
continuation or conversion at company expense for the 18 month severance period,
accrued  vacation  through  the  date of  termination,  outplacement  counseling
provided  at  company  expense  (amount  not to exceed  15% of annual  salary at
termination),  use of your company vehicle during the 18 month severance period,
and the option to purchase  said vehicle at the end of the  severance  period at
book value.  No further  Vesting  Credit or Service  Credit under the Retirement
Plan for the  Employees of Harrow  Products,  Inc.  shall accrue to your benefit
following your departure from active responsibilities.

5.       Miscellaneous

     5.1 Term of  Agreement.  The initial term of this  Agreement  shall be from
June 27, 1996 through  November  30,  1997.  The  Agreement  shall  subsequently
terminate  unless the Company notifies you in writing prior to the expiration of
the  initial  or a  subsequent  term of its  intent to renew the  Agreement  for
another one year term (all terms  subsequent to the initial term shall be of one
year  duration).  Authority  to take  action to renew is vested  solely with the
Executive/Compensation Committee of the Board of Directors of Harrow Industries,
Inc. In the event of non-renewal of the Agreement any severance due you shall be
per the provisions of the Executive Severance Policy of Harrow Products only.

     5.2 Assignment.  Neither party may transfer, assign, encumber, or otherwise
dispose of,  voluntarily or involuntarily,  any of your rights to receive any of
the payments provided herein, which rights are expressly declared  nonassignable
and nontransferable. The provisions of this Agreement are binding upon and inure
to  the  benefit  of  the   parties   hereto  and  their   respective   personal
representatives or successors.

     5.3  Amendments.  No provision of this Agreement may be modified or amended
unless such amendment is agreed to in writing by both you and the Company.

     5.4  Waivers.  No  waiver  at any  time of any  term or  provision  of this
Agreement  shall be construed as a waiver of any other term or provision of this
Agreement.

     5.5  Governing  Law. This  Agreement  shall be governed by and construed in
accordance with the laws of the State of Michigan.


                                        4




<PAGE>



     5.6 Arbitration.  Any and all differences or disputes that may arise during
or  following  your  employment  with the Company  shall be brought and resolved
utilizing a final and binding,  impartial arbitration process. The parties shall
follow the specific procedures set forth by the American Arbitration Association
for arbitration of disputes.  If arbitration is sought the parties  specifically
empower the arbitrator to apply the substantive  applicable law and agree he/she
shall have exclusive authority to resolve all differences,  provide all remedies
and due process protections as afforded under the applicable law.

     5.7 Inclusion of Entire Agreement Herein. This Agreement supersedes any and
all prior or contemporaneous agreements,  either oral or in writing, between you
and the Company  with respect to the subject  matter  hereof and contains all of
the  covenants and  agreements  between you and the Company with respect to your
employment  by the Company,  or your right to receive  severance  benefits.  You
specifically acknowledge the purported employment agreement dated August 3, 1995
and  entered  into  by you  and the  former  Chairman  of the  Board  of  Harrow
Industries, Inc., Philip A- Uzielli, has and had no force and effect.

     5.8  Notices.   For  purposes  of  this   Agreement   notice  and  all  the
communications  provided for in this Agreement  shall be in writing and shall be
deemed to have been duly given when hand  delivered  or mailed by US  registered
mail,  return receipt  requested,  postage prepaid,  addressed to the respective
addressees at their addresses as set forth in the Agreement.

     5.9  Severability.  Should any  provision  of this  Agreement be held to be
invalid,  such  invalidity  shall not  affect  the  enforceability  of any other
provision.

     Please  confirm  your  understanding  and  acceptance  of the  foregoing by
signing and returning to the Company a signed copy of this letter.

                                               HARROW PRODUCTS, INC.



                                               By /s/ Dudley C. Mecum
                                                      Dudley C. Mecum
                                                      Its Chairman and CEO


Agreed:



/s/ Gary L. Humpreys
Gary L. Humpreys, VP


                                        5


<PAGE>

                                 EXHIBIT 10.12


HARROW Products, Inc.




June 5, 1996



Ms. Betsy F. Raymond
2627 E. Beltline, SE
Grand Rapids, MI 49546

Dear Betsy:

     This will confirm our agreement with you effective 6/27/96 as follows:


1.       Employment

     1.1.  Employment  & Duties.  We agree to employ  you as Vice  President  of
Harrow Products,  Inc.  ("Company") and you will act in such capacity and devote
your full business time, skill,  attention and best efforts to carrying out your
duties and promoting the best interests of the Company. At all times during your
employment, you will be subject to the instructions and control of the President
and Chief Operating Officer of the Company.

2.       Employment Terms

     2.1 Conduct. You agree to conduct your business activities in such a manner
as to maintain and enhance Harrow's ethical, moral, and professional standards.

     2.2.  Conflicts of Interest.  It is understood and agreed that you will not
at any time during your period of employment with the Company, without the prior
written  consent of the Executive  Committee of the Board of Directors of Harrow
Industries,  Inc.,  knowingly  acquire any  financial  interest in,  directly or
indirectly, or perform any services for or on behalf of any business, person, or
enterprise  which  undertakes any business in substantial  competition  with the
businesses  of the  Company  or sells  to or buys  from or  otherwise  transacts
business with the Company,  provided,  however, that you may acquire and own not
more  than one  percent  (1%) of the  outstanding  capital  stock of any  public
corporation which sells to or buys from or otherwise transacts business with the
Company.

     2.3  Confidentiality.  You  specifically  acknowledge  and  agree  that any
business plans, technical product data, proprietary information, customer lists,
strategic planning documents,

                                       1

HARROW company

2627 East Beltline, S.E., Grand Rapids, Michigan 49546, Phone 616/942-1440, 
Fax 616/942-2170




<PAGE>



inventions,  forms,  procedures,  copyrightable  subject  matter,  etc.  are the
exclusive  property of the Company and may not be disclosed by you to any person
outside of Harrow,  nor will you make any  unauthorized  use of same  during the
period of your employment or thereafter.

3.       Compensation & Benefits

     3.1 Cash  Compensation.  The Company agrees to pay for all your services to
or on behalf of the  Company  in each full  fiscal  year,  or a portion  thereof
(prorated as to the portion)  payable in  approximately  equal  installments  in
accordance with the customary  payroll practices of the Company (your "salary").
This salary shall be subject to annual  review and  adjustment  by the Executive
/Compensation Committee of the Board of Directors of Harrow Industries,  Inc. in
accordance  with standard  executive  compensation  procedures of the Company in
effect from time to time.  As of 12/l/95,  your annual  salary will be $114,100.
You shall be entitled to participate in the Executive  Management Incentive Plan
or such other program for which  executives  are or shall become  eligible,  and
receive such bonus  compensation  as may become due you pursuant to the terms of
that Plan.

     3.2 Benefit Plans/Vacation.  The payments provided above are in addition to
any  benefits  to which  executives  may be, or may become,  entitled  under any
welfare  benefit plan,  retirement  plan, or fringe  benefit  program of Harrow,
including,  without  limitation,  pension,  401(k),  vacation,  company vehicle,
medical/dental/executive  medical coverage,  life insurance,  long term care, or
disability benefits.  You shall be eligible to receive during the period of your
employment  with the Company,  all such benefits for which other  executives are
eligible under such plans or programs to the extent  permissible under the terms
and provisions of the plans.

     3.3  Expenses.  You  will  be  entitled  to  reimbursement  for  reasonable
out-of-pocket  expenses  incurred by you in the performance of your duties under
this Agreement,  subject to presentment of appropriate vouchers or receipts, per
Corporate Procedure # 352.2.

4.       Termination

     4.1  General.  Your  employment  with  the  Company  as set  forth  in this
Agreement may be terminated  any time,  subject to the  provisions  set forth in
Section 4.2 and 4.3:

     4.2  Termination  for Cause.  In addition to any such remedies which Harrow
may  have at law or in  equity,  the  Company  may  immediately  terminate  your
employment under this Agreement by giving you written notice of such termination
upon or at any time  following the  occurrence  of any of the following  events.
Each such event shall constitute a termination "for cause:"


               A. criminal conduct on your part which results in conviction of a
          felony; or

               B. conduct on your part  involving  your willful  malfeasance  or
          gross negligence or



                                        2




<PAGE>



         failure to act involving  material  non-feasance or gross negligence on
         your part,  which  conduct  or  failure  to act has a material  adverse
         effect on the business of the Company; or

               C. your misappropriation of funds or property of the Company; or

               D.  the  material  breach  by  you  of  any  of  your  covenants,
          agreements or other obligations contained in this Agreement.

     Upon the  occurrence of termination  of your  employment  "for cause" under
this Section  4.2, the Company  shall pay to you an amount equal to your accrued
salary  through the effective  date of  termination at the rate in effect at the
time such notice of termination is given, accrued vacation through the effective
date of  termination,  and any approved  expense  reimbursement  amounts accrued
through the effective date of termination.  Upon payment of such amounts, Harrow
shall have no further obligation to you under this Agreement.


     4.3  Termination  without Cause.  The Company may terminate your employment
under  this  Agreement  at any time  without  cause,  provided  sixty (60) day's
written  notice of such intent to  terminate  is provided to you by the Company.
For purposes of illustration,  termination  "without cause" shall be defined as,
but not limited to, the following events:

               A. Bona fide  decision by the Company to  terminate  its business
          and liquidate its assets; or

               B. Change in control of Harrow  Industries,  Inc,  such change in
          control  being  defined  as  acquisition  by a bidder  of 5 1 % of the
          voting  shares of the  Company or a sale of  substantially  all of the
          company's assets; or

               C.  Material  adverse  alteration in the nature or status of your
          responsibilities and duties as Vice President of the Company.  (Should
          such material  alteration be made at your request,  the obligations of
          the Company under this Section 4.3 are not triggered); or

               D.  Reorganization  or elimination of the area of the business in
          which you work; or

               E. Relocation of the Company's  principal  executive offices to a
          location more than 50 miles from its current location in Grand Rapids,
          Michigan, regardless of whether you are offered an equivalent position
          at the new location.  While the Company has no obligation to offer you
          an  equivalent  position,  should you be offered  the  opportunity  to
          relocate and you decline, such declination shall be



                                        3




<PAGE>



         be  regarded  as an  event  of  termination  "without  cause"  and  the
         obligations of the Company under this Section 4.3 are triggered.

     Upon the occurrence of termination of your employment "without cause" under
this Section 4.3 and at the expiration of the 60 day notice period,  the Company
shall provide to you the  following:  severance pay equal to 18 months salary at
the rate in effect at commencement of such severance  payments,  an amount equal
to  your  entitlement  under  the  Executive  Management  Incentive  Plan or its
equivalent  (calculation  to be made based on the results of the Company through
the month ending with your  departure from active  responsibilities  and payment
accordingly  pro-rated  if  such  period  is  less  than a full  year),  benefit
continuation or conversion at company expense for the 18 month severance period,
accrued  vacation  through  the  date of  termination,  outplacement  counseling
provided  at  company  expense  (amount  not to exceed  15% of annual  salary at
termination),  use of your company vehicle during the 18 month severance period,
and the option to purchase  said vehicle at the end of the  severance  period at
book value.  No further  Vesting  Credit or Service  Credit under the Retirement
Plan for the  Employees of Harrow  Products,  Inc.  shall accrue to your benefit
following your departure from active responsibilities.

5.       Miscellaneous

     5.1 Term of  Agreement.  The initial term of this  Agreement  shall be from
June 27, 1996 through  November  30,  1997.  The  Agreement  shall  subsequently
terminate  unless the Company notifies you in writing prior to the expiration of
the  initial  or a  subsequent  term of its  intent to renew the  Agreement  for
another one year term (all terms  subsequent to the initial term shall be of one
year  duration).  Authority  to take  action to renew is vested  solely with the
Executive/Compensation Committee of the Board of Directors of Harrow Industries,
Inc. In the event of non-renewal of the Agreement any severance due you shall be
per the provisions of the Executive Severance Policy of Harrow Products only.

     5.2 Assignment.  Neither party may transfer, assign, encumber, or otherwise
dispose of,  voluntarily or involuntarily,  any of your rights to receive any of
the payments provided herein, which rights are expressly declared  nonassignable
and nontransferable. The provisions of this Agreement are binding upon and inure
to  the  benefit  of  the   parties   hereto  and  their   respective   personal
representatives or successors.

     5.3  Amendments.  No provision of this Agreement may be modified or amended
unless such amendment is agreed to in writing by both you and the Company.

     5.4  Waivers.  No  waiver  at any  time of any  term or  provision  of this
Agreement  shall be construed as a waiver of any other term or provision of this
Agreement.

     5.5  Governing  Law. This  Agreement  shall be governed by and construed in
accordance with the laws of the State of Michigan.


                                        4




<PAGE>



     5.6 Arbitration.  Any and all differences or disputes that may arise during
or  following  your  employment  with the Company  shall be brought and resolved
utilizing a final and binding,  impartial arbitration process. The parties shall
follow the specific procedures set forth by the American Arbitration Association
for arbitration of disputes.  If arbitration is sought, the parties specifically
empower the arbitrator to apply the substantive  applicable law and agree he/she
shall have exclusive authority to resolve all differences,  provide all remedies
and due process protections as afforded under the applicable law.

     5.7 Inclusion of Entire Agreement Herein This Agreement  supersedes any and
all prior or contemporaneous agreements,  either oral or in writing, between you
and the Company  with respect to the subject  matter  hereof and contains all of
the  covenants and  agreements  between you and the Company with respect to your
employment  by the Company,  or your right to receive  severance  benefits.  You
specifically acknowledge the purported employment agreement dated August 3, 1995
and  entered  into  by you  and the  former  Chairman  of the  Board  of  Harrow
Industries, Inc., Philip A. Uzielli, has and had no force and effect.

     5.8  Notices.   For  purposes  of  this  Agreement,   notice  and  all  the
communications  provided for in this Agreement  shall be in writing and shall be
deemed to have been duly given when hand  delivered  or mailed by US  registered
mail,  return receipt  requested,  postage prepaid,  addressed to the respective
addressees at their addresses as set forth in the Agreement.

     5.9  Severability.  Should any  provision  of this  Agreement be held to be
invalid,  such  invalidity  shall not  affect  the  enforceability  of any other
provision.

     Please  confirm  your  understanding  and  acceptance  of the  foregoing by
signing and returning to the Company a signed copy of this letter.

                                               HARROW PRODUCTS, INC.



                                                  By /s/ Dudley C. Mecum
                                                         Dudley C. Mecum
                                                         Its Chairman and CEO


Agreed:



/s/ Betsy F. Raymond
Betsy F. Raymond, Vice President


                                        5



<PAGE>

                                 EXHIBIT 10.13




                             HARROW INDUSTRIES, INC.
                            2627 East Beltline, S.E.
                          Grand Rapids, Michigan 49546


                                                  April 23, 1996


Robert Fleming & Co. Limited
25 Copthall Avenue
London EC2R 7DR
England

Gentlemen:

     Reference is made to that certain Letter  Agreement , dated April 15, 1996,
by and among Larry L. Adams, Sharon C. Adams, James F. Adams, Katherine E. Adams
and Sarah M. Adams, as sellers ("Sellers"), and Robert Fleming & Co. Limited, as
buyer  ("Fleming"),  relating to the sale by Sellers to Fleming of 66,150 shares
of Common  Stock,  par value  $0.01 per share (the  "Common  Stock"),  of Harrow
Industries,  Inc., a Delaware corporation ("Harrow"). The shares of Common Stock
so  purchased  by  Fleming  (as  the  same  may be  adjusted,  split,  combined,
re-classified or otherwise  changed) are hereinafter  referred to as the "Option
Shares".

     We have agreed that upon the terms and  conditions set forth in this Letter
Agreement,  Harrow shall have the option to purchase from  Fleming,  and Fleming
shall have the option to sell to Harrow,  all of the Option Shares at the Option
Price (as defined below). Our agreement is as follows:

     1. Option of Harrow to  Purchase.  Subject to the terms and  conditions  of
this Letter Agreement, upon the first occurrence of a Call Event (as hereinafter
defined)  Harrow  shall have the option (the "Call  Option")  to  purchase  from
Fleming  (and,  upon the exercise of such option,  Fleming shall sell to Harrow)
all of the  Option  shares  at the  Option  Price.  The  Call  Option  shall  be
exercisable  for 60 days  after the  occurrence  of a Call  Event  (the  "Option
Exercise Period"). If the Call Option
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 2



is not exercised during the Option Exercise Period,  it shall lapse and be of no
further force and effect. In any event, the Call Option shall not be exercisable
later than 5:00pm, New York City time, on December 31, 1997.

     2. Option of Fleming to Sell.  Subject to the terms and  conditions of this
Letter Agreement,  upon the first occurrence of a Call Event, Fleming shall have
the option (the "Put Option") to sell to Harrow (and,  upon the exercise of such
option,  Harrow shall  purchase  from  Fleming) all of the Option  Shares at the
Option  Price.  The Put Option  shall be  exercisable  for the  Option  Exercise
Period. If the Put Option is not exercised during the Option Exercise Period, it
shall lapse and be of no further force and effect.  In any event, the Put Option
shall not be exercisable  later than 5:00pm, New York City time, on December 31,
1997.

     3. Manner of  Exercise  of Options.  (a) The Call Option and the Put Option
shall be  exercisable  by giving to the other  party,  at the address and in the
manner  contemplated  by Section  10(i) hereof,  written  notice of the exercise
thereof. Such notice shall specify a date (not earlier than 10 calendar days nor
later  than 30  calendar  days form the date of such  notice)  and place for the
closing (the  "Closing") of the purchase and sale of the Option Shares  pursuant
to the exercise of such option.  Upon the mailing of notice duly  exercising the
Call Option or the Put Option,  as the case may be, such Option  shall be deemed
to have been  exercised  by the party giving such  notice,  irrespective  of the
actual  date of  Closing.  In the event  that both the Call  Option  and the Put
Option are  exercised  and the  respective  notices of  exercise  shall  specify
different  dates  and/or  places for the  Closing,  then the notice  bearing the
earlier  postmark shall control unless otherwise  specifically  agreed to by the
parties.

     (b) At the Closing, in consideration of the sale, assignment,  transfer and
delivery  of the Option  Shares and against  delivery to Harrow of  certificates
representing the Option Shares, (i) Harrow shall deliver to Fleming an amount in
cash or by certified or bank
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 3



cashier's  check  equal  to the Option  Price and  (ii) Fleming shall deliver to
Harrow certificates representing  the Option  Shares, duly endorsed for transfer
or accompanied by duly executed stock powers.

     4.       Definitions.

          (a) Option Price.  As used herein,  the term "Option Price" shall mean
     an aggregate  price of (i)  $1,150,000 if the Call Option or the Put Option
     is exercised on or prior to December 31, 1996,  and (ii)  $1,250,000 if the
     Call Option or the Put Option is exercised  after  December 31, 1996 and on
     or prior to December 31, 1997.

          (b) Call Event.  As used  herein,  a "Call  Event"  shall be deemed to
     occur  if the  Consolidated  Net  Worth  of  Harrow  (as  reflected  in the
     consolidated  financial statements of Harrow as at the end of any month) as
     at the end of any month shall be at least equal to $2,250,000.  The date of
     the Call  Event  shall be deemed to be the date of the end of the month for
     which the consolidated  financial  statements  referred to in the foregoing
     paragraph 4(b)(i) are prepared.

<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 4



     5.       Fleming's Representations and Warranties.

     Fleming represents and warrants to Harrow as follows:

          (a) Fleming has the full power and  authority to execute,  deliver and
     carry out the terms and  provisions of this Agreement and to consummate the
     transactions  contemplated  hereby,  and has taken all necessary  action to
     authorize the execution, delivery and performance of this Agreement;

          (b) Fleming is duly organized,  validly  existing and in good standing
     as a corporation under the laws of England;

          (c) this Agreement has been duly and validly authorized,  executed and
     delivered  by Fleming and  constitutes  a valid and binding  obligation  of
     Fleming,  enforceable in accordance  with its terms,  subject to applicable
     principles of equity, bankruptcy, reorganization, insolvency, or other laws
     affecting the enforcement of creditors' rights generally;

          (d) At the time that the Put Option or the Call  Option is  exercised,
     and at the Closing , (i) Fleming shall have taken no action that would have
     caused  the  creation  of  any  liens,  claims,  options,  proxies,  voting
     agreements,  charges or  encumbrances  of whatever  nature and (ii) Fleming
     shall not (except as set forth herein) have disposed of any interest in the
     Option Shares;

          (e) The  execution  of this  Agreement  by Fleming  does not,  and the
     performance by Fleming of its obligations  hereunder will not, constitute a
     violation  of,  conflict  with or result in a default  under any  contract,
     commitment,  agreement,  understanding,  arrangement  or restriction of any
     kind to  which  Fleming  is a party  or by  which  Fleming  is bound or any
     judgment, decree or order applicable to Fleming, nor is Fleming required to
     obtain the approval of any person or organization to enter into and perform
     this Agreement; and

<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 5



          (f) Neither the  execution  and  delivery  of this  Agreement  nor the
     performance  by Fleming  of its  obligations  hereunder  will  violate  any
     provisions of law  applicable to Fleming or require any consent or approval
     of, or filing  with or notice to any  public  body or  authority  under any
     provision of law applicable to Fleming.

      6.       Harrow's Representations and Warranties.
Harrow represents and warrants to Fleming as follows:

          (a) Harrow is a corporation  duly organized,  validly  existing and in
     good  standing  under the laws of  Delaware.  Harrow has the full power and
     authority  to execute,  deliver and carry out the terms and  provisions  of
     this Agreement and consummate the transactions contemplated hereby, and has
     taken all  necessary  action  to  authorize  the  execution,  delivery  and
     performance of this Agreement.

          (b) This Agreement has been duly and validly authorized,  executed and
     delivered  by Harrow  and  constitutes  a valid and  binding  agreement  of
     Harrow,  enforceable  in accordance  with its terms,  subject to applicable
     principles of equity, bankruptcy, reorganization,  insolvency or other laws
     affecting the enforcement of creditors' rights generally;

          (c) The  execution  of this  Agreement  by Harrow  does  not,  and the
     performance by Harrow of its obligations  hereunder will not,  constitute a
     violation  of,  conflict  with or result in a default  under the  contract,
     commitment,  agreement,  understanding,  arrangement  or restriction of any
     kind to  which  Harrow  is a party  or by  which  Harrow  is  bound  or any
     judgment,  decree or order applicable to Harrow,  nor is Harrow required to
     obtain the approval of any person or organization to enter into and perform
     this Agreement  other than those which shall have been obtained at the time
     this Agreement is performed; and

          (d) neither the  execution  and  delivery of this  Agreement,  nor the
     performance  by  Harrow  of its  obligations  hereunder  will  violate  any
     provision of law
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 6



     applicable to Harrow or require any consent or approval of, or filling with
     or notice to any  public  body or  authority  under  any  provision  of law
     applicable to Harrow (except for such periodic  reporting  requirements  as
     may be applicable to Harrow under the United States Securities Exchange Act
     of 1934 or the rules and regulations promulgated thereunder).

      7.       Certain Covenants.

          (a) In  connection  with  entering  into  this  Agreement,  Harrow  is
     establishing  an  account  in its  name  to be  maintained  at  Fleming  in
     accordance with its customary practices  concerning the maintenance of cash
     accounts  of  customers,  and Harrow is  depositing  into such  account the
     amount of $1,071,456. In connection therewith, Harrow agrees that if at any
     time  Harrow  fails to pay any sums due to Fleming  Fleming  may set off or
     transfer any sum standing to the credit of any account Harrow may have with
     Fleming,  or any other sums that Fleming is holding on Harrow's behalf,  in
     or towards satisfaction of Harrow's monies,  obligations and liabilities to
     Fleming under any document or agreement  whatsoever.  Where such set-off or
     transfer  requires  the  conversion  of one  currency  into  another,  such
     conversion  shall be calculated at Fleming's then  prevailing  spot rate of
     exchange for purchasing the currency concerned.

          (b) Until  such time as the  option  granted  herein  shall  have been
     exercised  or shall have  expired or  otherwise  lapsed,  Harrow  agrees to
     furnish Fleming with its consolidated financial statements as at the end of
     each month (which need not be audited), which financial statements shall be
     furnished within 30 days of the end of the month to which they relate.  The
     agreement  to furnish  such  financial  statements  may be satisfied by the
     delivery to Fleming of copies of such filings, if any, as Harrow makes with
     the United States Securities and Exchange Commission.

     8. Specific  Performance.  Harrow and Fleming acknowledge and agree that in
the event of any breach of this  Agreement,  the  non-breaching  party  would be
irreparably
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 7



harmed  and  could not  be made  whole by  monetary  damages.  It is accordingly
agreed that Harrow and Fleming,  in addition  to any other  remedy to which they
may be entitled at law or in  equity,  shall  be  entitled  to an injunction  or
injunctions  to  prevent  breaches of the provisions of this Agreement and/or to
compel  specific performance of this Agreement in any action, provided  that any
such  action  shall take  place  in a  state court  of New  York, as provided in
Section 10(h) hereof.

     9. Expenses. Whether or not the transactions contemplated by this Agreement
shall be  consummated,  all fees and  expenses  incurred by any party  hereto in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such fees and expenses.

    10.      Miscellaneous.

          (a)  This  Agreement  constitutes  that  entire  understanding  of the
     parties hereto with respect to the subject matter hereof and supersedes all
     prior agreements and understandings,  whether oral or written,  between the
     parties hereto with respect to the subject  matter  hereof.  This Agreement
     may not be amended orally,  but only by an instrument in writing by each of
     the parties to this Agreement.

          (b) This  Agreement  shall inure to the benefit of and be binding upon
     the parties hereto and their respective  successors and permitted  assigns.
     This  Agreement  and the rights  granted  hereunder may be  transferred  by
     Harrow without the consent of Fleming,  provided that within 30 days of the
     effectuation  of such  transfer  Harrow  gives  written  notice  thereof to
     Fleming in accordance with the provisions of Section 10(i) hereof.  Neither
     this  Agreement  or any  rights  hereunder  may be  assigned  or  otherwise
     transferred by Fleming except to a wholly owned subsidiary thereof.

          (c) Notwithstanding the foregoing,  nothing in this Agreement shall be
     deemed to  restrict  Fleming,  at any time  after the Put  Option  and Call
     Option
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 8



     granted hereunder lapse and become no longer exercisable in accordance with
     the terms  hereof,  from  selling,  assigning,  transferring,  conveying or
     otherwise  disposing  of the  Option  Shares  at any  time  to any  person,
     provided  that  prior  notice  of  any  such  sale,  assignment,  transfer,
     conveyance  or other  disposition  is given to Harrow.  In the event of any
     such sale,  assignment,  transfer,  conveyance  or other  disposition,  the
     rights and  obligations  of the  parties  hereunder  shall  cease as to the
     Option Shares that are the subject thereof, and Harrow shall have the right
     to close the account referred to in Section 7(a) hereof and to withdraw all
     funds therefrom without penalty.

          (d) Section  headings  contained in this  Agreement  are for reference
     purposes  only and shall not affect the meaning or  interpretation  of this
     Agreement.

          (e) All  representations,  warranties and agreements  contained herein
     shall survive the Closing.

          (f) This  Agreement  may be  executed in  counterparts,  each of which
     shall, when executed, be an original and all of which shall be deemed to be
     one and the same instrument.

          (g) This Agreement  shall be governed by and construed and enforced in
     accordance with the laws of the State of New York, without reference to the
     conflicts of law principles thereof.

          (h) Harrow and Fleming  hereby agree that any suit,  claim,  action or
     proceeding  relating  to or  arising  under  this  Agreement  may  (without
     prejudice  to the ability of either  party to commence  proceedings  in any
     other  jurisdiction)  be  brought  in a  state  court  of New  York  having
     competent  subject matter  jurisdiction  over the matters set forth in this
     Agreement  or in a  federal  court  sitting  in New York  (each a "New York
     Court").   Each  of  Harrow  and  Fleming   hereby   consents  to  personal
     jurisdiction  in any such  action  brought  in any  such  New  York  Court,
     consents  to service of process  upon it in the matter set forth in Section
     9(h) hereof,  and waives any objection it may have to venue in any such New
     York

<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 9


     Court or to any  claim  that any  such  New York  Court is an  inconvenient
     forum.

          (i) All notices and other communications under this Agreement shall be
     in writing and  delivery  thereof  shall be deemed to have been made either
     (i) if mailed,  when  received,  or (ii) if  transmitted  by hand delivery,
     telegram, telex, telecopier or facsimile transmission,  when transmitted to
     the party entitled to receive the same, at the addresses indicated below or
     at such other address as such party shall have  specified by written notice
     to the other parties hereto given in accordance herewith:

                  (i)      if to Fleming, addressed to:

                           Robert Fleming & Co. Limited
                           25 Copthall Avenue
                           London EC2R 7DR
                           England

                           Attention:  Michael J.C. Watts

                  (ii)     if to Harrow, addressed to:

                           Harrow Industries, Inc.
                           2627 East Beltline, S.E.
                           Grand Rapids, Michigan 49546

                           Attention:  John S. Hogan

                           with copies to:

                           Skadden, Arps, Slate, Meagher & Flom
                           919 Third Avenue
                           New York, NY  10022

                           Attention:  Alan G. Straus, Esq.

          (j) Should any litigation or  arbitration be commenced  (including any
     proceedings  in a  bankruptcy  court)  between the parties  hereto or their
     representatives
<PAGE>
Robert Fleming & Co. Limited 
April 23, 1996
Page 10



     concerning  any provision of this Agreement or the rights and duties of any
     person or entity  hereunder,  the party  prevailing  in such  litigation or
     arbitration  shall be entitled,  in addition to such other relief as may be
     granted,  to reasonable  attorneys' and  arbitration  fees and the costs of
     litigation or arbitration.

          (k) Any  waiver  by any  party of a breach  of any  provision  of this
     Agreement  shall not operate as or be construed to be a waiver of any other
     breach of such  provision  or of any breach of any other  provision of this
     Agreement.  The failure of a party to insist upon strict  adherence  to any
     terms of this  Agreement on one or more sections  shall not be considered a
     waiver or deprive  that party of the right  hereafter to insist upon strict
     adherence to that term or any other term of this Agreement.

          (l) No provision in this Agreement shall constitute any person a third
     party beneficiary.

          (m) If any term, provision,  covenant or restriction of this Agreement
     is held by a court  of  competent  jurisdiction  or other  authority  to be
     invalid,  void or  unenforceable,  the remainder of the terms,  provisions,
     covenants and restrictions of this Agreement shall remain in full force and
     effect and shall in no way be affected, impaired or invalidated;  provided;
     however,  that in the event the provisions of this  Agreement  dealing with
     the purchase and sale of the Option  Shares is held to be invalid then this
     entire Agreement shall be invalidated.
<PAGE>
Robert Fleming & Co. Limited
April 23, 1996
Page 11



     If the  foregoing  correctly  reflects the terms of our  agreement,  please
countersign  the  enclosed  copy of this  letter  in the space  provided  below,
whereupon this letter shall constitute a binding agreement between us.

                                           Very truly yours,

                                           HARROW INDUSTRIES, INC.


                                           By:/s/
                                              Name:
                                              Title:

Accepted and agreed to as of the date first above written:

ROBERT FLEMING & CO. LIMITED

By:    /s/ M.J.C. Watts
     Name: M.J.C. Watts
         Title: Director

<PAGE>

                                 EXHIBIT 10.14



                                    FLEMINGS
                          Robert Fleming & Co. Limited
                      25 Copthall Avenue, London EC2R 7DS
                      Telex 297651 Facsimile 0171 588 7210
                            Telephone 0171 658 5858



The Directors
Harrow Industries, Inc.
2627 East Beltline, S.E.
Grand Rapids,
MI  49546,
United States of America
                                                                    14 June 1996

Dear Sirs,

Further to recent discussions,  set out below are the terms under which we would
be pleased to provide a put/call option. If you find these terms acceptable then
I should be grateful if you would  confirm  this by signing and  returning  this
letter.

Option Shares:            16,000 shares of Common Stock in Harrow Industries.

Purchase Price:           $64,000 (sixty thousand United States Dollars).

Option Price:             $75,000 (seventy-five thousand United States Dollars)
                          if the shares are either put or called, in accordance
                          with the Call Event up to and including 31st December,
                          1996.

                          $80,000  (eighty  thousand  United  States Dollars) if
                          the shares are  either put or  called,  in  accordance
                          with the Call Event up to and including 31st December,
                          1997.

                          The  Option  shall  cease to have any force and effect
                          after the close of business on 31st December, 1997.

Call Event:               A  "Call  Event"  shall  be  deemed  to  occur  if the
                          Consolidated Net Worth of Harrow exceeds $2,250,000.

Miscellaneous:            At  all times  whilst  the  Option  is in  effect  the
                          company  will  maintain  a  deposit  in  an  amount of
                          $64,000 in an  account  held  at  Flemings  which will
                          attract  interest at a rate  of 5%.  Interest  accrued
                          will be rolled  into the deposit  principal  from time
                          to time.

All the provisions of the option  agreement  dated 23 April 1996 and between you
and us shall be incorporated  mutatis  mutandis in this letter as if John Hogan,
Gary  Humphreys,  and Betsy and Scott  Raymond were named therein as Sellers and
the Common Stock  defined  therein  were 16,000 and the Option Price  amended to
reflect the details above.

Yours sincerely,

for and on behalf of
ROBERT FLEMING & CO. LIMITED

/s/ M.J.C. Watts
M.J.C. Watts
Director
/s/ Dudley C. Mecum, Chairman

<PAGE>
                                 EXHIBIT 10.15

                             HARROW INDUSTRIES, INC.
                            2627 East Beltline, S.E.
                          Grand Rapids, Michigan 49546




                                                      August 28, 1996



Robert Fleming & Co. Limited 
25 Copthall Avenue
London EC2R 7DR
England

Gentlemen:

     Reference is made to that certain Letter Agreement,  dated August 28, 1996,
by and among  Philip  Uzielli and the other  persons and  entities  named on the
signature  page  thereof,  as  sellers  ("Sellers"),  and  Robert  Fleming & Co.
Limited, as buyer ("Fleming"), relating to the sale by Sellers to Fleming of (a)
an aggregate of 112,706  shares of Common Stock,  par value $0.01 per share (the
"Common Stock"), of Harrow Industries,  Inc., a Delaware corporation  ("Harrow")
and (b) an aggregate of 80,436 shares of Junior  Preferred  Stock of Harrow (the
"Preferred  Stock").  The shares of Common Stock so purchased by Fleming (as the
same may be adjusted,  split,  combined,  reclassified or otherwise changed) are
hereinafter  referred  to as the  "Common  Option  Shares",  and the  shares  of
Preferred  Stock so purchased  by Fleming (as the same may be  adjusted,  split,
combined,  reclassified or otherwise changed) are hereinafter referred to as the
"Preferred  Option  Shares";  the Common Option Shares and the Preferred  Option
Shares are hereinafter  referred to collectively as the "Option  Shares",  which
term  shall  include the Common  Option  Shares or the  Preferred  Option Shares
individually as the context may require.

     We have agreed that upon the terms and  conditions set forth in this Letter
Agreement,  Harrow shall have the option to purchase from  Fleming,  and Fleming
shall  have the  option  to sell to  Harrow,  all of the  Option  Shares  in the
tranches set forth below (each, a




<PAGE>



Robert Fleming & Co. Limited
August 28, 1996
Page 2




"Tranche") at the applicable  Option Price (as defined  below) per Tranche.  Our
agreement is as follows:

          1. Option of Harrow to Purchase  Option  Shares.  Subject to the terms
     and conditions of this Letter  Agreement,  if a Call Event (as  hereinafter
     defined)  shall occur Harrow  shall have the option (the "Call  Option") to
     purchase from Fleming (and, upon the exercise of such option, Fleming shall
     sell to Harrow) all of the Option Shares  comprising one or more Tranche at
     the Applicable Option Price (as hereinafter defined). The Call Option shall
     be  exercisable  at any time  after the  occurrence  of a Call  Event  (the
     "Option Exercise Period"),  but shall not be exercisable later than 5:00pm,
     London time, on December 31, 1999.

          2. Option of Fleming to Sell Option  Shares.  Subject to the terms and
     conditions of this Letter  Agreement,  upon the first  occurrence of a Call
     Event,  Fleming  shall have the option (the "Put Option") to sell to Harrow
     (and, upon the exercise of such option, Harrow shall purchase from Fleming)
     all of the Option Shares  comprising  one or more Tranche at the Applicable
     Option Price.  The Put Option shall be exercisable  for the Option Exercise
     Period,  but shall not be  exercisable  later than 5:00pm,  London time, on
     December 31, 1999.

          3.  Manner of  Exercise  of  Options.  (a) The Call Option and the Put
     Option (referred to hereinafter  collectively as the "Option" or "Options")
     with  respect to any Tranche  shall be  exercisable  by giving to the other
     party,  at the  address  and in the manner  contemplated  by Section  10(i)
     hereof,  written notice of the exercise thereof.  Such notice shall specify
     (i) the Tranche with respect to which the Call Option or the Put Option, as
     the case may be, is being  exercised  and (ii) a date (not  earlier than 10
     calendar days nor later than 30 calendar days from the date of such notice)
     and place for the closing (the  "Closing")  of the purchase and sale of the
     Option  Shares  comprising  such  Tranche  pursuant to the exercise of such
     option.  Upon the mailing of notice duly  exercising the Call Option or the
     Put Option,  as the case may be,  such option  shall be deemed to have been
     exer-




<PAGE>



Robert Fleming & Co. Limited 
August 28, 1996
Page 3




     cised by the party giving such notice,  irrespective  of the actual date of
     Closing.  In the event that both the Call  Option  and the Put Option  with
     respect to a particular Tranche are exercised and the respective notices of
     exercise shall specify different dates and/or places for the Closing,  then
     the notice  bearing the earlier  postmark  shall control  unless  otherwise
     specifically agreed to by the parties.

               (b) The Call Option and the Put Option shall each be  exercisable
          in Tranches, as follows:

         Identification of Tranche:         Comprised of:

         Tranche A                           80,436 shares of Preferred
                                             Stock
                                             and
                                             16,934 shares of Common
                                             Stock

         Tranche B                           47,886 shares of Common
                                             Stock

         Tranche C                           47,886 shares of Common
                                             Stock

               (c) The Call Option and the Put  Option,  as the case may be, may
          be exercised,  if at all, with respect to a single Tranche or multiple
          Tranches, provided, that the Put Option or Call Option with respect to
          Tranche A must be exercised prior to or simultaneously  with the time,
          if at all,  that the Put  Option or the Call  Option  with  respect to
          either Tranche B or Tranche C is exercised.

               (d) At the Closing,  in  consideration  of the sale,  assignment,
          transfer and delivery of the Option Shares comprising the Tranche with
          respect to which the option was  exercised  and  against  delivery  to
          Harrow of  certificates  representing  such Option Shares,  (i) Harrow
          shall  deliver to Fleming  an amount in cash or by  certified  or bank
          cashier's  check  equal to the  Option  Price and (ii)  Fleming  shall
          deliver  to  Harrow   certificates   representing  the  Option  Shares
          comprising the Tranche with respect to which the Option was exercised,
          duly en-




<PAGE>



Robert Fleming & Co. Limited
August 28, 1996
Page 4




          dorsed for transfer or accompanied by duly executed stock powers.

4.       Definitions.

               (a) Option  Price.  As used herein,  the term "Option  Price" per
          Tranche shall mean the applicable price set forth in the table below:

         If Put Option or Call Op-
         tion is exercised on or             The Applicable Option
         prior to:                           Price shall be:

         December 31, 1996                   $  985,000

         March 31, 1997                      $1,007,800

         June 30, 1997                       $1,023,700

         September 30, 1997                  $1,049,000

         December 31, 1997                   $1,074,300

         June 30, 1998                       $1,124,000

         December 31, 1998                   $1,174,500

         December 31, 1999                   $1,274,800

               (b) Call Event. As used herein, a "Call Event" shall be deemed to
          occur if the  Consolidated  Net Worth of Harrow (as  reflected  in the
          consolidated  financial  statements  of  Harrow  as at the  end of any
          month)  as at  the  end  of any  month  shall  be at  least  equal  to
          $2,275,000.  The date of the Call Event shall be deemed to be the date
          of  the  end  of  the  month  for  which  the  consolidated  financial
          statements  referred to in this paragraph  4(b) are prepared.  For the
          avoidance of doubt, there may be more than one Call Event.

         5. Fleming's Representations and Warranties.

         Fleming represents and warrants to Harrow as follows:




<PAGE>



Robert Fleming & Co. Limited
August 28, 1996
Page 5




               (a) Fleming has the full power and authority to execute,  deliver
          and  carry  out the  terms and  provisions  of this  Agreement  and to
          consummate the  transactions  contemplated  hereby,  and has taken all
          necessary action to authorize the execution,  delivery and performance
          of this Agreement;

               (b)  Fleming  is duly  organized,  validly  existing  and in good
          standing as a corporation under the laws of England;

               (c) this Agreement has been duly and validly authorized, executed
          and  delivered  by  Fleming  and   constitutes  a  valid  and  binding
          obligation  of  Fleming,  enforceable  in  accordance  with its terms,
          subject   to   applicable    principles    of   equity,    bankruptcy,
          reorganization, insolvency, or other laws affecting the enforcement of
          creditors' rights generally;

               (d) At the time  that the Put  Option  or the  Call  Option  with
          respect to a particular Tranche is exercised,  and at the Closing with
          respect  thereto,  (i)  Fleming  shall have taken no action that would
          have  caused the  creation  of any liens,  claims,  options,  proxies,
          voting agreements,  charges or encumbrances of whatever nature against
          or with respect to the Option Shares  comprising such Tranche and (ii)
          Fleming  shall not (except as set forth  herein) have  disposed of any
          interest in the Option Shares.

               (e) the execution of this  Agreement by Fleming does not, and the
          performance  by  Fleming  of  its  obligations   hereunder  will  not,
          constitute a violation of,  conflict with or result in a default under
          any contract,  commitment,  agreement,  understanding,  arrangement or
          restriction  of any  kind to  which  Fleming  is a party  or by  which
          Fleming  is bound or any  judgment,  decree  or  order  applicable  to
          Fleming,  nor is Fleming required to obtain the approval of any person
          or organization to enter into and perform this Agreement; and

               (f) neither the execution and delivery of this  Agreement nor the
          performance by Fleming of its




<PAGE>



Robert Fleming & Co. Limited 
August 28, 1996
Page 6




          obligations  hereunder will violate any provision of law applicable to
          Fleming  or require  any  consent or  approval  of, or filing  with or
          notice to any public  body or  authority  under any  provision  of law
          applicable to Fleming.

         6.       Harrow's Representations and Warranties.  
Harrow represents and warrants to Fleming as follows:

               (a) Harrow is a corporation duly organized,  validly existing and
          in good standing under the laws of Delaware. Harrow has the full power
          and  authority  to  execute,  deliver  and  carry  out the  terms  and
          provisions  of  this  Agreement  and   consummate   the   transactions
          contemplated  hereby,  and has taken all necessary action to authorize
          the execution, delivery and performance of this Agreement;

               (b) this Agreement has been duly and validly authorized, executed
          and delivered by Harrow and constitutes a valid and binding  agreement
          of  Harrow,  enforceable  in  accordance  with its  terms,  subject to
          applicable   principles   of   equity,   bankruptcy,   reorganization,
          insolvency  or other laws  affecting  the  enforcement  of  creditors,
          rights generally;

               (c) the  execution of this  Agreement by Harrow does not, and the
          performance  by  Harrow  of  its   obligations   hereunder  will  not,
          constitute a violation of,  conflict with or result in a default under
          any contract,  commitment,  agreement,  understanding,  arrangement or
          restriction  of any kind to which Harrow is a party or by which Harrow
          is bound or any judgment, decree or order applicable to Harrow, nor is
          Harrow  required to obtain the approval of any person or  organization
          to enter into and perform this Agreement  other than those which shall
          have been obtained at the time this Agreement is performed;

               (d) the Option Shares are duly authorized,  validly issued, fully
          paid and nonassessable; and

               (e) neither the execution and delivery of this Agreement, nor the
          performance by Harrow of its




<PAGE>



Robert Fleming & Co. Limited 
August 28, 1996
Page 7




          obligations  hereunder will violate any provision of law applicable to
          Harrow or require any consent or approval of, or filing with or notice
          to any public body or authority  under any provision of law applicable
          to Harrow (except for such periodic  reporting  requirements as may be
          applicable to Harrow under the United States  Securities  Exchange Act
          of 1934 or the rules and regulations promulgated thereunder).

7.       Certain Covenants.

               (a) In connection  with entering into this  Agreement,  Harrow is
          establishing  an  account in its name to be  maintained  at Fleming in
          accordance with its customary practices  concerning the maintenance of
          cash accounts of customers  and bearing  interest at an annual rate of
          5%,  paid and compounded quarterly, and Harrow is depositing into such
          account  the  amount  of  $2,800,000,   representing   the  amount  of
          $933,333.33 in respect of Tranche A, $933,333.33 in respect of Tranche
          B and  $933,333.34 in respect of Tranche C. The amount so deposited in
          respect of a  particular  Tranche  may be  withdrawn  by Harrow if the
          option in respect of that Tranche is exercised or, at Harrow's option,
          may be applied  towards the Option Price related to such Tranche as is
          then exercised.  Harrow agrees that if at any time Harrow fails to pay
          any  sums  due to  Fleming  Fleming  may set off or  transfer  any sum
          standing to the credit of any account Harrow may have with Fleming, or
          any other  sums that  Fleming is holding  on  Harrow's  behalf,  in or
          towards  satisfaction of Harrow's monies,  obligations and liabilities
          to Fleming  under any  document or  agreement  whatsoever.  Where such
          set-off or transfer  requires  the  conversion  of one  currency  into
          anoth6r,  such  conversion  shall  be  calculated  at  Fleming's  then
          prevailing   spot  rate  of  exchange  for   purchasing  the  currency
          concerned.

               (b) Until  such time as all of the  options in respect of all the
          Tranches  granted  herein  shall  have been  exercised  or shall  have
          expired or otherwise lapsed, Harrow agrees to furnish Fleming with its
          consolidated  financial  statements as at the end of each month (which
          need not be audited), which financial statements




<PAGE>



Robert Fleming & Co. Limited 
August 28, 1996
Page 8




          shall be  furnished  within  30 days of the end of the  month to which
          they relate. The agreement to furnish such financial statements may be
          satisfied  by the  delivery to Fleming of copies of such  filings,  if
          any, as Harrow makes with the United  States  Securities  and Exchange
          Commission.

     8. Specific  Performance.  Harrow and Fleming acknowledge and agree that in
the event of any breach of this  Agreement,  the  non-breaching  party  would be
irreparably  harmed  and  could not be made  whole by  monetary  damages.  It is
accordingly  agreed that Harrow and Fleming,  in addition to any other remedy to
which they may be  entitled  at law or in  equity,  shall be  entitled  to an in
junction or injunctions to prevent  breaches of the provisions of this Agreement
and/or to compel specific performance of this Agreement in any action,  provided
that any such action may take place in a state court of New York, as provided in
Section 10(h) hereof.

     9. Expenses. Whether or not the transactions contemplated by this Agreement
shall be  consummated,  all fees and  expenses  incurred by any party  hereto in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such fees and expenses.

     10. Miscellaneous.

          (a) This Agreement constitutes the entire understanding of the parties
     hereto with respect to the subject  matter hereof and  supersedes all prior
     agreements and understandings, whether oral or written, between the parties
     hereto with respect to the subject matter hereof. This Agreement may not be
     amended orally,  but only by an instrument in writing signed by each of the
     parties to this Agreement.

          (b) This  Agreement  shall inure to the benefit of and be binding upon
     the  parties  hereto and their  respective  successors  and  assigns.  This
     Agreement and the rights granted hereunder may not be transferred by Harrow
     without the consent of Fleming, which consent




<PAGE>



Robert Fleming & Co. Limited 
August 28, 1996
Page 9




     shall not be unreasonably withheld,  provided, that (i) Fleming is provided
     with evidence reasonably satisfactory to it that such a transfer is in full
     compliance  with all applicable laws and  regulations  (including,  without
     limitation,   applicable   securities  laws  and   regulations)   and  (ii)
     arrangements  reasonably  satisfactory to Fleming shall have been made with
     respect to the deposit referred to in Section 7(a) hereof. In the event any
     such transfer  occurs,  Harrow shall give written notice thereof to Fleming
     in accordance with the provisions of Section 10(i) hereof within 30 days of
     the  effectuation  of such  transfer.  Neither this Agreement or any rights
     hereunder may be assigned or otherwise  transferred  by Fleming except to a
     wholly owned subsidiary thereof.

          (c) Notwithstanding the foregoing,  nothing in this Agreement shall be
     deemed to  restrict  Fleming,  at any time after the Put  Options  and Call
     Options  granted  hereunder  lapse and  become no longer  exercisable  with
     respect to all Tranches in accordance with the terms hereof,  from selling,
     assigning,  transferring,  conveying or  otherwise  disposing of the Option
     Shares at any time to any person,  provided,  that prior notice of any such
     sale,  assignment,  transfer,  conveyance or other disposition  is given to
     Harrow. In the event of any such sale, assignment,  transfer, conveyance or
     other  disposition,  the rights and  obligations  of the parties  hereunder
     shall  cease as to the Option  Shares  that are the  subject  thereof,  and
     Harrow  shall have the right to close the  account  referred  to in Section
     7(a) hereof and to withdraw all funds therefrom without penalty.

          (d) Section  headings  contained in this  Agreement  are for reference
     purposes  only and shall not affect the meaning or  interpretation  of this
     Agreement.

          (e) All  representations,  warranties and agreements  contained herein
     shall survive the Closing related to any particular Tranche.

          (f) This  Agreement  may be  executed in  counterparts,  each of which
     shall, when executed, be




<PAGE>



Robert Fleming & Co. Limited
August 28, 1996
Page 10




     deemed to be an original and all of which shall be deemed to be one and the
     same instrument.

          (g) This Agreement  shall be governed by and construed and enforced in
     accordance with the laws of the State of New York, without reference to the
     conflicts of law principles thereof.

          (h) Harrow and Fleming  hereby agree that any suit,  claim,  action or
     proceeding  relating  to or  arising  under  this  Agreement  may  (without
     prejudice  to the ability of either  party to commence  proceedings  in any
     other  jurisdiction)  be  brought  in a  state  court  of New  York  having
     competent  subject matter  jurisdiction  over the matters set forth in this
     Agreement  or in a  federal  court  sitting  in New York  (each a "New York
     Court").   Each  of  Harrow  and  Fleming   hereby   consents  to  personal
     jurisdiction  in any such  action  brought  in any  such  New  York  Court,
     consents  to service of process  upon it in the manner set forth in Section
     10(i) hereof, and waives any objection it may have to venue in any such New
     York Court or to any claim that any such New York Court is an  inconvenient
     forum.

          (i) All notices and other communications under this Agreement shall be
     in writing and  delivery  thereof  shall be deemed to have been made either
     (A) if mailed,  when  received,  or (B) if  transmitted  by hand  delivery,
     telegram, telex, telecopier or facsimile transmission,  when transmitted to
     the party entitled to receive the same, at the addresses indicated below or
     at such other address as such party shall have  specified by written notice
     to the other parties hereto given in accordance herewith:

                              (A)  if to Fleming, addressed to:

                                   Robert Fleming & Co. Limited 
                                   25 Copthall Avenue 
                                   London EC2R 7DR
                                   England

                                   Attention: Michael J.C. Watts




<PAGE>



Robert Fleming Co. Limited
August 28, 1996
Page 11




                                   Facsimile: (+44) 171 256 5036
                                   Telex: 297451

                              (B)  if to Harrow, addressed to:

                                   Harrow Industries, Inc.
                                   2627 East Beltline, S.E. 
                                   Grand Rapids, Michigan 49546

                                   Attention: John S. Hogan
                                   Facsimile: (+l) 616 942 2170

                                   with copies to:

                                   Skadden, Arps, Slate, Meagher Flom 
                                   919 Third Avenue
                                   New York, New York 10022

                                   Attention:  Alan G. Straus, Esq.

          (j) Should any litigation or  arbitration be commenced  (including any
     proceedings  in a  bankruptcy  court)  between the parties  hereto or their
     representatives  concerning  any provision of this  Agreement or the rights
     and duties of any person or entity hereunder,  the party prevailing in such
     litigation  or  arbitration  shall be  entitled,  in addition to such other
     relief as may be granted, to reasonable attorneys' and arbitration fees and
     the costs of litigation or arbitration.

          (k) Any  waiver  by any  party of a breach  of any  provision  of this
     Agreement  shall not operate as or be construed to be a waiver of any other
     breach of such  provision  or of any breach of any other  provision of this
     Agreement.  The failure of a party to insist upon strict  adherence  to any
     term of this  Agreement on one or more  sections  shall not be considered a
     waiver or deprive that party of the right  thereafter to insist upon strict
     adherence to that term or any other term of this Agreement.

          (1) No provision in this Agreement shall constitute any person a third
     party beneficiary.




<PAGE>



Robert Fleming & Co. Limited
August 28, 1996
Page 12



          (m) If any term, provision,  covenant or restriction of this Agreement
     is held by a court  of  competent  jurisdiction  or other  authority  to be
     invalid,  void or  unenforceable,  the remainder of the terms,  provisions,
     covenants and restrictions of this Agreement shall remain in full force and
     effect and shall in no way be affected, impaired or invalidated;  provided,
     however,  that in the event the provisions of this  Agreement  dealing with
     the purchase and sale of the Option  Shares is held to be invalid then this
     entire Agreement shall be invalidated.

     If the  foregoing  correctly  reflects the terms of our  agreement,  please
countersign  the  enclosed  copy of this  letter  in the space  provided  below,
whereupon this letter shall constitute a binding agreement between us.

                                                       Very truly yours,

                                                       HARROW INDUSTRIES, INC.


                                                       By: /s/ John S. Hogan 
                                                           Name: John S. Hogan
                                                           Title: VP & CFO


Accepted and agreed to 
as of the date first above 
written:

ROBERT FLEMING & CO. LIMITED


By:
         Name:
         Title:




<PAGE>


Robert Fleming & Co. Limited
August 28, 1996
Page 12


          (m) If any term, provision,  covenant or restriction of this Agreement
     is held by a court  of  competent  jurisdiction  or other  authority  to be
     invalid,  void or  unenforceable,  the remainder of the terms,  provisions,
     covenants and restrictions of this Agreement shall remain in full force and
     effect and shall in no way be affected, impaired or invalidated;  provided,
     however,  that in the event the provisions of this  Agreement  dealing with
     the purchase and sale of the Option  Shares is held to be invalid then this
     entire Agreement shall be invalidated.

     If the  foregoing  correctly  reflects the terms of our  agreement,  please
countersign  the  enclosed  copy of this  letter  in the space  provided  below,
whereupon this letter shall constitute a binding agreement between us.

                                                       Very truly yours,

                                                       HARROW INDUSTRIES, INC.


                                                       By:
                                                            Name:
                                                            Title:


Accepted and agreed to
as of the date first above 
written:

ROBERT FLEMING & CO.  LIMITED


By /s/ M.J.C. Watts
     Name:  M.J.C. Watts
     Title: Director


<PAGE>


                                  EXHIBIT 10.16
                                                   
                                                      



                             HARROW INDUSTRIES, INC.
                            2627 East Beltline, S.E.
                          Grand Rapids, Michigan 49546


                                             December 31, 1996


Robert Fleming & Co. Limited
25 Copthall Avenue
London EC2R 7DR
ENGLAND

Gentlemen:

     Reference is made to those certain  Letter  Agreements,  dated December 31,
1996, by and between Robert Fleming & Co.  Limited,  as buyer  ("Fleming"),  and
Axel  May,  on the  one  hand  and  Auda  Securities  GmbH  on the  other  hand,
(collectively,  "Sellers"),  each  relating to the sale by Sellers to Fleming of
(a) with respect to Axel May, an aggregate of 1,000 shares of Common Stock,  par
value  $0.01 per share (the  "Common  Stock"),  of Harrow  Industries,  Inc.,  a
Delaware corporation  ("Harrow"),  and (b) with respect to Auda Securities GmbH,
an  aggregate of 77,902  shares of Common Stock and 39,000  shares of the junior
preferred stock of Harrow (the "Junior  Preferred").  The shares of Common Stock
so  purchased  by  Fleming  (as  the  same  may be  adjusted,  split,  combined,
reclassified or otherwise  changed) are  hereinafter  referred to as the "Common
Option  Shares",  and the shares of Preferred  Stock so purchased by Fleming (as
the same may be adjusted,  split,  combined,  reclassified or otherwise changed)
are hereinafter  referred to as the "Preferred Option Shares"; the Common Option
Shares and the Preferred Option Shares are hereinafter  referred to collectively
as the "Option Shares", which term shall include the Common Option Shares or the
Preferred Option Shares individually as the context may required.

     We have agreed that upon the terms and  conditions set forth in this Letter
Agreement,  Harrow shall have the option to purchase from  Fleming,  and Fleming
shall  have the  option  to sell to  Harrow,  all of the  Option  Shares  in the
tranches set forth below (each, a "Tranche") at the applicable  Option Price (as
defined below) per Tranche. Our agreement is as follows:

     1. Option of Harrow to  Purchase  Option  Shares.  Subject to the terms and
conditions of this Letter  Agreement,  if a Call Event (as hereinafter  defined)
shall occur  Harrow shall have the option (the "Call  Option") to purchase  from
Fleming  (and,  upon the exercise of such option,  Fleming shall sell to Harrow)
all of the Option Shares comprising one or more Tranche at the applicable Option
Price (as hereinafter defined). The Call Option shall be exercisable at any time
after the occurrence of a Call Event (the "Option Exercise  Period"),  but shall
not be exercisable  later than 5:00 p.m., London Time, on December 31, 1999. The
Call 
<PAGE>
                                                    Robert Fleming & Co. Limited
                                                               December 31, 1996
                                                                          Page 2

Option  may not be exercised in whole or in part until the Options dated  August
8, 1996, arising out of the Agreement of that date between Fleming  and  Harrow,
have been extinguished, whether by exercise or by lapse of time.  


     2.  Option of  Fleming  to Sell  Option  Shares.  Subject  to the terms and
conditions of this Letter Agreement,  if a Call Event occurs, Fleming shall have
the option (the "Put Option") to sell to Harrow (and,  upon the exercise of such
option,  Harrow shall purchase from Fleming) all of the Option Shares comprising
one or more  Tranche at the  applicable  Option  Price.  The Put Option shall be
exercisable for the Option Exercise Period,  but shall not be exercisable  later
than 5:00 p.m., London time, on December 31, 1999. The Options exercisable under
this  Agreement may not be exercised in whole or in part until the Options dated
August 8, 1996 have been extinguished, whether by exercise or by lapse of time.

     3.    Manner of Exercise of Options.

     (a)  The  Call  Option  and  the  Put  Option   (referred  to   hereinafter
collectively  as the "Option" or "Options") with respect to any Tranche shall be
exercisable  by giving to the other  party,  at the  address  and in the  manner
contemplated  by Section 10(i) hereof,  written notice of the exercise  thereof.
Such notice shall  specify (i) the Tranche with respect to which the Call Option
or the Put Option,  as the case may be, is being  exercised and (ii) a date (not
earlier than 10 calendar  days nor later than 30 calendar  days from the date of
such notice) and place for the closing (the  "Closing") of the purchase and sale
of the Option Shares  comprising  such Tranche  pursuant to the exercise of such
option.  Upon the mailing of notice duly  exercising  the Call Option or the Put
Option,  as the case may be, such option shall be deemed to have been  exercised
by the party giving such notice,  irrespective of the actual date of Closing. In
the  event  that both the Call  Option  and the Put  Option  with  respect  to a
particular  Tranche are exercised and the  respective  notices of exercise shall
specify  different dates and/or places for the Closing,  then the notice bearing
the earlier  postmark shall control unless otherwise  specifically  agreed to by
the parties.

          (b) The Call Option and the Put Option  shall each be  exercisable  in
Tranches, as follows:

      Identification of Tranche                Comprised of:

      Tranche A                                26,301 shares of Common Stock

      Tranche B                                26,301 shares of Common Stock

      Tranche C                                26,300 shares of Common Stock

      Tranche D                                39,000 shares of Junior Preferred


<PAGE>

                                                    Robert Fleming & Co. Limited
                                                               December 31, 1996
                                                                          Page 3


     (c) The  Call  Option  and the  Put  Option,  as the  case  may be,  may be
exercised,  if at all,  with respect to a single  Tranche or multiple  Tranches,
provided,  that the Put Option or Call Option with  respect to Tranche D must be
exercised  prior to or  simultaneously  with the time,  if at all,  that the Put
Option  or  the  Call  Option  with  respect  to any  of  Tranches  A, B or C is
exercised, but in no event no later than December 31, 1999.

     (d) At the Closing, in consideration of the sale, assignment,  transfer and
delivery of the Option Shares  comprising  the Tranche with respect to which the
Option was exercised and against delivery to Harrow of certificates representing
such Option Shares,  (i) Harrow shall deliver to Fleming an amount in cash or by
electronic  transfer of funds (or such other means of payment as the parties may
agree in writing)  equal to the Option rice,  and (ii) Fleming  shall deliver to
Harrow  certificates  representing the Option Shares comprising the Tranche with
respect  to which the  Option was  exercised,  duly  endorsed  for  transfer  or
accompanied by duly executed stock powers.

     4.  Definitions.

     Option  Price.  As used herein,  the term "Option  Price" per Tranche shall
mean the applicable price set forth in the table below:

<TABLE>
If Put Option or Call Option is                The Applicable Option Price for            The Applicable
exercised on or prior to:                      Tranches A, B or C shall be:               Option Price for
                                                                                          Tranche D shall be:
<S>                                            <C>                                        <C>
March 31, 1997                                 N/A                                        $290,000

June 30, 1997                                  $1,150,000                                 $360,000

September 30, 1997                             $1,175,000                                 $360,000

December 31, 1997                              $1,200,000                                 $360,000

June 30, 19998                                 $1,300,000                                 $360,000

December 31, 1998                              $1,350,000                                 $360,000

December 31, 1999                              $1,400,000                                 $360,000
</TABLE>


     (a) Call Event. As used herein,  a "Call Event" shall be deemed to occur if
the Consolidated Net Worth of Harrow (as reflected in the consolidated financial
statements  of  Harrow  as at the end of any  month)  as at the end of any month
shall be at least equal to (i) for all periods on or prior to December 31, 1997,
$2,275,00, and (ii) thereafter,  
<PAGE>
                                                    Robert Fleming & Co. Limited
                                                               December 31, 1996
                                                                          Page 4

$2,400,000. The date of the Call Event shall be deemed to be the date of the end
of the month for which the consolidated financial statements referred to in this
paragraph 4(b) are prepared.  For the avoidance of doubt, there may be more than
one Call Event.

    5.  Fleming's Representations and Warranties.

      Fleming represents and warrants to Harrow as follows:

     (a) Fleming has the full power and authority to execute,  deliver and carry
out  the  terms  and   provisions  of  this  Agreement  and  to  consummate  the
transactions  contemplated  hereby,  and  has  taken  all  necessary  action  to
authorize the execution, delivery and performance of this Agreement;

     (b) Fleming is duly organized,  validly  existing and in good standing as a
corporation under the laws of England;

     (c) This  Agreement  has been duly and  validly  authorized,  executed  and
delivered by Fleming and constitutes a valid and binding  obligation of Fleming,
enforceable in accordance  with its terms,  subject to applicable  principles of
equity,  bankruptcy,  reorganization,  insolvency,  or other laws  affecting the
enforcement of creditors' rights generally;

     (d) At the time that the Put Option or the Call  Option  with  respect to a
particular  Tranche is exercised,  and at the Closing with respect thereto,  (i)
Fleming  shall have taken no action that would have  caused the  creation of any
liens, claims, options,  proxies, voting agreements,  charges or encumbrances of
whatever  nature  against or with respect to the Option Shares  comprising  such
Tranche and (ii) Fleming shall not (except as set forth herein) have disposed of
any interest in the Option Shares;

     (e)  The  execution  of  this  Agreement  by  Fleming  does  not,  and  the
performance  by Fleming of its  obligations  hereunder  will not,  constitute  a
violation  of,  conflict  with  or  result  in a  default  under  any  contract,
commitment, agreement, understanding,  arrangement or restriction of any kind to
which Fleming is a party or by which Fleming is bound or any judgment, decree or
order  applicable to Fleming,  nor is Fleming required to obtain the approval of
any person or organization to enter into and perform this Agreement; and

     (f)  Neither  the  execution  and  delivery  of  this   Agreement  nor  the
performance by Fleming of its obligations  hereunder will violate any provisions
of English law  applicable  to Fleming or require any consent or approval of, or
filing with or notice to any public body or  authority  under any  provision  of
English law applicable to Fleming.

   6.  Harrow's Representations and Warranties.

     Harrow represents and warrants to Fleming as follows:

<PAGE>
                                                    Robert Fleming & Co. Limited
                                                               December 31, 1996
                                                                          Page 5

     (a) Harrow is a corporation  duly organized,  validly  existing and in good
standing under the laws of Delaware.  Harrow has the full power and authority to
execute,  deliver and carry out the terms and  provisions of this  Agreement and
consummate  the  transaction  contemplated  hereby,  and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement;

     (b) This  Agreement  has been duly and  validly  authorized,  executed  and
delivered  by Harrow and  constitutes  a valid and binding  agreement of Harrow,
enforceable in accordance  with its terms,  subject to applicable  principles of
equity,  bankruptcy,  reorganization,  insolvency  or other laws  affecting  the
enforcement of creditors' rights generally;

     (c) The execution of this Agreement by Harrow does not, and the performance
by Harrow of its  obligations  hereunder  will not,  constitute a violation  of,
conflict with or result in a default under any contract, commitment,  agreement,
understanding, arrangement or restriction of any kind to which Harrow is a party
or by which  Harrow  is bound or any  judgment,  decree or order  applicable  to
Harrow,  nor is  Harrow  required  to  obtain  the  approval  of any  person  or
organization  to enter into and perform  this  Agreement  other than those which
shall have been obtained at the time this Agreement is performed;

     (d) The Option Shares are duly authorized,  validly issued,  fully paid and
nonassessable; and

     (e)  Neither  the  execution  and  delivery  of  this  Agreement,  nor  the
performance by Harrow of its obligations hereunder will violate any provision of
law  applicable  to Harrow or require any consent or approval of, or filing with
or notice to any public body or authority  under the provision of law applicable
to Harrow (except for such periodic reporting  requirements as may be applicable
to Harrow under the United States  Securities  Exchange Act of 1934 or the rules
and regulation promulgated thereunder).

  7.  Certain Covenants.

     (a) In connection with entering into this Agreement, Harrow is establishing
an  account in its name to be  maintained  at  Fleming  in  accordance  with its
customary practices concerning the maintenance of cash accounts of customers and
bearing  interest at an annual rate of 5%, paid and  compounded  quarterly,  and
Harrow is depositing  into such account the amount of  $3,429,080,  representing
the amount of  $1,052,040  in respect  of  Tranche A,  $1,052,040  in respect to
Tranche B,  $1,052,000  in respect  to  Tranche C, and  $273,000  in  respect of
Tranche D. The amount so  deposited  in respect of a  particular  Tranche may be
withdrawn by Harrow if the Option in respect of that Tranche is exercised or, at
Harrow's option, may be applied towards the Option Price related to such Tranche
as is then exercised.  Harrow agrees that if at any time Harrow fails to pay any
sums due to Fleming,  Fleming may set off or  transfer  any sum  standing to the
credit of any  account  Harrow  may have with  Fleming,  or any other  sums that
Fleming is holding on Harrow's  behalf,  in or towards  satisfaction of Harrow's
monies,  obligations  and liabilities to Fleming under any document or agreement
whatsoever.  Where such
<PAGE>
                                                    Robert Fleming & Co. Limited
                                                               December 31, 1996
                                                                          Page 6


set-off or transfer  requires the conversion of one currency into another,  such
conversion  shall be  calculated  at  Fleming's  then  prevailing  spot  rate of
exchange for purchasing the currency considered.

     (b) Until such time as all of the  Options  in respect of all the  Tranches
granted  herein  shall have been  exercised  or shall have  expired or otherwise
lapsed,  Harrow  agrees  to  furnish  Fleming  with its  consolidated  financial
statements  as at the end of each  month  (which  need  not be  audited),  which
financial  statements  shall be furnished within 30 days of the end of the month
to which they related. The agreement to furnish such financial statements may be
satisfied  by the  delivery  to Fleming of copies of such  filings,  if any,  as
Harrow makes with the United States Securities and Exchange Commission.

     8. Specific  Performance.  Harrow and Fleming acknowledge and agree that in
the event of any breach of this  Agreement,  the non  breaching  party  would be
irreparably  harmed  and  could not be made  whole by  monetary  damages.  It is
accordingly  agreed that Harrow and Fleming,  in addition to any other remedy to
which  they  may be  entitled  at law or in  equity,  shall  be  entitled  to an
injunction  or  injunctions  to  prevent  breaches  of the  provisions  of  this
Agreement and/or to compel specific performance of this Agreement in any action,
which action may take place in a state court of New York, as provided in Section
10(h) hereof.

     9. Expenses. Whether or not the transactions contemplated by this Agreement
shall be  consummated,  all fees and  expenses  incurred by any party  hereto in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such fees and expenses.

     10. Miscellaneous.

     (a) This Agreement  constitutes  that entire  understanding  of the parties
hereto  with  respect to the  subject  matter  hereof and  supersedes  all prior
agreements  and  understandings,  whether  oral or written,  between the parties
hereto with respect to the subject  matter  hereof.  This  Agreement  may not be
amended  orally,  but only by an instrument in writing by each of the parties to
this Agreement.

     (b) This  Agreement  shall inure to the benefit of and be binding  upon the
parties hereto and their respective  successors and assigns.  This Agreement and
the rights  granted  hereunder  may not be  transferred  by Harrow  without  the
consent of Fleming, which consent shall not be unreasonably withheld,  provided,
that (i) Fleming is provided with evidence  reasonably  satisfactory  to it that
such a transfer is in full  compliance  with all applicable laws and regulations
(including,  without limitation,  applicable securities law and regulations) and
(ii) arrangements  reasonably  satisfactory to Fleming shall have been made with
respect to the deposit referred to in Section 7(a) hereof. In the event any such
transfer  occurs,  Harrow  shall  give  written  notice  thereof  to  Fleming in
accordance  with the  provisions of Section 10(i) hereof,  within 30 days of the
effectuation  of such transfer.  Neither this Agreement or any rights  hereunder
may be assigned or  otherwise  transferred  by Fleming  except to a wholly owned
subsidiary thereof.
<PAGE>
                                                    Robert Fleming & Co. Limited
                                                               December 31, 1996
                                                                          Page 7



     (c)  Notwithstanding  the  foregoing,  nothing in this  Agreement  shall be
deemed to restrict  Fleming,  at any time after the Put Options and Call Options
granted  hereunder  lapse and become no longer  exercisable  with respect to all
Tranches  in  accordance  with  the  terms  hereof,  from  selling,   assigning,
transferring,  conveying or otherwise disposing of the Option Shares at any time
to any  person,  provided,  that  prior  notice  of any such  sale,  assignment,
transfer,  conveyance or other  disposition is given to Harrow.  In the event of
any such sale,  assignment,  transfer,  conveyance or other disposition,  unless
there is at the  relevant  time a  payment  obligation  on the part of Harrow in
respect of the  exercise of the Put Option,  the rights and  obligations  of the
parties  hereunder  shall  cease as to the Option  Shares  that are the  subject
thereof,  and Harrow  shall have the right to close the  account  referred to in
Section 7(a) hereof and to withdraw all funds therefrom without penalty.

     (d) Section headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.

     (e) All  representations,  warranties and agreements contained herein shall
survive the Closing related to any particular Tranche.

     (f) This  Agreement may be executed in  counterparts,  each of which shall,
when executed, be an original and all of which shall be deemed to be one and the
same instrument.

     (g) This  Agreement  shall be governed  by and  construed  and  enforced in
accordance  with the laws of the State of New  York,  without  reference  to the
conflicts of law principles thereof.

     (h)  Harrow  and  Fleming  hereby  agree  that any suit,  claim,  action or
proceeding relating to or arising under this Agreement may (without prejudice to
the ability of either party to commence  proceedings in any other  jurisdiction)
be  brought  in a state  court  of New  York  having  competent  subject  matter
jurisdiction  over the matters set forth in this Agreement or in a federal court
sitting in New York (each a "New York Court"). Each of Harrow and Fleming hereby
consents to  personal  jurisdiction  in any such action  brought in any such New
York Court,  consents  to service of process  upon it in the matter set forth in
Section 10(i) hereof,  and waives any objection it may have to venue in any such
New York Court or to any claim  that any such New York Court is an  inconvenient
forum.

<PAGE>
                                                    Robert Fleming & Co. Limited
                                                               December 31, 1996
                                                                          Page 8



     (i) All notices and other  communications  under this Agreement shall be in
writing  and  delivery  thereof  shall be deemed to have been made either (A) if
mailed, when received, or (B) if transmitted by hand delivery,  telegram, telex,
telecopier or facsimile transmission,  when transmitted to the party entitled to
receive the same, at the addresses  indicated  below or at such other address as
such party shall have  specified by written  notice to the other parties  hereto
given in accordance herewith:

                  (A)      if to Fleming, addressed to:

                           Robert Fleming & Co. Limited
                           25 Copthall Avenue
                           London EC2R 7DR
                           England

                           Attention:  Michael J.C. Watts
                           Facsimile:  (+44) 171 256 5036
                           Telex:  297451

                  (B)      if to Harrow, addressed to:

                           Harrow Industries, Inc.
                           2627 East Beltline, S.E.
                           Grand Rapids, Michigan 49546

                           Attention:  John S. Hogan
                           Facsimile  (+1) 616 942 2170

                           with copies to:

                           Curtis, Mallet-Prevost, Colt & Mosle
                           101 Park Avenue
                           New York, NY  10178

                           Attention:  Eileen P. Matthews, Esq.

                           Facsimile:  (+1) 212 696 6184

     (j) Should any  litigation  or  arbitration  be  commenced  (including  any
proceedings  in  a  bankruptcy  court)  between  the  parties  hereto  or  their
representatives  concerning  any  provision of this  Agreement or the rights and
duties  of any  person  or  entity  hereunder,  the  party  prevailing  in  such
litigation or arbitration shall be entitled, in addition to such other relief as
may be granted,  to reasonable  attorneys' and arbitration fees and the costs of
litigation or arbitration.

<PAGE>
                                                    Robert Fleming & Co. Limited
                                                               December 31, 1996
                                                                          Page 8
      


     (k) Any waiver by any party of a breach of any provision of this  Agreement
shall not operate as or be  construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any terms of this Agreement on one
or more  sections  shall not be considered a waiver or deprive that party of the
right  hereafter to insist upon strict  adherence to that term or any other term
of this Agreement.

     (l) No  provision in this  Agreement  shall  constitute  any person a third
party beneficiary.

     (m) If any term,  provision,  covenant or  restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or  unenforceable,  the  remainder  of  the  terms,  provisions,  covenants  and
restrictions  of this Agreement  shall remain in full force and effect and shall
in no way be affected,  impaired or invalidated;  provided; however, that in the
event the provisions of this Agreement dealing with the purchase and sale of the
Option  Shares  is held to be  invalid  then  this  entire  Agreement  shall  be
invalidated.

     If the  foregoing  correctly  reflects the terms of our  agreement,  please
countersign  the  enclosed  copy of this  letter  in the space  provided  below,
whereupon this letter shall constitute a binding agreement between us.

                                             Very truly yours,

                                             HARROW INDUSTRIES, INC.


                                             By: /s/John S. Hogan
                                                 Name:  John S. Hogan
                                                 Title: VP & CFO


Accepted and agreed to as of the
date first above written:


ROBERT FLEMING & CO. LIMITED

By: /s/ I.M. Taylor
       Name: I.M. Taylor
       Title:

<PAGE>

                    Harrow Industries, Inc. and Subsidiaries

        Exhibit 11--Statement Regarding Computation of Per Share Earnings
<TABLE>

                                                   Fiscal year ended
                                        December 1,    December 3,     November 27,
                                           1996           1995            1994
<S>                                     <C>            <C>            <C>
Primary and fully diluted
Weighted average shares outstanding .     1,074,046      1,100,000      1,096,671
Net earnings ........................   $ 5,315,000    $ 3,403,000    $ 1,615,000
Preferred stock dividend requirements      (200,000)      (200,000)      (200,000)
Total ...............................   $ 5,115,000    $ 3,203,000    $ 1,415,000

Per share amount ....................   $      4.76    $      2.91    $      1.29

</TABLE>
<PAGE>
                    Harrow Industries, Inc. and Subsidiaries

        Exhibit 12--Statement Regarding Computation of Ratio of Earnings
                                to Fixed Charges
<TABLE>
                                                 Fiscal year ended
                                December 1,   December 3,   November 27,   November 28,  November 29,
                                  1996           1995           1994          1993          1992
<S>                             <C>           <C>           <C>           <C>           <C>
Earnings before income
   taxes ....................   $ 8,845,000   $ 4,595,000   $ 2,591,000   $   182,000   $   473,000
Fixed charges:
   Interest expense .........     5,962,000     6,391,000     5,980,000     6,145,000     6,438,000
   Amortization of deferred
      financing costs .......       436,000       226,000       333,000       343,000       350,000
   Interest portion of rental
      expense ...............       757,000       709,000       687,000       621,000       573,000
Total fixed charges .........     7,155,000     7,326,000     7,000,000     7,109,000     7,361,000
Earnings ....................   $16,000,000   $11,921,000   $ 9,591,000   $ 7,291,000   $ 7,834,000

Ratio of earnings to fixed ..         2.24x         1.63x         1.37x         1.03x         1.06x
charges

</TABLE>
<PAGE>