Document:

PREPARED BY AND WHEN
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RECORDED RETURN TO:
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Douglas C. Waddoups, Esq.
Parr, Waddoups, Brown, Gee & Loveless
185 South State Street, Suite 1300
Salt Lake City, Utah 84111-1536
telephone: (801) 532-7840
telecopier: (801) 532-7750

                KANSAS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
                   SECURITY AGREEMENT AND FINANCING STATEMENT

         THIS  MORTGAGE  (this  "Mortgage")  is executed as of the day of April,
1999, by NACO INDUSTRIES, INC., a Utah corporation ("Mortgagor"),  whose address
is 395 West 1400 North,  Logan, Utah 84321, in favor of WEBBANK  CORPORATION,  a
Utah  corporation  ("Mortgagee"),  whose  address  is P.O.  Box 1831,  136 Heber
Avenue, Suite 209, Park City, Utah 84060-1831.

         FOR THE  SUM OF TEN  DOLLARS  ($10.00)  and  other  good  and  valuable
consideration, and in order to secure for the benefit of Mortgagee the following
obligations  (collectively,  the  "Obligations"):  (i) the  timely  payment  and
performance  of the  obligations of Mortgagor  under this  Mortgage,  under that
certain  Adjustable  Rate  Promissory  Note (the  "Note") of even date with this
Mortgage,  executed by Mortgagor,  as maker, in favor of Mortgagee, as payee, in
the principal amount of ONE MILLION ONE HUNDRED  THOUSAND DOLLARS  ($1,100,000),
payable with interest as set forth in the Note, and under any other  instruments
given to further evidence or secure such obligations, as this Mortgage, the Note
or such  other  instruments  may be  extended,  renewed,  modified,  amended  or
replaced from time to time;  (ii) the repayment of principal and any  applicable
interest on any advances made by Mortgagee at the request of Mortgagor  prior to
the release and recordation of this Mortgage; and (iii) the payment of any loans
or advances made after the date of this Mortgage for any purpose by Mortgagee to
Mortgagor,  provided that the principal  amount of debt secured by this Mortgage
(not including sums advanced to protect the Security of this Mortgage) shall not
exceed, at any one time, the amount of $1,100,000.

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         Mortgagor CONVEYS,  WARRANTS AND TRANSFERS TO MORTGAGEE,  WITH POWER OF
SALE, the following (for reference purposes only, the "Real Property"):

         (A) The land (the  "Land")  located  in  Finney  County,  Kansas,  more
particularly described as follows:

         Beginning at a point 60 feet North and 1,080 feet West of the Southeast
corner of Section Three (3), Township Twenty-four (24) South, Range Thirty-three
(33) West of the 6th P.M., in Finney County, Kansas, for the point of beginning;
thence  West on a line  parallel  to and 60 feet North of the South line of said
Section 3 a distance of 420 feet;  thence North at an interior angle of 89o07' a
distance of 360 feet;  thence East at an interior  angle of 90o53' a distance of
420 feet; and thence South at an interior angle of 89o07' a distance of 360 feet
to the point of  beginning;  also  described as Tracts 8, 9 and 10 in the Larson
Survey of such real estate dated February 23, 1966, prepared by Robert H. Jones;
P.E.,  and filed for record in the County  Engineer's  Office of Finney  County,
Kansas, in Survey Book 3.

         TOGETHER WITH all minerals,  oil, gas and other hydrocarbon  substances
located in, on or under the Land,  and all air and water rights,  rights-of-way,
easements, tenements, hereditaments, possessory rights, claims (including mining
claims), privileges and appurtenances belonging to, or used or enjoyed with, all
or any part of the Land,  including,  without  limitation,  all right, title and
interest of Mortgagor, now owned or acquired after the date of this Mortgage, in
and to any  land  lying  in the  bed of any  street,  road  or  avenue,  open or
proposed,  in front of or adjoining  the Land,  and in and to all  sidewalks and
alleys and all strips and gores of land adjacent to or used in  connection  with
the Land; and

         (B) All buildings,  structures and other  improvements  on or after the
date of this Mortgage located on the Land  (collectively,  the  "Improvements");
and

         Mortgagor GRANTS TO MORTGAGEE A SECURITY INTEREST in the following (for
reference  purposes  only, the "Personal  Property")  (the terms set forth below
that are defined in the Utah Uniform  Commercial Code (the "UCC") shall have the
respective meanings set forth in the UCC):

         (A) All compensation  granted and awards made for the taking by eminent
domain or by any  proceeding or purchase in lieu of eminent  domain of the whole
or any part of the Real Property,  all proceeds of insurance paid as a result of
the partial or total destruction of the Improvements,  and all unearned premiums
under  all  insurance  policies  now  held or  obtained  after  the date of this
Mortgage by Mortgagor relating to the Improvements;

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         (B)  All  goods,  equipment,  farm  products,   inventory,   machinery,
supplies, fixtures, furniture, furnishings, tools, appliances and other tangible
personal  property  now owned or  acquired by  Mortgagor  after the date of this
Mortgage and located on or  necessary  for  construction  on or operation of the
Real Property,  and any  substitutions  and  replacements  of, any  attachments,
accessions and additions to, and any proceeds or products from, such property;

         (C)  All  businesses  located  on  the  Real  Property  and  good  will
associated with such businesses,  trademarks, trade names, logos and designs for
the operations located on the Real Property,  contract rights,  deposit,  escrow
and other accounts, accounts receivable, chattel paper, instruments,  documents,
general  intangibles,  certificates,  agreements,  insurance policies,  business
records, plans and specifications,  drawings, maps, surveys,  studies,  permits,
licenses,  zoning,  subdivision development and other applications,  filings and
approvals and other intangible personal property now owned or acquired after the
date of this Mortgage by Mortgagor and used in connection  with the ownership or
operation of the Real Property,  and any  substitutions and replacements of, and
any proceeds or products from, such property; and

         (D)  All water  stock  relating  to the  Land, and  deposits  and other
security  given to  utility  companies  or  governmental  or  quasi-governmental
agencies in connection with the Real Property.

(The Real  Property and the Personal  Property are referred to in this  Mortgage
collectively  as the  "Property,"  which shall mean, as  applicable,  all or any
portion of, and interest in, the Property.)

         MORTGAGOR AGREES WITH MORTGAGEE AS FOLLOWS:

         1.   Obligations;  Certain  Proceedings. Mortgagor shall timely pay and
perform the Obligations and all obligations  under any other encumbrance or lien
on the Property. No such other encumbrance or lien shall be modified,  increased
or refinanced  without the prior written  consent of Mortgagee.  Mortgagor shall
maintain  this  Mortgage  as a valid  lien on,  and  security  interest  in, the
Property of equal priority to that created by this Mortgage,  shall preserve and
protect  Mortgagor's  interests in the  Property and the  interests of Mortgagee
under this  Mortgage,  and shall  appear in and defend any action or  proceeding
which may affect the Property or the  obligations  of Mortgagor or the interests
of Mortgagee under this Mortgage.

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         2.   Maintenance  and Use. Mortgagor shall (a) maintain the Property in
good  condition  and  repair,  (b)  comply  with all  laws,  ordinances,  rules,
regulations,  covenants,  conditions and restrictions  relating to the Property,
(c) not permit  nuisances  to exist or commit or permit  waste in or on the Real
Property,   (d)  promptly  complete  in  a  good  and  workmanlike   manner  any
Improvements  which may be constructed,  and promptly restore and repair in like
manner any Improvements which may be damaged or destroyed,  (e) permit Mortgagee
and its representatives to inspect the Property at any time and conduct soil and
other tests on the  Property,  (f) not remove any personal  property or fixtures
from the Real Property unless replaced  immediately  with similar property of at
least equivalent  value, (g) preserve and extend all rights,  licenses,  permits
(including,  without limitation,  zoning variances, special exceptions,  special
permits and non-conforming uses),  privileges,  franchises and concessions which
are applicable to the Real Property, and (h) immediately on discovery,  clean up
all hazardous substances,  hazardous wastes, pollutants and contaminants located
on the Property.  Mortgagor  shall do or refrain from doing any act which,  from
the  character or use of the Property,  is  reasonably  necessary to protect and
preserve the fair market value of the  Property,  any specific  enumerations  in
this Mortgage not limiting such general  obligation.  Mortgagor shall indemnify,
defend and hold harmless  Mortgagee  from and against all  liabilities,  claims,
losses,  damages,  costs and expenses  (including,  without limitation,  cleanup
costs and attorneys' fees) directly or indirectly  arising out of, related to or
connected  with  any  hazardous  substances,  hazardous  wastes,  pollutants  or
contaminants located on the Real Property.  The liability of Mortgagor under the
indemnity set forth in the  immediately  preceding  sentence  shall arise on the
discovery  of an  unacceptable  environmental  condition  and shall  survive the
exercise of the power of sale, foreclosure of this Mortgage as a mortgage or any
other  event.  (As used in this  Mortgage,  the  terms  "hazardous  substances,"
"hazardous wastes," "pollutants" and "contaminants" mean any substances, wastes,
pollutants or contaminants included within those respective terms under any law,
ordinance, rule or regulation,  whether now existing or enacted or amended after
the date of this Mortgage.)

         3.   Development. Without Mortgagee's prior written consent,  Mortgagor
shall  not do any of the  following:  (a) make any  material  change to the Real
Property or to the use of the Real  Property;  (b) drill for on or extract  from
the Land any minerals, oil, gas or other hydrocarbon  substances,  or permit the
same to occur; (c) initiate or support any zoning  reclassification  of the Real
Property,  seek any variance under existing zoning ordinances  applicable to the
Real  Property or use or permit the use of the Real  Property in a manner  which

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would be a nonconforming use under applicable zoning ordinances;  (d) impose any
covenants,  conditions,  restrictions,  easements or  rights-of-way  on the Real
Property,  execute or file any  subdivision  plat affecting the Real Property or
consent to the  annexation  of the Real  Property  to any  municipality;  or (e)
permit the Real  Property  to be used by any person in such manner as might make
possible a claim of adverse  usage or  possession  or of implied  dedication  or
easement.

         4.   Payment of Certain  Impositions. Mortgagor  shall pay when due all
taxes,  assessments  and  charges  relating to or levied  against the  Property,
including,  without  limitation,  real and personal property taxes,  general and
special assessments,  utility charges, mechanics' and materialmen's charges, and
charges arising from any covenants,  conditions or restrictions  relating to the
Real  Property.  Mortgagor  shall also pay to Mortgagee the amount of all taxes,
assessments  and charges  which may be levied by any  governmental  authority on
this  Mortgage,  the  Obligations  or  Mortgagee  by reason of the  interest  of
Mortgagee under this Mortgage; provided, that if the same cannot legally be paid
by Mortgagor,  Mortgagee may declare a default  under this  Mortgage.  Mortgagor
shall deliver to Mortgagee  official receipts of the appropriate taxing or other
authority or other proof  satisfactory  to Mortgagee  within ten (10) days after
the date any such taxes, assessments or charges are due and payable,  evidencing
the payment of such taxes,  assessments or charges (excluding payment of routine
utility charges,  unless directed to do so by Mortgagee).  Mortgagor may contest
in good faith the validity of any  mechanic's or  materialman's  lien,  provided
that Mortgagor first deposits with Mortgagee  security for such lien in form and
amount acceptable to Mortgagee, and then causes such lien to be removed.

         5.   Insurance.    Mortgagor   shall   maintain    insurance   policies
(collectively,  the  "Policies")  with respect to the  Property,  in amounts and
forms and with  deductibles  acceptable  to  Mortgagee,  providing:  (a)  hazard
insurance with special causes of loss including theft coverage, insuring against
fire,  extended  coverage risks,  vandalism,  malicious  mischief and such other
risks as  Mortgagee  may require,  including,  without  limitation,  the risk of
damage caused by earthquake  and flooding,  with  replacement  cost coverage and
agreed value endorsement;  (b) insurance against business  interruption and loss
of  rental  income,  including  full  loss  of  rents  coverage  (including  any
percentage  rents);  (c)  comprehensive  boiler  and  machinery  coverage;   (d)
commercial general liability insurance; (e) during any construction, restoration
or repair of the Improvements,  (i) workers'  compensation  insurance (including
employer's liability insurance,  if requested by Mortgagee),  and (ii) builder's
completed value risk insurance  against "all risks of physical loss,"  including
collapse and transit coverage;  and (f) such other insurance as may from time to
time be required by  Mortgagee  against  the same or other  hazards.  The hazard
insurance  policy shall  contain a standard  lender's  loss payable  endorsement
(such as Form 438  BFU),  in favor  of and in a form  acceptable  to  Mortgagee.

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Mortgagee shall be named as an additional insured under the liability  insurance
policy, and such insurance shall be primary and non-contributing in the event of
loss with any other insurance  Mortgagee may carry. The insurers concerned shall
agree that the  coverage  under the  Policies  will not be  modified or canceled
unless at least  thirty  (30)  days'  advance  written  notice  of the  proposed
modification or cancellation  has been given to Mortgagee.  Mortgagee may review
the  Policies  from time to time and require that the Policies be modified so as
to protect Mortgagee's interests. Such insurance shall be carried with companies
approved by Mortgagee that are authorized to transact business in Utah and rated
Class A:XI or better in the most recent  publication of Best's Key Rating Guide,
Property-Casualty, or rated similarly in another similar publication selected by
Mortgagee.  Mortgagor  shall  deliver to Mortgagee  (at the option of Mortgagee)
either the  originals  of the  Policies  or  certificates  duly  executed by the
insurers  evidencing  such  insurance  coverage.  All  renewal  and  replacement
policies  must be delivered  to Mortgagee at least  fifteen (15) days before the
expiration of the old policies.

         6.  Reserve.  On written  notice by Mortgagee to  Mortgagor,  Mortgagor
shall  pay to  Mortgagee  on the  first  day of each  month an  amount  equal to
one-twelfth (1/12) of all taxes,  assessments and insurance premiums required to
be paid under this Mortgage by Mortgagor, in such manner as to provide Mortgagee
with  sufficient  funds to pay such  taxes,  assessments  and  premiums at least
thirty  (30)  days  prior to their  respective  due  dates.  Such  funds  may be
commingled  with other funds of  Mortgagee,  shall not bear  interest  and shall
periodically be used by Mortgagee for the payment of such taxes, assessments and
premiums.  Nothing contained in this Mortgage shall cause Mortgagee to be deemed
a trustee of such funds or to be  obligated to pay any amounts in excess of such
funds. If such funds are insufficient to pay all of such taxes,  assessments and
premiums, Mortgagor shall immediately pay the deficiency to Mortgagee.

         7.  Condemnation or Damage.  Mortgagor shall  immediately  give written
notice to Mortgagee of the  institution of any proceedings for the taking of the
Property or of the occurrence of any damage to the Property, and Mortgagee shall
receive all compensation, awards and insurance and other proceeds (collectively,
the  "Proceeds")  distributed  in  connection  with such taking or damage.  Each
person  concerned is authorized and directed to make payments for such taking or
damage  directly to Mortgagee,  instead of to Mortgagee  and Mortgagor  jointly.
Mortgagee may, but shall not be obligated to, commence,  appear in and prosecute
in its own name any action or proceeding  and make any  compromise or settlement
in connection with such taking or damage.  After deducting from the Proceeds all
costs  and  expenses  (including  attorneys'  fees)  incurred  by  Mortgagee  in
connection with such action, proceeding, compromise or settlement, Mortgagee may
use the  Proceeds  to reduce  the  Obligations  (whether  or not then due) or to

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restore or repair the  Property  damaged.  If  Mortgagee  determines  to use the
Proceeds for restoration and repair of the Property,  the Proceeds shall be made
available  to  Mortgagor  for use in  restoring  or  repairing  the  Property in
accordance with plans and specifications and construction  arrangements approved
by Mortgagee.  Mortgagee or its nominee shall hold the Proceeds and from time to
time shall, on compliance with such conditions or requirements as may be imposed
by  Mortgagee,  disburse  portions  of the  Proceeds  to  Mortgagor  or to those
entitled to the Proceeds as progress is made on such restoration and repair.  If
any of the Proceeds remain after the entire costs of such restoration and repair
have  been  paid,  Mortgagee  may use such  remaining  Proceeds  to  reduce  the
Obligations (whether or not then due) or may remit the same to Mortgagor.

         8.   Assignment of Rents and Possession. Mortgagor assigns to Mortgagee
all  rents,  deposits,  and  income  arising  at  any  time  from  the  Property
(collectively  referred  to as  "Rents"),  together  with all  leases  and other
similar  documents  (collectively,  the  "Leases")  pertaining  to the Property.
Mortgagor also authorizes Mortgagee or its agents at their option, upon default,
and without  appointment of a receiver or other judicial  intervention,  to take
possession of the Property and to collect all Rents and apply them to payment of
the interest,  principal,  insurance premiums,  taxes,  assessments,  repairs or
improvements necessary to keep the Property in such condition as Mortgagee deems
appropriate,  or to apply them to other charges or payments provided for in this
Mortgage.  All Rents received by Mortgagor after notice of default shall be held
by Mortgagor as trustee for the benefit of Mortgagee  only, to be applied to the
sums  secured by this  Mortgage.  All  lessees  under any such leases are hereby
authorized to make all lease payments to Mortgagee upon demand by the Mortgagee.
This right to possession and Rents  assignment shall continue in force until the
Note is fully paid.  The taking of possession by Mortgagee  shall not prevent or
retard  Mortgagee in the  collection of said sums by  foreclosure  or otherwise.
Nothing  contained in this paragraph shall be construed to bind Mortgagee to the
performance of any  obligations  under said leases,  except for giving  lessees'
proper credit for rent payments received by Mortgagee.  Mortgagor represents and
warrants that  Mortgagor has not executed any prior  assignment of the Rents and
has not ans  will  not  perform  any  act  that  would  prevent  Mortgagee  from
exercising its rights under this Mortgage.  Mortgagee, or Mortgagee's agent or a
judicially  appointed  receiver,  shall not be required to enter upon,  and take
control of or maintain the Property  before or after giving notice of default to
Mortgagor.  However,  Mortgagee, or Mortgagee's agents or a judicially appointed
receiver,  may do so at any time when a default occurs. Any application of Rents
shall not cure or waive any default or  invalidate  any other right or remedy of
Mortgagee.

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         9.   Leasing Requirements;Termination of Leases On Foreclosure. Without
the prior written consent of Mortgagee,  Mortgagor shall not enter into, modify,
terminate  or accept a surrender  of any Leases,  permit the  assignment  of any
Leases or accept payment of more than one (1)  installment of rent due under any
Leases  prior to its due date.  Mortgagor  shall  timely  comply with all of the
terms,  covenants and conditions as landlord under the Leases.  Mortgagor  shall
promptly notify Mortgagee in writing of (a) the default by a lessee under any of
the Leases,  (b) the commencement of any action by any lessee against Mortgagor,
or by Mortgagor  against any lessee,  or (c) the receipt of a written  notice by
Mortgagor  from any lessee  claiming that Mortgagor is in default under a Lease.
Mortgagor shall promptly deliver to Mortgagee a copy of any process, pleading or
notice  given or received by Mortgagor in reference to any such action or claim.
Prior to entering into any Lease, Mortgagor shall furnish a copy of the proposed
Lease to Mortgagee for its approval.  If Mortgagee  conditions its approval of a
Lease on certain  changes being made to such Lease,  Mortgagor shall make all of
such changes prior to the execution of such Lease.  Immediately on the execution
of any Lease, an executed copy of such Lease shall be furnished to Mortgagee. On
foreclosure  of this  Mortgage  (whether  pursuant to the power of sale which is
available  under this Mortgage or pursuant to  foreclosure of this Mortgage as a
mortgage), none of the Leases shall be terminated by application of the doctrine
of  merger,  as a  matter  of law or as a  result  of such  foreclosure,  unless
Mortgagee or the purchaser at the foreclosure sale shall so elect in writing. No
act by or on behalf of  Mortgagee  or any such  purchaser  shall  constitute  or
result in termination of any Lease unless Mortgagee or such purchaser shall give
written notice of such termination to the lessee under such Lease.

         10.  Transfers and  Encumbrances.  Without the prior written consent of
Mortgagee, which may be withheld by Mortgagee in its sole discretion,  Mortgagor
shall not, directly or indirectly,  do any of the following:  (a) sell,  convey,
assign or transfer the Property,  the Leases or the Rents, or contract to do so,
voluntarily,  involuntarily or by operation of law; or (b) subject the Property,
the Leases or the Rents to any mortgage,  deed of trust or other security device
(whether senior or junior to this Mortgage).  Mortgagee's consent to one or more
of such transactions  shall not be a waiver of the right to require such consent
with  respect to any  subsequent  or  successive  transactions.  Such consent of
Mortgagee may be conditioned on satisfaction  of such  requirements as Mortgagee
may impose.

         11.  Mortgagee Title  Insurance. Mortgagor shall provide to Mortgagee a
policy  of  title  insurance  insuring  the lien of this  Mortgage,  in form and
amount, and issued by a company, acceptable to Mortgagee.

         12.  Financial and Rental Statements;  Records and Books. Within twenty
(20) days after  request by  Mortgagee,  which  request may be made from time to
time,  Mortgagor shall deliver to Mortgagee an accurate and complete list of the

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Leases,  setting  forth,  for each Lease,  the names of each  lessee,  the space
covered,  the term,  the amount of any  security  deposit,  the amount of rental
payable and such other information as Mortgagee may request. Said statements and
other  information  shall  be  prepared  in a form  and  certified  by a  person
acceptable to Mortgagee.  Mortgagor shall maintain adequate records and books of
account  relating to the Property and its own  financial  affairs  sufficient to
permit the preparation of such statements. Mortgagee may examine, copy and audit
such records and books of accounts from time to time on request.

         13.  Representations  and  Warranties.  Mortgagor  covenants  with, and
represents and warrants to,  Mortgagee that all of the following  statements are
true as of the date of this Mortgage and will remain true: (a) NACO  Industries,
Inc. is lawfully seized of indefeasible fee simple  marketable title to the Real
Property;  (b) this  Mortgage  has been  duly  executed  by  Mortgagor,  and the
Property  has been duly  conveyed  to  Mortgagee  under this  Mortgage;  (c) the
Property is free and clear of all liens,  encumbrances  and  interests  of third
parties not approved in writing by Mortgagee; (d) Mortgagor will defend title to
the Property  against all claims and demands;  (e) all of the Personal  Property
has been paid for in full,  is owned solely by Mortgagor and is not used and was
not bought for personal,  family or household purposes;  and (f) all obligations
incurred by  Mortgagor  in  connection  with or which relate to the Property are
current and without default.

         14.  Default.  Mortgagor shall be in default under this Mortgage on the
occurrence of any of the following: (a) Mortgagor fails to timely pay or perform
any of the  Obligations;  (b) an  event  of  default  occurs  under  any lien or
encumbrance  affecting  the  Property;  (c)  Mortgagor  or any  guarantor of the
Obligations (i) files a voluntary  petition in bankruptcy or files a petition or
answer  seeking or acquiescing in a  reorganization,  arrangement,  composition,
readjustment,  liquidation,  dissolution  or similar relief under any present or
future law or regulation relating to bankruptcy,  insolvency or other relief for
debtors,  (ii)  consents  to or  acquiesces  in the  appointment  of a  trustee,
receiver or  liquidator  of  Mortgagor  or such  guarantor,  the Property or the
Rents,  (iii) makes a general  assignment for the benefit of creditors,  or (iv)
admits in writing its  inability to pay its debts  generally as they become due;
(d) a court of  competent  jurisdiction  enters  an  order,  judgment  or decree
approving  a  petition  filed  against  Mortgagor  or such  guarantor  seeking a
reorganization,    arrangement,   composi   tion,   readjustment,   liquidation,
dissolution  or similar  relief  under any  present or future law or  regulation
relating to bankruptcy,  insolvency or other relief for debtors;  (e) a trustee,
receiver or liquidator of Mortgagor,  such guarantor,  the Property or the Rents
is appointed without the consent or acquiescence of Mortgagor or such guarantor;
(f) a writ of  execution,  attachment  or  similar  process  is issued or levied
against the Property or the Rents or a judgment  involving  monetary  damages is

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entered against Mortgagor which becomes a lien on the Property or the Rents; (g)
any  representation  or  warranty  contained  in this  Mortgage  or in any other
instrument executed by Mortgagor is or becomes untrue; or (h) a change occurs in
the condition or affairs (financial or otherwise) of Mortgagor or such guarantor
which materially impairs Mortgagee's security or increases its risks.

         15.  Remedies. On a default under this Mortgage,  Mortgagee may (but is
not obligated  to) do any one or more of the  following:  (a) without  notice or
demand on Mortgagor and without releasing Mortgagor from any of the Obligations,
pay or perform a portion or all of the Obligations  that Mortgagor has failed to
pay or perform,  and Mortgagor  shall  immediately  reimburse  Mortgagee for all
costs and expenses (including  attorneys' fees) incurred in connection with such
payment or performance,  with interest on such costs and expenses at the Default
Rate (as defined in the Note),  both before and after judgment;  (b) declare all
of the  Obligations  immediately  due and  payable  and charge  interest  on the
Obligations  then  outstanding  at the  Default  Rate,  both  before  and  after
judgment;  (c) exercise the power of sale under  applicable  law; (d)  foreclose
this Mortgage in the manner  provided by law for the foreclosure of mortgages on
real  property;  (e) exercise all of the rights and remedies of a secured  party
under the UCC (whether now existing or created after the date of this Mortgage),
including,  without  limitation,  the right to require Mortgagor to assemble and
make  available to  Mortgagee  the Personal  Property at a place  designated  by
Mortgagee;  (f) take  possession or appoint a receiver to take possession of and
(without  liability or  obligation) as a matter of right under this Mortgage and
without the  necessity  of any showing as to the  inadequacy  of the Property as
security (i) hold, occupy, operate, use, maintain, repair and conserve the value
of the Property,  (ii) make,  modify,  enforce and  terminate the Leases,  (iii)
collect the Rents and (after deducting from the Rents  maintenance and operating
expenses,   including  reasonable   management  fees)  apply  the  same  to  the
Obligations,  and (iv)  exercise such other powers as may be fixed by the court;
(g) offset the  Obligations  against any amounts  owed by Mortgagee to Mortgagor
and apply toward the Obligations all funds of Mortgagor which Mortgagee may have
in its possession or under its control;  (h) if permitted by applicable law, sue
on the Obligations;  or (i) exercise any other rights and remedies  available at
law or in  equity.  A  receiver  appointed  pursuant  to this  Paragraph  may be
appointed  without  notice to  Mortgagor,  and  without  regard to  whether  the
Property is in danger of being lost, removed or materially injured,  whether the
Property or any other  security is sufficient to discharge  the  Obligations  or
whether Mortgagee forecloses this Mortgage judicially or nonjudicially, it being
the  intention  of Mortgagor to authorize  the  appointment  of a receiver  when
Mortgagor is in default  under this  Mortgage and  Mortgagee  has  requested the
appointment  of a  receiver.  Mortgagor  consents  to  the  appointment  of  the
particular person (including an officer,  director,  partner or employee, as the

                                       10

<PAGE>

case may be, of Mortgagee)  designated by Mortgagee as "receiver" and waives any
right to suggest or nominate any person as receiver in  opposition to the person
designated  by Mortgagee.  Neither the entering on and taking  possession of the
Property nor the collection and application of the Rents as aforesaid shall cure
or waive any default or notice of default under this  Mortgage,  invalidate  any
act done  pursuant  to such  notice of default or operate to postpone or suspend
any of the  Obligations.  No remedy provided in this Mortgage shall be exclusive
of any other remedy at law or in equity  (whether now existing or created  after
the  date of this  Mortgage),  and  all  remedies  under  this  Mortgage  may be
exercised  concurrently,  independently  or successively  from time to time. The
failure  on the part of  Mortgagee  to  promptly  enforce  any right  under this
Mortgage  shall not  operate  as a waiver of such  right,  and the waiver of any
default shall not constitute a waiver of any subsequent or other default.

         16.  Exhaustion  of Security.  If the sums secured by this Mortgage are
now or  hereafter  further  secured  by the liens of other  mortgages,  deeds of
trust,  security  agreements,  pledges,  contracts of guaranty,  assignments  of
leases,  assignments of  certificates  of deposit,  letters of credit,  or other
security,  Mortgagee  may,  at its  option,  exhaust  any one or  more of  those
securities  and  the  security  under  this  Mortgage,  either  concurrently  or
independently,  and in such order as  Mortgagee  shall  determine.  In doing so,
Mortgagee will not be deemed to have made an election of remedies or waiver that
would  prevent  it  from  later  exercising  its  remedies  as to any  remaining
security,  nor will any such  action  by  Mortgagee  be  deemed  as  bringing  a
multiplicity of suits or splitting causes of action.

         17.  Security  Agreement;  Fixture Filing. This Mortgage  constitutes a
security  agreement with respect to all personal  property and fixtures in which
Mortgagee is granted a security  interest  under this  Mortgage,  and  Mortgagee
shall have all of the  rights  and  remedies  of a secured  party  under the UCC
(whether now existing or created  after the date of this  Mortgage),  as well as
any other rights and remedies available at law or in equity. This Mortgage, with
Mortgagor,  as debtor,  and  Mortgagee,  as secured  party,  also  constitutes a
fixture filing with respect to any part of the Property which is or may become a
fixture.  The  record  owner  of the  Real  Property  is NACO  Industries,  Inc.
Mortgagee is not a seller or purchase  money  lender of the  Personal  Property.
Mortgagor  shall  immediately  notify  Mortgagee  if the  name  or  identity  of
Mortgagor is changed,  or if the place of business of Mortgagor is changed to an
address  different  from the  address  for  Mortgagor  set  forth  in the  first
paragraph of this  Mortgage.  With respect to any  instrument  or chattel  paper
covered by this Mortgage,  Mortgagee need not take any steps to preserve  rights
against  prior  parties.  A  carbon,  photographic  or other  reproduction  of a
financing statement is sufficient as a financing statement.

                                       11

<PAGE>

         18.  Waiver. Mortgagor  waives, to the fullest extent permitted by law,
any right (a) to obtain a partial  release of the Property from the lien of this
Mortgage by paying less than all of the Obligations,  (b) to redeem the Property
by paying less than the amount  necessary to effect  redemption in full,  (c) to
have the Property or any other property  securing the  Obligations  marshaled on
the  foreclosure of the lien of this Mortgage,  and agrees that any court having
jurisdiction  to  foreclose  such  lien may order the  Property  and such  other
property  sold as an  entirety,  (d) to  direct  the  order  of the  sale of the
Property  or any other  property  securing  the  Obligations,  and  agrees  that
Mortgagee may exhaust the security given for the  Obligations in any order,  and
(e) relating to procedural  or  substantive  limitations  on the recovery of any
deficiency,  including,  without  limitation,  any  requirement  that  Mortgagee
establish a  deficiency  in  connection  with the  indebtedness  secured by this
Mortgage  prior to the time that all of the  security  given for  payment of the
Obligations has been exhausted.  Mortgagor  further waives and  relinquishes all
exemptions  and  homestead  rights  which may  exist  with  respect  to the Real
Property,  and agrees not to file a declaration of homestead with respect to the
Real Property.

         19.  Expenses and Fees.Mortgagor shall pay all costs, expenses and fees
(including,  without  limitation,  trustee's  and  attorneys'  fees)  which  are
incurred by Mortgagee in connection  with the  Obligations,  this Mortgage,  the
servicing of the  indebtedness  secured by this Mortgage and the  enforcement or
protection  of the rights  and  interests  of  Mortgagee  under  this  Mortgage,
including,  without limitation,  premiums on receiver's bonds and the monitoring
of any  insolvency  or  bankruptcy  proceedings,  with  interest  on such costs,
expenses and fees at the Default Rate, both before and after judgment.

         20.  Further  Assurances. Mortgagor  shall at any time and from time to
time,  on  request  of  Mortgagee,  take or cause to be taken  any  action,  and
execute,  acknowl  edge,  deliver  or  record  any  further  instruments,  which
Mortgagee  deems  necessary  or  appropriate  to carry out the  purposes of this
Mortgage and to perfect and preserve the lien and security  interest intended to
be created and preserved in the Property.

         21.  Request for Notices. Mortgagor  requests that a copy of any notice
of default  and a copy of any notice of sale  under this  Mortgage  be mailed to
Mortgagor at the address of Mortgagor  set forth in the first  paragraph of this
Mortgage.

         22.  WAIVER OF JURY TRIAL. MORTGAGOR AND MORTGAGEE  WAIVE TRIAL BY JURY
IN ANY ACTION,  PROCEEDING,  COUNTERCLAIM,  OR CROSS-CLAIM  BROUGHT BY ANY PARTY
AGAINST  THE OTHER IN ANY MATTER  ARISING  OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSAC TION INVOLVED IN THIS MORTGAGE.

                                       12

<PAGE>

         23.  Miscellaneous.  Time  is of the  essence  of this  Mortgage.  This
Mortgage  shall be  binding  on  Mortgagor  and shall  inure to the  benefit  of
Mortgagee and its successors and assigns. The liability of each person executing
this  Mortgage  as  Mortgagor  shall be joint and  several.  The  invalidity  or
unenforceability  of any provision of this  Mortgage  shall in no way affect the
validity  or  enforceability  of any other  provision.  This  Mortgage  shall be
governed  by and  construed  in  accordance  with the laws of the  State of Utah
except where the laws of the State of Kansas  require that the laws of the State
of Kansas apply to any matters addressed herein.  Paragraph captions and defined
terms in this  Mortgage  are for  convenience  of  reference  only and shall not
affect the construction of any provision of this Mortgage. All pronouns shall be
deemed to refer to the masculine,  feminine or neuter or singular or plural,  as
the identity of the parties may require.

                  [Remainder of Page Intentionally Left Blank]

                                       13

<PAGE>

         MORTGAGOR has executed this Mortgage on the date set forth below, to be
effective as of the date first set forth above.

                                        MORTGAGOR:
                                        ---------

                                        NACO INDUSTRIES, INC.
                                        a Utah corporation

                                        By:
                                        Its:

State of                                    )
         --------------------------
                                    )  ss.
County of                                   )
          ------------------------

      The foregoing instrument was acknowledged before me this            day of
                                                               ----------
          , 1999, by                                                       , the
----------           ------------------------------------------------------
            of NACO Industries, Inc..
-----------

         (Seal)
                                                     ----------------------
                                                     Notary Public

My Commission Expires:                               Residing at:

---------------------                                ----------------------

                                       14

<PAGE>

                          DEPOSIT AND ESCROW AGREEMENT
                          ----------------------------

         THIS  DEPOSIT AND ESCROW  AGREEMENT  (this  "Agreement")  is made as of
April ___, 1999, by and among NACO  Industries,  Inc., a Utah  corporation  (the
"Company"),  WebBank Corporation (the "Lender") and WebBank Corporation,  acting
solely in its  capacity  as escrow  agent  under  this  Agreement  (the  "Escrow
Agent").  The  Company  and the Lender are  sometimes  collectively  referred to
herein as the "Parties" and individually as a "Party."

         WHEREAS,  the Parties have  entered  into that  certain Loan  Agreement
dated as of the date hereof (the "Loan Agreement")  pursuant to which the Lender
has agreed to loan the Company $1,100,000 (the "Loan");

         WHEREAS,  the Parties have entered into that certain Security Agreement
dated as of the date hereof  (the  "Security  Agreement")  pursuant to which the
Company  has granted  the Lender a security  interest  in certain  assets of the
Company  including any money placed in the Escrow  Account (as defined below) as
collateral for the Loan;

         WHEREAS,  the  Company  owes  approximately   $157,000.00  to  M.  Coen
("Coen"),  and the Lender desires that such debt be discharged within 30 days of
the date of this Agreement; and

         WHEREAS,  it is a condition  precedent  to the Loan  Agreement  and the
making of the Loan that the Company  enters into this  Agreement  and places the
Escrow Funds (as defined below) in the Escrow Account.

         NOW,  THEREFORE,  in  consideration  of the mutual  covenants set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:

         1. Escrow Deposit. Simultaneously with the execution of this Agreement,
the  Company  has  deposited  with the Escrow  Agent  $157,000.00  (the  "Escrow
Amount")  in  accordance  with the  Loan  Agreement.  The  Escrow  Agent  hereby
acknowledges  receipt  of  $157,000.00  and  agrees to hold the  Escrow  Amount,
together  with all  products  and proceeds  thereof  (collectively,  the "Escrow
Funds"),  in a separate  and  distinct  account  in the name of the Lender  (the
"Escrow  Account"),  subject to the terms and conditions of this Agreement.  The
Escrow  Agent  shall not  distribute  or  release  the  Escrow  Funds  except in
accordance with the express terms and conditions of this Agreement.

                                        1

<PAGE>

         2.   Release  of  Escrow  Funds. The  Company  hereby  consents  to and
instructs  the Escrow  Agent  that the Escrow  Funds  shall be  distributed  and
released as follows:

                  (a)  Event of Default. The Company agrees that in the event of
an Event of Default under the Note,  the Lender may instruct the Escrow Agent to
release to the Lender all of the Escrow Funds, which Escrow Funds are pledged to
the Lender as collateral for the Note pursuant to the Security Agreement.

                  (b)  Release  to Coen.  Within  30 days  from the date of this
Agreement,  the Company  shall  instruct the Escrow Agent in writing,  in a form
satisfactory to the Lender, to release to Coen from the Escrow Account an amount
necessary  to  satisfy  the  Company's   outstanding  debt  owed  to  Coen  (the
"Request").  Such  Request  shall  (i)  include  the  account  number  and other
identifying information of Coen's account to which the funds are to be paid, and
(ii) be accompanied by a written  certification to the Lender from an officer of
the Company that no Event of Default  under the Loan  Agreement has occurred and
that no event has occurred that but for the passage of time would  constitute an
Event of Default  under the Loan  Agreement.  The Lender shall have the right in
its sole  discretion to deny any Request.  In the event the Company has not made
the Request within 30 days of this Agreement, the Lender shall have the right in
its sole  discretion  to instruct the Escrow Agent to release to Coen the amount
necessary to satisfy  Coen's  outstanding  debt owed by the Company.  Any amount
remaining  in the  Escrow  Account  on the 45th day  following  the date of this
Agreement shall be released by the Escrow Agent to the Company.

                  (c)  No Limitation of Remedies.The Company hereby acknowledges
and agrees  that the  payment of Escrow  Funds to the  Lender  pursuant  to this
Agreement  shall not  limit or  otherwise  affect  any  right of  payment  or of
indemnification which the Lender may have pursuant to the Loan Agreement,  Note,
Security  Agreement,  Mortgage  or  Guaranty  and that the  Escrow  Funds do not
constitute an exclusive remedy for Lender.

         3.   Termination. This  Agreement  shall  terminate when (i) all of the
Escrow  Funds in the  Escrow  Account  have been  released  and  distributed  in
accordance  with Section 2, or (ii) the Note has been paid in full including any
expenses  or late  fees  due  under  the  Note and  Loan  Agreement.  Upon  such
termination  this Agreement shall have no further force and effect,  except that
the  provisions of this Section 3 and Sections 4, 5 and 6 and Sections 8 through
19 below all survive such termination.

         4.   Conditions  to Escrow. The Escrow  Agent agrees to hold the Escrow
Funds  and to  perform  in  accordance  with the terms  and  provisions  of this

                                        2

<PAGE>

Material  Contracts The Parties agree that the Escrow Agent shall not assume any
responsibility  for the failure of the Parties to perform in accordance with the
Loan  Agreement or this  Agreement.  The  acceptance  by the Escrow Agent of its
responsibilities  hereunder  is subject to the  following  terms and  conditions
which the parties  hereto  agree shall  govern and control  with  respect to the
Escrow Agent's rights, duties and liabilities hereunder:

                  (a)  Documents.  The Escrow Agent shall be protected in acting
upon any written notice,  request,  waiver,  consent,  receipt or other paper or
document  furnished to it, not only as to its due execution and validity and the
effectiveness  of its  provisions,  but also as to the truth and accuracy of any
information therein contained,  which the Escrow Agent in good faith believes to
be genuine  and what it purports to be.  Should it be  necessary  for the Escrow
Agent to act upon any instructions,  directions, documents or instruments issued
or  signed  by or on  behalf  of  any  corporation,  partnership,  fiduciary  or
individual  acting on behalf of another party hereto,  it shall not be necessary
for  the  Escrow  Agent  to  inquire  into  such  corporation's,  partnership's,
fiduciary's or  individual's  authority.  The Escrow Agent is also relieved from
the necessity of satisfying  itself as to the authority of the persons executing
this Agreement in a representative capacity on behalf of any of the Parties.

                  (b)  Liability.  The  Escrow  Agent  shall not be  liable  for
anything  which it may do or refrain from doing in connection  herewith,  except
for its own gross negligence, bad faith or willful misconduct.

                  (c)  Legal  Counsel. The Escrow  Agent may consult  with,  and
obtain advice from,  legal counsel in the event of any question as to any of the
provisions hereof or its duties  hereunder,  and it shall incur no liability and
shall be fully  protected in acting in good faith in accordance with the opinion
and instructions of such counsel.

                  (d)  Limitation  of  Duties.  The Escrow  Agent  shall have no
duties  except  those which are  expressly  set forth herein and it shall not be
bound by any  agreement of the other parties  hereto  (whether or not it has any
knowledge thereof).

                  (e)  Resignation or  Termination  of Escrow Agent.  The Escrow
Agent  shall  have the right to resign at any time by giving  written  notice of
such  resignation  to  the  Parties   specifying  the  effective  date  of  such
resignation or termination.  After receiving or delivering the aforesaid notice,
as the case may be,  the  Lender  shall  have  the  exclusive  right in its sole
discretion  to appoint a successor  Escrow  Agent to which the Escrow  Agent may
distribute the property then held hereunder,  less the amount of any costs owing
to the Escrow Agent  hereunder as of such date. If a successor  Escrow Agent has
not been  appointed  and has not accepted  such  appointment  by the end of such

                                        3

<PAGE>

30-day period,  the Escrow Agent may apply to a court of competent  jurisdiction
for the  appointment of a successor  Escrow Agent,  and the costs,  expenses and
reasonable  attorneys'  fees  which are  incurred  in  connection  with any such
proceeding shall be paid by the Lender. Except as otherwise agreed to in writing
by the Parties, no Escrow Funds shall be released from the Escrow Account unless
and until a successor  Escrow Agent has been  appointed in accordance  with this
Section 4(e).

                  (f)  Discharge of Escrow  Agent.  Upon  delivery of all of the
Escrow Funds  pursuant to the terms of Section 3 above or to a successor  Escrow
Agent,  the  Escrow  Agent  shall  thereafter  be  discharged  from any  further
obligations  hereunder.  The Escrow Agent is hereby  authorized,  in any and all
events, to comply with and obey any and all final judgments,  orders and decrees
of any court of competent  jurisdiction  which may be filed,  entered or issued,
and all final  arbitration  awards and, if it shall so comply or obey,  it shall
not be liable to any other person by reason of such compliance or obedience.

         5.   Indemnification. The Company hereby agrees to indemnify the Escrow
Agent for and to hold it harmless  against  any loss,  liability  or  reasonable
expense  (including  reasonable  attorneys' fees and expenses)  incurred without
gross  negligence,  willful  misconduct  or bad faith on the part of the  Escrow
Agent arising out of or in connection with its performance under this Agreement.

         6.   Escrow Costs. The Escrow Agent shall be entitled to be  reimbursed
for its reasonable  costs and expenses  incurred in connection with  maintaining
the Escrow  Account  hereunder,  which costs and  expenses  shall be paid by the
Company.

         7.   Lender's  Rights to Escrow Funds.  Except  for the first  priority
security  interest  of the  Lender to the funds in the  Escrow  Account  created
pursuant to the Security  Agreement,  none of the Parties  shall have any right,
title or interest in or to, or possession  of, the Escrow  Account and therefore
shall not have the ability to pledge,  convey,  hypothecate or grant as security
all or any portion of the Escrow  Funds  unless and until such Escrow Funds have
been released pursuant to Section 2 above.  Accordingly,  the Escrow Agent shall
be in  possession  of the Escrow  Funds and shall act as custodian of the Lender
under this Agreement for the purposes of perfecting a security interest therein,
and no other  creditor of the Company shall have any right to have or to hold or
otherwise  attach or seize all or any portion of the Escrow Funds as  collateral
for any obligation and shall not be able to obtain a security interest in any of
the Escrow Funds unless and until such Escrow Funds have been released  pursuant
to Section 2 above. Notwithstanding the foregoing, however, nothing herein shall
restrict or otherwise limit the ability of any creditor of the Company to attach
or obtain a security  interest in the right of the  Company to receive  payments
from the  Escrow  Account  in  accordance  with the  terms  hereof  and the Loan
Agreement.

                                        4

<PAGE>

         8.   Notices.All notices,demands or other communications to be given or
delivered  under or by reason of the  provisions of this  Agreement  shall be in
writing and shall be deemed to have been given when delivered  personally to the
recipient,  one day after being sent to the  recipient  by  reputable  overnight
courier  service  (charges  prepaid)  or five  days  after  being  mailed to the
recipient by certified or registered mail,  return receipt requested and postage
prepaid.  Such notices,  demands and other  communications  shall be sent to the
Escrow Agent, the Lender and the Company at the addresses  indicated below or to
such other  address or to the  attention of such other  person as the  recipient
party has specified by prior written notice to the sending party.

         The Company:
         -----------

         NACO Industries, Inc.
         395 West 1400 North
         Logan, UT  84321
         Attention:  Verne E. Bray

         The Lender:
         -----------

         WebBank Corporation
         P.O. Box 1831
         136 Heber Avenue, Ste. 209
         Park City, UT  84060-1831
         Attention:  Douglas L. Hesse

         with a copy to:

         Parr Waddoups Brown Gee & Loveless
         185 South State Street, Suite 1300
         Salt Lake City, Utah  84111
         Attention:  Douglas C. Waddoups

         The Escrow Agent:
         ----------------

         WebBank Corporation
         P.O. Box 1831
         136 Heber Avenue, Ste. 209
         Park City, UT  84060-1831
         Attention:  Douglas L. Hesse

                                        5

<PAGE>

         9.   Entire Agreement;Amendments.This Agreement, together with the Loan
Agreement and the Security Agreement,  contains the entire  understanding of the
parties  hereto with respect to the subject  matter  hereof and  supersedes  any
prior  understandings  or  agreements  by or among the parties  hereto,  whether
written or oral, which may have related to the subject matter hereof in any way.
This Agreement may be amended, or any provision of this Agreement may be waived,
so long as such  amendment or waiver is set forth in a writing  executed by each
of the Parties (a copy of which shall be promptly provided by the Company to the
Escrow  Agent);  provided  that if any such  amendment  or waiver would have the
effect of increasing or expanding the Escrow Agent's obligations or duties under
this  Agreement,  the written  consent of the Escrow  Agent shall be required in
addition to the written consent of the Parties.  No course of dealing between or
among the parties hereto shall be deemed effective to modify, amend or discharge
any part of this  Agreement  of any rights or  obligations  of any party  hereto
under or by reason of this Agreement.

         10.  Assigns and  Assignment. This Agreement shall inure to the benefit
of and shall be binding upon Lender and Lender's successors and assigns.  Escrow
Agent shall not be  permitted to assign or delegate  its  obligations  hereunder
except as provided in Section 4(e) above.  The Company  shall not have the right
to assign  or  otherwise  transfer  its  rights  hereunder  (including,  without
limitation, its rights to the funds in the Escrow Account), and any such attempt
to assign or transfer shall be void.

         11.  No Third-Party  Beneficiaries. Nothing herein expressed or implied
is intended  or shall be  construed  to confer upon or to give any person  other
than the Escrow  Agent,  the Parties and their  permitted  assigns any rights or
remedies under or by reason of this Agreement.

         12.  Interpretation.  The headings in this  Agreement  are inserted for
convenience  of  reference  only and shall not be a part of or control or affect
the meaning hereof.

         13.  No Waiver. No failure or delay by a party hereto in exercising any
right,  power or privilege  hereunder shall operate as a waiver thereof,  and no
single or partial  exercise thereof shall preclude any right of further exercise
or the exercise of any other right, power or privilege. The right of the Parties
to  receive  all or a  portion  of the  Escrow  Funds  under  the  circumstances
described  in Section 2 above is in  addition  to, and not in lieu of, any other
remedies  that any such  party may have  against  another  pursuant  to the Loan
Agreement in the event of a breach of the Loan Agreement.

                                        6

<PAGE>

         14.  Severability.  The parties hereto agree that (a) the provisions of
this  Agreement  shall be severable in the event that for any reason  whatsoever
the provisions  hereof are invalid,  void or otherwise  unenforceable,  (b) such
invalid,  void or  otherwise  unenforceable  provisions  shall be  automatically
replaced by other  provisions  which are as similar as possible in terms to such
invalid,  void  or  otherwise  unenforceable  provisions,   but  are  valid  and
enforceable,  and (c) the remaining  provisions shall remain  enforceable to the
fullest extent permitted by law.

         15.  No Strict  Construction. The language used in this Agreement shall
be deemed to be the  language  chosen by the  parties  hereto to  express  their
collective mutual intent,  and no rule of strict  construction  shall be applied
against  any person.  The term  "including"  as used  herein  shall be by way of
example,  and  shall not be deemed to  constitute  a  limitation  of any term or
provision  contained  herein.  Each  defined term used in this  Agreement  has a
comparable meaning when used in its plural or singular form.

         16.  Releases  on  Non-Business  Days.  In the event  that a release of
Escrow  Funds  hereunder is required to be made on a date that is not a business
day, such release may be made on the next succeeding  business day with the same
force and effect as if made when required.

         17.  Governing   Law.   All  issues  and   questions   concerning   the
construction,  validity,  enforcement and interpretation of this Agreement shall
be governed by, and construed in accordance  with, the laws of the State of Utah
without  giving  effect  to any  choice  of  law or  conflict  of law  rules  or
provisions  (whether of the State of Utah or any other  jurisdiction) that would
cause the  application of the laws of any  jurisdiction  other than the State of
Utah. In  furtherance  of the  foregoing,  the internal law of the State of Utah
shall control the interpretation and construction of this Agreement, even though
under  that  jurisdiction's  choice  of law or  conflict  of law  analysis,  the
substantive   law  of  some   other   jurisdiction   would   ordinarily   apply.
Notwithstanding  the  foregoing,  each of the parties hereto agrees that each of
the other  parties  shall have the right to being any action or  proceeding  for
enforcement  of a  judgment  entered  by  Utah  courts  in any  other  court  or
jurisdiction.  Additionally,  the foregoing  shall not be deemed to prohibit any
party hereto or any other person or entity that may have the right to enforce or
sue under this  Agreement  from  commencing an action in any court that may have
jurisdiction.

                                        7

<PAGE>

         18.  Counterparts. This Agreement may be executed by the parties hereto
individually or in any combination,  in one or more  counterparts  (including by
means of telecopied signature pages), each of which shall be an original and all
of which shall together constitute one and the same agreement.

                (Remainder of this page intentionally left blank)

                                        8

<PAGE>

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

                                       NACO Industries, Inc.

                                       By: _________________________

                                       Its: _________________________

                                       WebBank Corporation

                                       By: _________________________

                                       Its: _________________________

                                       WebBank Corporation,
                                       acting solely in its capacity as
                                       Escrow Agent under this Agreement

                                       By: _________________________

                                       Its: _________________________

                                        9

<PAGE>

                                    GUARANTY
                                    --------

         For good and valuable  consideration,  the receipt and  sufficiency  of
which are hereby acknowledged,  the undersigned,  Verne E. Bray and Beverly Bray
(collectively "Guarantors" and each a "Guarantor"), individuals residing at 1367
Pheasant Hill Place, Logan, Utah 84321, hereby guarantee the payment when due of
the Obligations (as defined below) of NACO Industries,  Inc., a Utah corporation
("Parent")  and NACO  Composites,  Inc., a Utah  Corporation  and a wholly owned
subsidiary of Parent ("Subsidiary" together with Parent collectively referred to
herein as "Obligor") to WebBank  Corporation,  a Utah  corporation  ("WebBank"),
whose  address is P.O. Box 1831,  136 Heber Avenue,  Suite 209, Park City,  Utah
84060.

                                    RECITALS
                                    --------

                  A.   Pursuant  to that certain  Loan  Agreement  by and  among
WebBank and Obligor dated as of the date hereof (the "Loan Agreement"),  Obligor
has executed that certain  Adjustable  Rate Promissory Note dated as of the date
hereof in the original  principal  amount of ONE MILLION,  ONE HUNDRED  THOUSAND
DOLLARS  (the  "Note") in favor of WebBank,  Parent has  executed  that  certain
Mortgage in favor of WebBank dated as of the date hereof (the  "Mortgage"),  and
Obligor has executed that certain  Security  Agreement in favor of WebBank dated
as of the date hereof (the  "Security  Agreement,"  and  together  with the Loan
Agreement,  the Note, the Mortgage and all other related  documents the "Related
Documents").

                  B.   Guarantor Verne E. Bray is an  officer of Parent and owns
approximately  70% of the issued  and  outstanding  stock of  Parent.  Guarantor
Beverly Bray is the spouse of Verne E. Bray.

                                    AGREEMENT
                                    ---------

         NOW, THEREFORE,  to induce WebBank to enter into the Loan Agreement and
accept the Note, each Guarantor has executed and delivered this Guaranty:

                  1.   Definitions. When used in this  Guaranty  and not defined
herein,  the  capitalized  terms  have  the  meanings  given to them in the Loan
Agreement.

                                        1

<PAGE>

                  2.       Guaranty of Payment and Performance Obligation.
                           -----------------------------------------------
                           a.       Guarantors  and each of them hereby  jointly
and severally  and  absolutely,  unconditionally  and  irrevocably  guarantee to
WebBank and its respective  successors,  indorsees,  transferees and assigns (i)
the prompt and complete  payment when due of all  principal,  interest and other
amounts, and all extensions, renewals, refunding, replacements and modifications
thereof  under  the Note and the  other  Related  Documents,  including  without
limitation,  payments due under the Note and the other Related Documents for any
breach under such agreements and (ii) the prompt and complete performance of all
obligations  under the Note and the other Related Documents  (collectively,  the
"Obligations").  Guarantors  jointly and severally  further agree to pay any and
all expenses which may be paid or incurred by WebBank enforcing any rights under
this Guaranty, including, but not limited to, attorneys' fees. Guarantors hereby
jointly  and  severally  guarantee  that  any  amounts  due  WebBank  under  the
Obligations will be paid in full to WebBank, without set-off or counterclaim, in
lawful  currency of the United States of America at the office of WebBank as set
forth herein.

                           b.       No payment,  payments or performance made by
Obligor or any other  Person or received or collected by WebBank from Obligor or
any other  Person  by virtue of any  action  or  proceeding  or any  set-off  or
appropriation or application at any time or from time to time in reduction of or
in payment of the  Obligations,  shall be deemed to release the liability of any
Guarantor  hereunder,  both of whom  shall,  notwithstanding  any such  payment,
payments or performance, remain jointly and severally liable for the Obligations
until each of the Obligations is paid or performed in full.

                  3.       Unconditional Character of Guaranty.
                           -----------------------------------

                           a.       The  obligations  of  Guarantors  under this
Guaranty shall be absolute and unconditional,  joint and several, and shall be a
guaranty of payment and performance  and not of collection,  irrespective of the
validity,  regularity  or  enforceability  of  the  Related  Documents,  or  any
provisions thereof, the absence of any action to enforce the same, any waiver or
consent  with  respect to any  provision  thereof,  the recovery of any judgment
against any person or entity or action to enforce the same, any failure or delay
in the  enforcement  of the  obligations  of the Obligor  under the Note, or any
set-off,  counterclaim,  recoupment,  limitation,  defense or termination.  Each
Guarantor hereby waives diligence, demand for payment, filing of claims with any
court,  any  proceeding to enforce any provision of the Related  Documents,  any
right to require a proceeding first against Obligor,  any protest,  presentment,
notice or demand  whatsoever,  and each  Guarantor  hereby  covenants  that this
Guaranty   shall  not  be  terminated,   discharged  or  released   except  upon
satisfaction  of the conditions  specified in Section 2 above,  and only to such
extent of any such payment and performance.

                                        2

<PAGE>

                           b.       Without   limiting  the  generality  of  the
foregoing,  such  obligations,  and the rights of WebBank to enforce the same by
proceedings, whether by action at law, suit in equity or otherwise, shall not be
in  any  way   affected  by  (i)  any   insolvency,   bankruptcy,   liquidation,
reorganization,  readjustment,  composition,  dissolution,  winding  up or other
proceeding  involving or affecting  Obligor or any Guarantor or others,  or (ii)
any change in the ownership of any of the capital  stock of the Obligor,  or any
of its respective affiliates.

                           c.       Guarantors  and each of them hereby waive to
the fullest extent possible under applicable law:

                                    (1) any defense  based upon the  doctrine of
marshalling  of assets or upon an election  of  remedies by WebBank,  including,
without  limitation,  an election to proceed by nonjudicial rather than judicial
foreclosure which election destroys or otherwise impairs the subrogation  rights
of any  Guarantor or the right of any Guarantor to proceed  against  Obligor for
reimbursement, or both;

                                    (2) any  defense  based upon any  statute or
rule of law which  provides  that the  obligation  of a surety  must be  neither
larger  in  amount  nor in  other  respects  more  burdensome  than  that of the
principal;

                                    (3) any  duty  on the  part  of  WebBank  to
disclose to any  Guarantor  any facts  WebBank may now or  hereafter  know about
Obligor  regardless of whether WebBank has reason to believe that any such facts
materially  increase the risk beyond that which any Guarantor  intends to assume
or has reason to believe  that such facts are unknown to any  Guarantor or has a
reasonable  opportunity  to  communicate  such facts to any  Guarantor,  as each
Guarantor acknowledges that he or she is fully responsible for being and keeping
informed of the financial condition of Obligor and of all circumstances  bearing
on the risk of breach of any representations, warranties, covenants or agreement
or nonpayment of any obligation caused by such breach hereby guaranteed;

                                    (4) any defense arising because of WebBank's
election, in any proceeding instituted under the Federal Bankruptcy Code, of the
application of Section  1111(b)(2) of the Federal Bankruptcy Code, as amended or
supplemented;

                                    (5) any    claim    for       reimbursement,
contribution,  indemnity or  subrogation  which any Guarantor may have or obtain
against Obligor by reason of the payment by any Guarantor of any Obligation; and

                                        3

<PAGE>

                                    (6) any  other  event or  action  (excluding
Guarantors'  compliance  with the  provisions  hereof)  that would result in the
discharge by operation of law or otherwise of any Guarantor from the performance
or  observance  of any  obligation,  covenant  or  agreement  contained  in this
Guaranty.

                           d.       WebBank  may deal with  Obligor  in the same
manner and as freely as if this  Guaranty  did not exist,  and WebBank  shall be
entitled,  without  notice to any  Guarantor,  among other  things,  to grant to
Obligor such  extension or  extensions of time to perform any act or acts as may
seem advisable to WebBank at any time and from time to time without terminating,
affecting or impairing  the validity or  enforceability  of this Guaranty or the
obligations of Guarantors hereunder.

                           e.       WebBank may proceed,  either in its own name
or in the name of any Guarantor or both,  or  otherwise,  to protect and enforce
any or all of its rights under this Guaranty by suit in equity, action at law or
by other appropriate proceedings,  or to take any action authorized or permitted
under  applicable  law,  and  shall be  entitled  to  require  and  enforce  the
performance  of all  acts and  things  required  to be  performed  hereunder  by
Guarantors.  Each and every remedy of WebBank shall, to the extent  permitted by
law, be cumulative and shall be in addition to any other remedy given  hereunder
or now or hereafter existing at law or in equity.

                           f.       No waiver or release shall be deemed to have
been made by WebBank of any of its rights  hereunder unless the same shall be in
writing  and signed by or on behalf of WebBank,  and any such waiver  shall be a
waiver or release only with respect to the specific matter involved and shall in
no way impair the rights of WebBank or the  obligations  of any Guarantor  under
this Guaranty in any other respect at any other time.

                           g.       At the option of WebBank,  any  Guarantor or
both may be joined in any action or  proceeding  commenced  by  WebBank  against
Obligor for any Obligation  covered by this Guaranty in connection with or based
upon the Related Documents, or other obligation, or any other provision thereof,
and recovery may be had against any Guarantor in such action or proceeding or in
any  independent  action  or  proceeding  against  any  Guarantor,  without  any
requirement that WebBank first assert,  prosecute or exhaust any remedy or claim
against Obligor.

                  4.   Subrogation. Notwithstanding any payment or payments made
by any  Guarantor  hereunder  or any  set-off  or  application  of  funds of any
Guarantor by WebBank,  no Guarantor shall be entitled to be subrogated to any of
the rights of WebBank against Obligor or any collateral  security or guaranty or
right of offset held by WebBank for the payment of the Obligation, nor shall any

                                        4

<PAGE>

Guarantor seek any reimbursement from the Obligor in respect of payments made by
any Guarantor hereunder, until all amounts owing to WebBank by Obligor for or on
account of the Obligation are paid in full.

                  5.   Representations  and Warranties. Each Guarantor makes the
following representations and warranties to WebBank, each of which shall survive
the  execution,  delivery and  performance  of this  Guaranty  until each of the
Obligations is fully satisfied:

                           a.       Guarantors  have  delivered  to WebBank  the
unaudited  financial  statement attached hereto as Schedule 5(a) (the "Financial
Statement")  which Financial  Statement  fairly and accurately  presents the net
assets and financial position of Guarantors as of the date hereof;

                           b.       Guarantor   has   made  no   agreements   or
representations  of any kind  that  would  limit or  qualify  the  terms of this
Guaranty;

                           c.       This   Guaranty  is  executed  at  Obligor's
request and not at the request of WebBank;

                           d.       WebBank  has  made  no   representation   to
Guarantor as to the credit worthiness of Obligor; and

                           e.       This Guaranty  constitutes the legal,  valid
and binding obligation of Guarantor.

                  6.   Covenants.Each   Guarantor   covenants  with  WebBank  as
follows:

                           a.       Except as provided in this  Guaranty and the
Related  Documents,  Guarantor  will not,  without the prior written  consent of
WebBank, sell, dispose of, assign, pledge, mortgage,  hypothecate,  or otherwise
encumber  or  transfer  any  property  of any kind  owned by  Guarantor  if such
encumbering  or transfer (i) relates to property of such monetary value as to be
deemed  "material" to this Guaranty,  (ii) would materially and adversely affect
Guarantor's  financial  condition,  as such financial  condition is reflected by
Guarantor's  current  Financial  Statement,  or (iii)  would  materially  impair
WebBank's ability to enforce this Guaranty; and

                           b.       Guarantor  will notify WebBank in writing in
the event  there is any  change  in his or her  Financial  Statement,  and shall
furnish WebBank with (i) a current  Financial  Statement within ninety (90) days
after the end of each calendar year and at any other time WebBank  requests such
current  Financial  Statement  and (ii) copies of each  Guarantor's  federal and
state tax returns within 30 days of filing such returns.

                                        5

<PAGE>

                  7.       Event of Default; Remedies.
                           --------------------------

                           a.       Event of Default.  The  occurrence of any of
the  following  events or existence  of any of the  following  conditions  shall
constitute  an Event of Default  under this  Guaranty  (each such  occurrence an
"Event of Default"):

                                    (1)  Any  Guarantor  shall  default  in  the
performance  of or compliance  with any covenant or agreement  contained in this
Guaranty or in any document related hereto, and such default is not cured within
five (5) days;

                                    (2)  Any material representation or warranty
made by any Guarantor herein or in any statement,  certificate or other document
related  hereto  proves to have been false or incorrect in any material  respect
when made; and

                                    (3)  Any Event of Default  as defined in the
Loan  Agreement  shall occur and shall not be cured within the  applicable  cure
period, if any, provided in the Loan Agreement.

                           b.       Remedies upon Default. In the event that any
Event of Default shall occur and be continuing, WebBank shall be entitled to all
remedies set forth in this  Guaranty,  the Loan  Agreement and the other Related
Documents, and to all remedies available at law or in equity.

                  8.   Consent. Each Guarantor hereby consents that, without the
necessity of any  reservation of rights against any Guarantor and without notice
to or further assent by any Guarantor,  any demand for payment or performance of
any of the  Obligations  made by WebBank may be  rescinded by WebBank and any of
the Obligations  continued,  and the Obligations,  or the liability of any other
party upon or for any part  thereof,  or any  collateral  security  or  guaranty
therefor or right of offset with respect  thereto,  may,  from time to time,  in
whole  or  in  part,  be  renewed,  extended,  amended,  modified,  accelerated,
compromised,  waived,  surrendered  or released by WebBank,  as WebBank may deem
advisable from time to time, and any collateral security or guaranty or right of
offset  at any time  held by  WebBank  for the  payment  or  performance  of the
Obligations may be sold, exchanged,  waived, impaired,  surrendered or released,
all without the necessity of any reservation of rights against any Guarantor and
without  notice to or further  assent by any  Guarantor  who will  remain  bound
hereunder,   notwithstanding   any  such   renewal,   extension,   modification,
acceleration,  compromise,  amendment, supplement,  termination, sale, exchange,

                                        6

<PAGE>

waiver,  impairment,  surrender or release.  Except to the extent the applicable
law  provides  that  Guarantors  may not so  agree,  WebBank  shall not have any
obligation  to  protect,  secure,  perfect  or insure  any  collateral  security
document  or  property  subject  thereto  at any time held as  security  for the
Obligations of this Guaranty. THIS IS A GUARANTY OF PAYMENT AND PERFORMANCE, NOT
OF COLLECTION. WEBBANK MAY SEEK TO COLLECT PAYMENT OR ENFORCE PERFORMANCE OF THE
OBLIGATIONS  FROM ANY  GUARANTOR AS THOUGH THE  OBLIGATIONS  WERE THE DIRECT AND
PRIMARY  OBLIGATION OF SUCH GUARANTOR AND MAY SEEK PAYMENT OR PERFORMANCE OF THE
OBLIGATIONS  FROM ANY GUARANTOR  WITHOUT  MAKING ANY DEMAND FOR PAYMENT  THEREOF
UPON  OBLIGOR OR TAKING ANY OTHER  ACTION TO COLLECT OR ENFORCE THE  OBLIGATIONS
FROM OBLIGOR.  When making any demand hereunder  against any Guarantor,  WebBank
may, but shall be under no obligation to, make a similar demand on Obligor,  and
any failure by WebBank to make any such demand or to collect any  payments  from
Obligor  shall not relieve any  Guarantor  of such  Guarantor's  obligations  or
liabilities  hereunder,  and shall not impair or affect the rights and remedies,
express or implied, or as a matter of law, of WebBank against any Guarantor. For
the purposes hereof,  "demand" shall include the commencement and continuance of
any legal proceedings.

                  9.   Enforcement.No  lawful act of  commission  or omission of
any  kind or at any time  upon the part of  WebBank  in  respect  of any  matter
whatsoever  shall in any way  affect or impair  the rights of WebBank to enforce
any right, power or benefit under this Guaranty.  Nothing in this Guaranty shall
be construed as a waiver by any  Guarantor of any rights or claims he or she may
have against  Obligor under this  Guaranty or  otherwise,  but any recovery upon
such rights and claims shall be had from Obligor separately, it being the intent
of this Guaranty that each Guarantor  shall be  unconditionally  and absolutely,
jointly  and  severally  obligated  to  perform  fully  all of such  Guarantor's
obligations, covenants and agreements hereunder for the benefit of WebBank.

                  10.  Continuing  Effect.  This Guaranty  shall  continue to be
effective, or be reinstated,  as the case may be, if at any time payment, or any
part thereof,  of the  Obligation is rescinded or must  otherwise be restored or
returned by WebBank upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization  of  Obligor,  or upon or as a  result  of the  appointment  of a
receiver, intervenor or conservator of, or trustee, custodian or similar officer
for Obligor or any  substantial  part of its  property,  or other  wise,  all as
though such payments had not been made.

                                        7

<PAGE>

                  11.      Miscellaneous.
                           -------------

                           a.       Governing   Law.  This  Guaranty   shall  be
interpreted and the rights of the parties  hereunder  shall be determined  under
the laws of the State of Utah, without reference to conflict of laws principles.

                           b.       Severability.  If any term or  provision  of
this Guaranty or the  application  thereof to any  circumstances  shall,  to any
extent,  be invalid or  unenforceable,  the remainder of this  Guaranty,  or the
application  of such term or provision to  circumstances  other than those as to
which it is held invalid or unenforceable,  shall not be affected  thereby,  and
each term and provision of this Guaranty  shall be valid and  enforceable to the
fullest extent permitted by law.

                           c.       Notices. All notices,  requests, demands and
other  communications  which are  required or  permitted  to be given under this
Guaranty  will be in  writing  and will be deemed to have been duly given if (i)
delivered  in person,  or (ii)  mailed,  first class  certified,  registered  or
express mail,  return receipt  requested and postage  prepaid,  or (iii) sent by
recognized  overnight  courier,  with proof of  delivery  requested  and charges
prepaid, to:

                  If to Guarantors:

                           Verne E. Bray and Beverly Bray
                           1367 Pheasant Hill Place
                           Logan, Utah  84321

                   If to WebBank:

                           WebBank Corporation
                           P.O. Box 1831
                           136 Heber Avenue, Ste. 209
                           Park City, Utah  84060-1831
                           Attention:  Douglas L. Hesse

                                        8

<PAGE>

                  with a copy to:

                           Douglas C. Waddoups

                           Parr Waddoups Brown Gee & Loveless
                           185 South State, Suite 1300
                           Salt Lake City, Utah  84111

or to such other  address as a party may specify by written  notice to the other
parties.

                           d.       Right of Offset. Each Guarantor acknowledges
the right of WebBank to offset  against any  obligations  of such  Guarantor  to
WebBank under this Guaranty, any amount owing by WebBank to such Guarantor.

                           e.       Right   to   Cure.    Notwithstanding    the
provisions of Section 7 hereof,  any  Guarantor  shall have the right to cure an
Event of Default occurring pursuant to the Loan Agreement,  provided,  that such
cure is effected  within the applicable  period set forth in the Loan Agreement;
and provided further that such cure can be effected in compliance with the Note.
The  exercise  of such  right  to cure by any  Guarantor  shall  not  reduce  or
otherwise affect the liability of any Guarantor under this Guaranty.

                           f.      Jurisdiction.    Each    Guarantor    hereby
expressly and irrevocably submits to the non-exclusive  personal jurisdiction of
the United  States Dis trict Court for the  District of Utah - Central  Division
and to the  jurisdiction  of any  other  competent  court  of the  State of Utah
located  in  the  County  of  Salt  Lake  (collectively,   the  "Utah  Courts"),
preserving, however, all rights of removal to such federal court under 28 U.S.C.
Section 1441, in  connection  with all disputes  arising out of or in connection
with this Agreement or the  transactions  contemplated  hereby and agrees not to
commence  any  litigation  relating  thereto  except  in  such  courts.  If  the
aforementioned  courts  do  not  have  subject  matter  jurisdiction,  then  the
proceeding  shall be brought in any other state or federal  court located in the
State of Utah, preserving,  however, all rights of removal to such federal court
under 28 U.S.C.  Section  1441.  Each  Guarantor  hereby waives the right to any
other  jurisdiction or venue for any litigation  arising out of or in connection
with this Guaranty or the  transactions  contemplated  hereby to which he or she
may be entitled  by reason of present or future  domicile.  Notwithstanding  the
foregoing,  each  Guarantor  hereto  agrees that WebBank shall have the right to
bring any action or proceeding for enforcement of a judgment entered by the Utah
Courts in any other court or jurisdiction,  including,  without limitation,  the
courts of the States of Kansas and California. Additionally, the foregoing shall

                                        9

<PAGE>

not be deemed to prohibit  any party  hereto or any other  person or entity that
may have the right to enforce this  Guaranty  from  commencing  an action in any
court or courts that may have jurisdiction.

                           g.       Service   of   Process.    Each    Guarantor
irrevocably   consents  to  the  service  of  process  outside  the  territorial
jurisdiction  of the  courts  referred  to in Section  11(f)  hereof in any such
action or proceeding by mailing copies thereof by registered United States mail,
postage prepaid,  return receipt  requested,  to such address as specified in or
pursuant to Section 11(c)  hereof.  However,  the foregoing  shall not limit the
right of WebBank to effect  service  of  process on any  Guarantor  by any other
legally available method.

                           h.       WAIVER  OF  JURY  TRIAL.   AS  AN  IMPORTANT
INDUCEMENT TO WEBBANK TO ENTER THIS AGREEMENT,  EACH GUARANTOR  WAIVES THE RIGHT
TO TRIAL BY JURY IN ANY  ACTION  ARISING  UNDER  OR IN ANY WAY  RELATED  TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

                           i.       Section   Headings.   The  section  headings
contained in this Guaranty are for reference  purposes only and shall not affect
the meaning or interpretation of this Guaranty.

                           j.       Delay.  No failure to exercise  and no delay
in  exercising,  on the part of WebBank,  any right,  power or  privilege  shall
preclude  any other or further  exercise  thereof,  or the exercise of any other
power or right.  The rights and remedies  herein provided are cumulative and not
exclusive of any rights or remedies provided by law.

                           k.       Modification.  No provision of this Guaranty
shall  be  waived,  amended,  supplemented  or  released  except  by  a  written
instrument executed by Guarantors and WebBank.

                           l.       Binding  Effect.   This  Guaranty  shall  be
binding upon the successors,  assigns,  heirs and legal  representatives of each
Guarantor.

                  [Remainder of Page Left Blank Intentionally]

                                       10

<PAGE>

         IN WITNESS WHEREOF,  and intending to be legally bound, the undersigned
have caused this  Guaranty to be duly  exercised and delivered as of the day and
year first above written.

                                GUARANTORS
                                /s/Verne E. Bray
                                -------------------------------
                                Verne E. Bray, individually

                                /s/Beverly Bray
                                -------------------------------
                                Beverly Bray, individually

                                       11

<PAGE>

                                  SCHEDULE 5(a)

                     FINANCIAL STATEMENTS OF EACH GUARANTOR

                    [To be provided by counsel for Obligor.]

                                        i

<PAGE>

                                 LOAN AGREEMENT

This Loan Agreement (this  "Agreement") is entered into this _____ day of April,
1999, by and between NACO Industries, Inc., a Utah corporation (the "Borrower"),
and WebBank Corporation, a Utah corporation (the "Lender").

WHEREAS,  the Lender desires to make a loan to the Borrower in the amount of ONE
MILLION,  ONE HUNDRED THOUSAND AND 00/100 DOLLARS  ($1,100,000.00)  (the "Loan")
which is eighty percent (80%) guaranteed by RBS/USDA (the "RBS/USDA  Guaranty"),
in  accordance  with and subject to the terms and  conditions  of such  RBS/USDA
Guaranty, all of which are incorporated herein by reference; and

WHEREAS, the Borrower desires that the Lender make the Loan to the Borrower.

NOW,  THEREFORE,  in  consideration  of  the  representations,  warranties,  and
covenants contained herein, and for other good and valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
hereby agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

Unless the context  otherwise  requires,  all  capitalized  terms not  otherwise
specifically  defined  herein  shall have the  meanings  set forth below in this
Article 1:

"Accounting Terms" are those generally accepted in accordance with GAAP.

"Affiliate"  as applied to any Person  shall mean any other  Person  directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person.  For purposes of this definition,  a Person shall be deemed to
control another Person if such first Person possesses directly or indirectly the
power to (a) vote 10% or more of the securities having ordinary voting power for
the selection of directors of such Person or (b) direct,  or cause the direction
of, the  management  and  policies  of the second  Person,  whether  through the
ownership of voting securities, by contract or otherwise. In addition, as to the
Lender,  "Affiliate" shall include any partnership a majority of the partners of
which are officers, directors,  employees or Affiliates of the Lender; and as to
the Borrower, "Affiliate" shall not include any Lender.

                                        1

<PAGE>

"Assets"  shall mean all of the  properties,  asset  rights,  claims,  leasehold
interests, contracts, and goodwill used in the Business or owned by the Borrower
of  every  kind and  character,  wherever  located,  whether  real or  personal,
tangible or intangible.

"Business"  shall mean the business of the Borrower and all  activities  related
thereto, including but not limited to the activities, at any location, conducted
by the  Borrower  under the name "NACO  Industries,  Inc." or "NACO  Composites,
Inc."

"Capital  Expenditure"  means any payment made  directly or  indirectly  for the
purpose of acquiring or  constructing  fixed assets,  Real Property or equipment
which in  accordance  with  GAAP  would be added as a debit to the  fixed  asset
account of the Person making such expenditure,  including,  without  limitation,
amounts  paid or payable  under any  conditional  sale or other title  retention
agreement or under any lease or other periodic payment  arrangement  which is of
such a nature that payment obligations of the lessee or obligor thereunder would
be required by GAAP to be  capitalized  and shown as  liabilities on the balance
sheet of such lessee or obligor.

"Change of Control" shall mean:

         (a)      if  any   Person  or  group   besides   Verne  E.  Bray  shall
beneficially  own more  than  50% of the  voting  power of the  then-outstanding
voting equity interests of Borrower; or

         (b)      if any shares of capital stock of Borrower which Verne E. Bray
beneficially  owns shall by any means come into the beneficial  ownership of any
other Person or any group; or

         (c)      if  Verne  E.  Bray or  Jeffrey  Kirby  shall  cease  to be an
executive officer of Borrower.

         For  purposes  of  this  definition,   the  terms  "beneficially  own,"
"beneficial  ownership" and "group" shall have the respective  meanings ascribed
to them  pursuant to Section  13(d) of the  Securities  Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.

"Closing" shall have the meaning specified in Article 2.

"Closing Date" shall have the meaning specified in Article 2.

"Closing  Transactions"  means the transactions  which will occur on the Closing
Date pursuant to the Loan Documents.

                                        2

<PAGE>

"Code"  shall  mean  the  Internal   Revenue  Code  of  1986,  as  amended,   or
corresponding provisions of any subsequent federal tax laws.

"Deposit and Escrow  Agreement" means the Deposit and Escrow  Agreement  between
the Borrower and the Lender dated as of the date hereof.

"Environmental Complaint" shall mean any complaint,  summons,  citation, notice,
directive, order, claim, litigation, investigation, proceeding, judgment, letter
or other  communication from any federal,  state, or municipal  authority or any
other Person  involving a Hazardous  Discharge from or on Real Property owned or
leased by the Borrower or any  violation of any order,  permit or  Environmental
Law.

"Environmental  Laws" shall mean any federal,  state or local laws,  common law,
ordinances,  regulations or policies, as well as orders,  decrees,  judgments or
injunctions issued,  promulgated,  approved, or entered thereunder,  relating to
the environment,  health and safety,  Hazardous Substances  (including,  without
limitation, the use, handling,  transportation,  production, disposal, discharge
or storage thereof) or to industrial hygiene or the environmental conditions on,
under or about the Real  Property  owned or leased  by the  Borrower  including,
without limitation, soil, groundwater, and indoor and ambient air conditions.

"ERISA" means the Employee  Retirement  Income Security Act of 1974, as amended,
and any regulations promulgated thereunder.

"ERISA  Affiliate"  means any corporation or trade or business which is a member
of the same  controlled  group of  corporations  (within  the meaning of Section
414(b) of the Code) as the  Borrower  or is under  common  control  (within  the
meaning of Section 414(c) of the Code) with the Borrower.

"GAAP" means generally accepted accounting principles in the United States.

"Guaranty"  means the  Guaranty  executed by Verne E. Bray and  Beverly  Bray in
favor of the Lender as of the date hereof.

"Hazardous  Discharge"  shall mean any releasing,  spilling,  leaking,  pumping,
pouring,  emitting,  emptying,   discharging,   injecting,  escaping,  leaching,
disposing or dumping of Hazardous Substances from or onto Real Property owned or
leased by the Borrower.

"Hazardous  Substances"  shall mean any pollutant,  toxic  substance,  hazardous
waste,  compound,  element or chemical that is or shall be defined as hazardous,
toxic, noxious or dangerous pursuant to Laws or regulated in any manner pursuant
to any Law.

                                        3

<PAGE>

"Indebtedness" means, for any Person,  without duplication,  (a) all obligations
of such Person for borrowed money,  (b) all obligations of such Person evidenced
by bonds, debentures,  notes or other similar instruments,  (c) all indebtedness
of such Person on which interest  charges are customarily  paid or accrued,  (d)
all guarantees by such Person,  (e) the unfunded or unreimbursed  portion of all
letters of credit issued for the account of such Person,  (f) any  obligation of
such Person  representing  the deferred  purchase  price of property or services
purchased by such Person, (g) all obligations  secured by a lien on any property
or asset  owned or held by such Person  regardless  of whether  such  obligation
shall have been assumed by that Person or is  nonrecourse  credit of that Person
and (h) all liability of such Person as a general  partner or joint venturer for
obligations of the nature described in (a) through (g) preceding.

"Law" or "Laws" shall mean any and all applicable  statutes,  laws,  ordinances,
proclamations, regulations, published requirements, orders, decrees and rules of
any  foreign,  federal,  state or local  government,  political  subdivision  or
governmental  or  regulatory  authority,   agency,  board,  bureau,  commission,
instrumentality or court or  quasi-governmental  authority,  including,  without
limitation,   those  covering   environmental,   tax,  energy,  safety,  health,
transportation,  bribery, record keeping, zoning, discrimination,  antitrust and
wage and hour  matters,  and in each case as amended  and in effect from time to
time.

"Lease  Obligation"  shall  mean  any  lease,   sublease,   license  or  similar
arrangement,  pursuant to which a Person  leases,  subleases,  or  otherwise  is
granted the right to occupy, take possession of or use property,  whether, real,
personal or mixed.

"Lien" shall mean any lien, pledge, claim, charge,  security interest,  mortgage
or encumbrance of any nature whatsoever, other than Permitted Liens.

"Loan Documents"  means this Agreement,  the Note, the Security  Agreement,  the
Mortgage, the Guaranty, the Deposit and Escrow Agreement, the RBS/USDA Guaranty,
and all  other  documents  executed  by the  parties  in  connection  with  this
transaction.

"Material  Adverse  Change" means a material  adverse effect on the Assets or on
the financial condition, operations, or prospects of the Business.

"Mortgage" means the Mortgage executed by the Borrower in favor of the Lender as
of the date hereof.

"Multiemployer Plan" means a multiemployer plan defined as such in Section 3(37)
of ERISA to which  contributions  have  been made by the  Borrower  or any ERISA
Affiliate and which is covered by Title IV of ERISA.

                                        4

<PAGE>

"Note" means the Adjustable  Rate  Promissory  Note of the Borrower of even date
herewith in the original  principal sum of $1,100,000.00,  payable to the Lender
and secured by the Security Agreement and the Mortgage.

"PBGC" means the Pension Benefit Guaranty  Corporation or any entity  succeeding
to all or any of its functions under ERISA.

"Permitted  Liens" as to the business  shall mean (a) liens securing the payment
of taxes,  assessments or other governmental charges or levies which are not yet
delinquent or which are being  contested in good faith and as to which  reserves
have been  established in accordance with GAAP; (b)  materialmen's,  mechanics',
carriers', workmen's,  repairmen's, or other like liens incurred in the ordinary
course of business  securing  obligations not yet due; (c) zoning  restrictions,
easements,  licenses,  restrictions  on  the  use  of  Real  Property  or  minor
irregularities in title thereto, which do not materially impair, alone or in the
aggregate,  the use of the  property  affected  thereby in the  operation of the
Business  or the value of such  property  for the purpose of the  Business;  (d)
workers'  compensation,  Social Security or unemployment  compensation liens for
amounts not yet due; (e) liens in favors of holders of  additional  Indebtedness
incurred  pursuant  to  Section  3.5(A)  hereof;  and  (f) and  contractual  and
statutory liens in favor of landlords and lessors.

"Person"  shall mean a corporation,  an  association,  a partnership,  a limited
liability  company, a joint venture,  a trust, an organization,  a business,  an
individual, a government or political subdivision thereof, a governmental agency
or any other legal entity.

"Plan" means any employee benefit plan established or maintained by the Borrower
or any ERISA Affiliate and which is covered by Title IV of ERISA.

"Prohibited  Transaction"  means any transaction set forth in Section 406 or 407
of ERISA or  Section  4975(c)(1)  of the Code for which  there  does not exist a
statutory or administrative exemption.

"RBS/USDA" means the Rural Business-Cooperative Service, an agency of the United
States  Department of  Agriculture,  and any successor  department,  agency,  or
instrumentality  authorized to administer the Business and Industrial Guaranteed
Loan Program.

"RBS/USDA Guaranty" shall be given the meaning set forth in the recitals above.

                                        5

<PAGE>

"Real  Property"  shall mean all real  property,  buildings and fixtures  owned,
leased or used by a Person.

"Reportable  Event"  means any of the events set forth in Section  4043 of ERISA
for which the 30-day notice requirement has not been waived by the PBGC.

"Security  Agreement" means the Security  Agreement  executed by the Borrower in
favor of the Lender as of the date hereof.

"Subsidiary"  shall  mean any  corporation,  association,  partnership,  limited
liability company, joint venture or other business entity of which more than 50%
of the outstanding voting stock (or equivalent interest) is at the time owned by
the Borrower or by one or more  Subsidiaries  or by the Borrower and one or more
Subsidiaries.

"Tax"  means any  federal,  state,  or local tax,  assessment,  or charge of any
nature whatsoever,  including,  without limitation, (i) income, franchise, sales
and use, unemployment compensation, excise, severance, property, gross receipts,
profits,  and payroll  taxes,  and (ii) any  penalties,  additions,  fines,  and
interest assessed on or related to any of the foregoing.

"Transactions" means the transactions contemplated by this Agreement.

                                    ARTICLE 2

                                    THE LOAN

2.1 Amount and Term of Loan. The amount of the Loan shall be $1,100,000.00  (the
"Loan Amount"),  and the Loan Amount shall be amortized over a period of fifteen
(15) years with monthly  installments  of principal  and interest in  accordance
with the terms of the Note.

2.2 Interest Rate. The Loan Amount shall bear interest as provided in the Note.

2.3 Loan Disbursement. The closing (the "Closing") of the Transactions is taking
place at the offices of Parr Waddoups  Brown Gee & Loveless on April ____,  1999
(the  "Closing  Date").  At the  Closing,  the Lender will deliver the full Loan
Amount in United  States  money to the  Borrower  by wire  transfer  as  further
explained in the Wire Transfer Instructions and Receipt of Funds attached hereto
as Exhibit "2.3."

                                        6

<PAGE>

2.4  Prepayment  Premium.  The  principal  balance  of the Loan  may be  prepaid
according to the terms,  and subject to the prepayment  penalties,  set forth in
the Note.

2.5  Origination  Fee;  RBS/USDA  Guaranty Fee. The Origination Fee shall be two
percent  (2%) of the total Loan amount (in  addition to any fees due  RBS/USDA),
paid by the Borrower to the Lender at closing. In addition,  the Borrower agrees
to pay the RBS/USDA guarantee fee of two percent (2%) of eighty percent (80%) of
the total amount of the Loan.

2.6  Collateral/Security.  The collateral/security for the Loan shall consist of
the
following:

         A. A first  mortgage on the Borrower's  real property and  improvements
located at 3445 West Jones Avenue, Garden City, Kansas 67846 as described in the
appraisal  required by Section 5.12(i)  hereof.  Title to this property shall be
recorded in the Borrower's name.

         B. A first  priority  security  interest in the  Borrower's  machinery,
equipment, titled and untitled vehicles, furniture,  fixtures, deposits, and all
other tangible and intangible assets (including, without limitation, patents and
patent applications), as described in the appraisal required by Section 5.12(ii)
hereof, provided,  however, that the Borrower shall not grant the Lender a first
priority  interest in  inventory or accounts.  Title to this  property  shall be
recorded in the Borrower's name.

         C. Life  insurance  on Verne E.  Bray in  the  amount  of no less  than
$500,000,  and life  insurance  on  Jeffrey  Kirby in the amount of no less than
$500,000, as required by Section 4.2(c) hereof.

         D. A second priority security interest in the Borrower's  inventory and
accounts as described in the appraisal required by Section 5.12(ii) hereof.

         E. Absolute and  unconditional  guarantee of payment and performance of
Verne E. Bray and Beverly Bray, according to the terms of the Guaranty.

         F. A first priority security interest in the deposit and escrow account
established and maintained pursuant to the Deposit and Escrow Agreement.

2.7. Escrow  Fund.   At the option of the  Lender,  the Lender may  require  the
Borrower to establish an Escrow Fund (defined below) sufficient to discharge its
obligations  for the  payment  of taxes,  insurance  premiums,  and  maintenance
pursuant to this Agreement.  (The initial deposits  together with the amounts in

                                        7

<PAGE>

(a), (b), and (c) below shall be called the "Escrow Fund"). Initial deposits for
taxes,  premiums, and maintenance shall be made by the Borrower to the Lender in
amounts determined by the Lender in its discretion on the date hereof to be held
in the Lender's Escrow Fund. Additionally,  the Borrower shall pay to the Lender
on the first day of each  calendar  month:  (a)  one-twelfth  of an amount which
would be sufficient to pay the taxes  payable,  or estimated by the Lender to be
payable,  upon the due dates  established by the  appropriate  taxing  authority
during the ensuing twelve (12) months;  (b) one-twelfth of an amount which would
be sufficient to pay the insurance  premiums due for the renewal of the coverage
afforded by the policies upon the expiration thereof;  and (c) one-twelfth of an
amount which would be sufficient to pay all costs  associated  with  maintenance
and upkeep of buildings,  grounds, equipment, and all other property which needs
to be maintained in the ordinary course of business ("CAM"). The Borrower agrees
to notify the Lender immediately of any changes to the amounts,  schedules,  and
instructions for payment of taxes,  insurance premiums,  and CAM of which it has
obtained  knowledge and  authorized  the Lender or its agent to obtain the bills
for taxes and other charges directly from the appropriate taxing authority.  The
Escrow Fund and the payments of interest or principal, or both, payable pursuant
to the Note, shall be added together;  and shall be paid as the aggregate sum by
the Borrower to the Lender.  Provided there are sufficient amounts in the Escrow
Fund and no Event of Default  exists,  the Lender  shall be  obligated to pay on
behalf of the Borrower the taxes, insurance premiums, and CAM as they become due
on their  respective  due dates by applying  the Escrow Fund to the  payments of
such taxes,  insurance  premiums,  and CAM  required to be made by the  Borrower
pursuant to this  Agreement.  If the amount of the Escrow Fund shall  exceed the
amounts due for taxes, insurance, and CAM pursuant to this Agreement, the Lender
shall, at its  discretion,  return any excess against future payments to be made
to the Escrow Fund.  In  allocating  such  excess,  the Lender may deal with the
persons shown on the records of the Lender to be the owner of the  property.  If
the Escrow Fund is not  sufficient  to pay the items set forth in (a),  (b), and
(c) above,  the  Borrower  shall  promptly pay to the Lender,  upon  demand,  an
amount,  which the Lender shall reasonably estimate as sufficient to make up the
deficiency.  The  Escrow  Fund  shall  not  constitute  a trust  fund and may be
commingled with other monies held by the Lender.  Unless  otherwise  required by
applicable  law, no earnings  or  interest,  if any, on the Escrow Fund shall be
payable to the Borrower. Lender may elect to appoint a third party to perform on
Lender's behalf the tasks  associated with managing the Escrow Fund as described
in this  Section  2.7, in which case  Borrower  agrees to pay the costs for such
third party.  In the event the Lender does not  establish  an Escrow  Fund,  the
Borrower shall make all required  payments  herein  described in a timely manner
and shall provide evidence thereof as required by the Lender.

                                        8

<PAGE>

                                    ARTICLE 3

                               FINANCIAL COVENANTS

3.1  Financial Statements. A current financial statement from the Borrower, less
than  sixty  (60)  days old,  is  required  at the  Closing.  An annual  audited
financial  statement  prepared  on  an  accrual  basis  by  a  Certified  Public
Accountant  in  accordance  with GAAP is required  from the Borrower and will be
forwarded  to the  Lender  within  ninety  (90)  days of the  Borrower's  fiscal
year-end.  Quarterly in-house financial statements for the Borrower also must be
submitted to the Lender  within  forty-five  (45) days of the end of each fiscal
quarter,  and such  additional  financial  statements as may be requested by the
Lender shall be submitted in a timely manner in a form acceptable to the Lender.
The Borrower must submit to Lender year-end federal and state tax returns within
ninety (90) days of each fiscal year end. The Borrower must submit to the Lender
a copy of each Form 10K and Form 10Q  concurrently  with the filing of such form
with the Securities and Exchange Commission.

3.2  Certificate of No Default. Concurrently  with delivery to the Lender of any
financial  statement  prepared  pursuant to Section  3.1  (except the  financial
statement delivered at the Closing), a completed  compliance  certificate of the
president  or chief  financial  officer of the  Borrower  in the form of Exhibit
"3.2" shall be  delivered to the Lender,  certifying  (i)  compliance  with each
financial  covenant in Article 3 hereof, and (ii) that to the best of his or her
knowledge no default or Event of Default has occurred and is continuing, or if a
default or Event of Default has  occurred and is  continuing,  a statement as to
the nature thereof and the action proposed to be taken with respect thereto.

3.3  Dividends. The Borrower shall not, during the life of the Loan,  declare or
pay a cash  dividend  unless a profit was made in the  fiscal  year prior to the
year in which the dividend is being declared, all debts are paid current and all
Loan  covenants  and  ratios  are being met and will  continue  to be met on the
annual  statement,  and such payment  would not result in a reduction of capital
below the prior fiscal year end level (determined in accordance with GAAP) after
the dividends are paid.  Authorized  dividend  payments may not reduce  retained
earnings  below  the  amount  reflected  on the  year-end  balance  sheet of the
immediately  preceding  fiscal year. If the Borrower  operates as a Subchapter S
corporation,  dividends  may be  distributed  to the  owners to pay taxes on its
profits.

                                        9

<PAGE>

3.4      Compensation of Officers and Owners.

         A. No advances or loans from the  Borrower  are to be made to officers,
owners,  affiliates  or others  during the life of the Loan  without the written
approval of the Lender and RBS/USDA.

         B. Salaries,  compensation,  and/or  payments to officers and/or owners
will not be increased unless a profit was made in the preceding fiscal year, all
of the  Borrower's  debts are paid to a current  status and the  Borrower  is in
compliance with all covenants of this Agreement,  including without  limitation,
the  financial  covenants  and ratios  (calculated  after  giving  effect to the
contemplated increases or payments).

3.5      Fixed Asset Limitation; Sale of Assets.

         A. The Borrower may incur up to $150,000 per calendar  year for Capital
Expenditures,  including through the incurrence of additional  Indebtedness,  if
the financial  ratios of Article 3 would be met after  incurring such expense or
such indebtedness. All such purchases are to be added to the collateral for this
Loan under the  after-acquired  clause and specifically  described as collateral
when the Security Agreement is updated.

         B. Other than in the ordinary  course of business,  the Borrower  shall
not sell, transfer or assign any of its assets,  including,  without limitation,
any  collateral for the Loan,  without the prior written  consent of the Lender,
which consent may be withheld in its sole discretion.

3.6  Consolidations,  Mergers,  Sale of Business.  The Borrower  will not merge,
consolidate, reclassify or sell the business or any of its capital stock without
the prior  written  approval of the Lender and  RBS/USDA.  The Borrower will not
purchase  any  Treasury  stock  or  redeem  any of its  capital  stock  from any
shareholders  without  the  written  approval  of the Lender and  RBS/USDA.  The
Borrower  shall make no  investments  outside of the day to day operation of the
business.

3.7      Additional Debt.

         A. Except as  provided  in Section  3.5,  the  Borrower  will not incur
additional  Indebtedness  other than in the ordinary  course of business and due
within one year,  nor assume the  liabilities or obligations of any other person
or entity, without the prior written consent of the Lender and RBS/USDA.

                                       10

<PAGE>

         B. Borrower  will not incur  additional  borrowing for working  capital
purposes that will reduce the current ratio below 1 to 1 or increase the debt to
net worth ratio above 3 to 1.

         C. The parties  acknowledge and agree that the Lender shall not advance
to the Borrower any  additional  funds beyond the Loan Amount  without the prior
written consent of RBS/USDA.

3.8      Debt to Equity and Other Financial Ratios.

         A. The Borrower will maintain a debt-to-equity ratio of not more than 3
to 1, as shown on the annual  audited  financial  statement and defined as total
debt divided by tangible  net worth plus  subordinated  debt,  at the end of the
Borrower's fiscal year.

         B. Any and all  Indebtedness to stockholders now or hereafter made will
be subordinate to the Loan.

         C. The Borrower will maintain a debt service coverage ratio of not less
than 1.2 to 1 as shown on the annual audited statement financial statement.

         D. The Borrower will maintain a current ratio  (current  assets divided
by current liabilities) of not less than 1 to 1 and shall maintain a net working
capital  position of at least $10,000 as shown on the annual  audited  financial
statement.

         E. The  Borrower  shall  maintain  a  1  to  1  loan  to   value  ratio
(outstanding  loan balance  divided by  collateral  for loan),  with  collateral
discounted pursuant to RBS/USDA Form 4279-1, Part B.

         F. The annual  audited  financial  statement  required  by Section  3.1
hereof shall include a calculation of each financial ratio of this Article 3 and
a certification that the Borrower is in compliance with each such ratio.

3.9  Equity.  At the  Closing,  the  Borrower  will  provide  the Lender  with a
certification  from an  independent  public  accountant  that the Borrower has a
tangible  balance sheet equity  position of a minimum of ten percent (10%).  The
certification  shall  detail  the  sources  that  constitute  such  equity.  The
certification  will  also be  supported  by a pro  forma  balance  sheet  of the
Company,  reconciled  to the most recent  balance  sheet of the Company  (not to
exceed 90 days old), and dated as of the date hereof.

                                       11

<PAGE>

                                    ARTICLE 4

                                 OTHER COVENANTS

4.1  Use of the Loan  Proceeds. The  proceeds  of the Loan shall be  utilized as
follows:

         Restructure Debt                                        $   925,000
         Working Capital (including transaction costs)               175,000
                                                                 ===========
         Total                                                   $ 1,100,000

4.2  Insurance. The Borrower shall obtain and maintain all required insurance at
its own  expense,  except as  modified by Section  2.7 at the  Lender's  option.
Grantor  shall  provide the Lender with  originals  or  certified  copies of all
required insurance policies (including, without limitation,  renewals thereof or
replacements  thereto),  with copies of all renewal notices and, if requested by
the Lender, with copies of receipts for paid premiums.  Required insurance shall
include, but not be limited to, the following:

         A. The Borrower shall maintain a policy of general liability  insurance
of not less than one million and 00/100  dollars  ($1,000,000)  designating  the
Lender as an  additional  insured  party,  placed with an  insurance  company or
companies acceptable to the Lender.  Further, the Borrower shall maintain hazard
insurance  and general  liability  insurance  during the entire term of the Loan
with a standard  mortgage  clause naming the Lender as  beneficiary in an amount
which is at least the lesser, with the Lender reserving the right to require the
greater of such, of the  depreciated  replacement  value of the Loan security or
the  amount  of the Loan  balance  and that  must  contain  a  replacement  cost
guarantee.   Hazard  insurance  includes  fire,  windstorm,   lightning,   hail,
explosion,  riot, civil commotion,  aircraft,  vehicle, marine, smoke, builder's
risk,  public  liability,  property damage,  flood or mudslide,  or other hazard
insurance  that may be  required  to  protect  the  collateral,  placed  with an
insurance  company or companies  acceptable  to the Lender.  The Borrower  shall
maintain  flood  insurance  if the  collateral  property  is  located in an area
designated as an area for special hazards under the National Flood Insurance Act
of 1968. The flood  insurance must be in an amount equal to at least 100% of the
value  of the  insured  improvements  of  the  collateral  property.  All of the
foregoing insurance policies shall be in form and substance  satisfactory to the
Lender and must name the Lender as a loss payee.

         B. The  Borrower  shall  maintain  Worker's  Compensation  Insurance as
required by applicable law with respect to each of Borrower's places of business
during the period of time the Loan is unpaid,  placed with an insurance  company
or companies acceptable to the Lender.

                                       12

<PAGE>

         C. The Borrower shall maintain,  with an insurance company or companies
acceptable to the Lender,  key man life insurance  policies on Verne E. Bray and
Jeffrey  Kirby in the amount of $500,000 each for the period the Loan is unpaid,
and such policies of insurance shall name the Lender as the loss Payee.

4.3  Inspections.  The Borrower will permit the Lender and RBS/USDA to visit and
inspect any of the collateral  securing the Loan, to conduct a periodic audit of
the number of jobs to determine program  effectiveness,  and access to company's
books and records for  periodic  examination.  The Lender  reserves the right to
conduct audits on an as- needed basis, as determined solely by the Lender.

4.4  Change of Control.  The Borrower will not undergo a Change of Control.

4.5  Legal Existence;  Compliance with Laws, etc. The Borrower will:(a) maintain
its  corporate  existence and business;  (b) maintain all  properties  which are
reasonably  necessary for the conduct of such business,  now or hereafter owned,
in  reasonable  repair,  working order and  condition;  and (c) take all actions
necessary  to  maintain  and  keep in full  force  and  effect  all  rights  and
franchises  reasonable  for the  operation of the Business;  and,  comply in all
material  respects  with all  applicable  Laws in respect of the  conduct of the
Business and the ownership of the Assets;  provided that the Borrower  shall not
be required by reason of this subsection to comply  therewith at any time if the
Borrower  shall  be  contesting  its  obligations  to  do so in  good  faith  by
appropriate  proceedings  timely initiated and diligently  conducted,  and if it
shall have set aside on its books such reserves, if any, with respect thereto as
are required by GAAP and deemed  adequate by the  Borrower  and its  independent
public accountants.

4.6  Environmental Liabilities. The Borrower shall not violate any Law regarding
Hazardous Substances; and, without limiting the foregoing, the Borrower will not
dispose of any Hazardous  Substance into or onto, or (except in accordance  with
Law) from,  any Real  Property  owned,  leased or operated by the Borrower or in
which the  Borrower  holds,  directly  or  indirectly,  any legal or  beneficial
interest or estate,  nor allow any Lien imposed  pursuant to any Law relating to
Hazardous  Materials or the disposal  thereof to be imposed or to remain on such
Real  Property,  except for Liens being  contested in good faith by  appropriate
proceedings and for which adequate  reserves have been established and are being
maintained on the books of the Borrower.

4.7  Compliance with ERISA. The Borrower will make all payments or contributions
to employee  benefit  plans  required  under the terms thereof and in accordance
with  applicable  minimum  funding  requirements  of  ERISA  and  the  Code  and
applicable  collective  bargaining  agreements.  The  Borrower  will  cause  all
employee  benefit plans sponsored by it to be maintained in material  compliance

                                       13

<PAGE>

with  ERISA  and the  Code.  The  Borrower  will not  engage  in any  prohibited
transaction  for which an exemption  is not  available.  The  Borrower  will not
terminate, or cause to be terminated, any employee benefit plan or withdraw from
any multi-employer  plan, in any manner which could result in material liability
of the Borrower.

4.8  Mortgages,  Liens,  etc. The Borrower  shall not,  directly or  indirectly,
create,  incur, assume or suffer to exist any Lien with respect to any Asset now
owned or hereafter acquired by the Borrower, except:

                  (a)      Liens set forth on Schedule "4.8" hereof  ("Permitted
Senior Indebtedness");

                  (b)      Any Lien securing the Notes;

                  (c)      Any Liens permitted by Section 3.7.

4.9  Creation and  Acquisition of  Subsidiaries. The Borrower will not create or
acquire any  Subsidiaries  except for wholly owned  Subsidiaries  created in the
ordinary  course of business.  Each new Subsidiary will be required to execute a
Joinder  Agreement in the form of Exhibit  "4.9" hereto making it a party to the
Security   Agreement  and  the  Mortgage  and  a  guarantor  of  the  Borrower's
obligations  under  this  Agreement  and the  other  Loan  Documents.  Each  new
Subsidiary  will also be required to grant a security  interest in its assets as
collateral for the Loan. The Borrower will ensure that any and all  subsidiaries
execute the documents necessary to comply with this Section 4.9.

4.10 Lease  Obligations.  The Borrower shall not enter into, or become liable as
lessee under, any new Lease Obligations.

4.11 Payment of Taxes.  The  Borrower  will pay and  discharge  promptly as they
become due and payable,  subject to extension,  all Taxes, assessments and other
governmental  charges or levies imposed upon it or its income or upon any of its
Assets,  or upon any part  thereof,  as well as all  lawful  claims  of any kind
(including claims for labor,  materials and supplies) which, if unpaid, might by
law become a Lien (other than a Permitted  Lien) or a charge upon its  property;
provided  that Borrower  shall not be required to pay any such Tax,  assessment,
charge,  levy or claim if the amount,  applicability  or validity  thereof shall
currently be contested in good faith by appropriate proceedings timely initiated
and  diligently  conducted and if the Borrower shall have set aside on its books
such reserves,  if any, with respect  thereto as are required by GAAP and deemed
appropriate by the Borrower and its independent public accountants.

                                       14

<PAGE>

4.12 Payment of Other Indebtedness, etc. Except as to matters being contested in
good faith and by  appropriate  proceedings,  the Borrower  will, and will cause
each Subsidiary to, pay promptly when due all other Indebtedness.

4.13 Loan, Guarantees and Investments. The Borrower shall not (i) make or permit
to remain  outstanding  any loan or advance to any  Person,  (ii)  guarantee  or
endorse (except as a result of endorsing  negotiable  instruments for deposit or
collection  in the ordinary  course of  business) or otherwise  assume or remain
liable with respect to any  obligation  of any Person,  or (iii) make or own any
investment in, or acquire (except in the ordinary course of business) the assets
of, any Person, except:

                  (a)      Extensions  of trade  credit by the  Borrower  in the
ordinary course of business in accordance with customary trade practices;

                  (b)      Cash  or  short-term  liquid  investments   generally
regarded as cash;

                  (c)      Marketable direct obligations of the United States of
America or any department or agency thereof maturing not more than one year from
the date of issuance thereof;

                  (d)      Certificates of deposit, repurchase agreements, money
market deposits or other similar types of investments maturing not more than one
year from the date of acquisition  thereof and evidencing direct  obligations of
any bank within the United States of America; and

                  (e)      Capital  Expenditures  to  the  extent  permitted  by
Section 3.5.

4.14 Compliance  with Year 2000.  The Borrower shall perform all acts reasonably
necessary  to ensure  that the  Borrower  and any  Subsidiary  become  Year 2000
Compliant  in a timely  manner.  Such acts shall  include,  without  limitation,
performing  a  comprehensive  review  and  assessment  of all of the  Borrower's
systems and adopting a detailed plan, with itemized budget, for the remediation,
monitoring and testing of such systems. As used in this Section 4.14, "Year 2000
Compliant"  shall mean, in regard to any entity,  that all  software,  hardware,
firmware,  equipment,  goods or systems  utilized by or material to the business
operations or financial  condition of such entity,  will  properly  perform date
sensitive functions before,  during and after the year 2000. The Borrower shall,
immediately  upon  request,  provide  to  Lender  such  certifications  or other
evidence of the  Borrower's  compliance  with the terms of this  Section 4.14 as
Lender may from time to time reasonably require.

                                       15

<PAGE>

4.15 Further Assurances.  From time to time hereafter, the Borrower will execute
and  deliver,  or will  cause to be  executed  and  delivered,  such  additional
instruments,  certificates or documents,  and will take all such actions, as the
Lender may reasonably request,  for the purposes of implementing or effectuating
the  provisions  of the Loan  Documents.  Upon the exercise by the Lender of any
power, right,  privilege or remedy pursuant to this Agreement and the other Loan
Documents which requires any consent, approval,  registration,  qualification or
authorization of any  governmental  authority or  instrumentality,  the Borrower
will  execute and  deliver,  or will cause the  execution  and  delivery of, all
applications,  certifications,  instruments  and other documents and papers that
the Lender may be  required to obtain from the  Borrower  for such  governmental
consent, approval, registration, qualification or authorization.

                                    ARTICLE 5

                              CONDITIONS TO CLOSING

         The  obligation  of the  Lender  to make  the  Loan is  subject  to the
following conditions precedent:

5.1      Government  Guarantee.  The Lender  shall have  received  the  RBS/USDA
Guaranty in a form satisfactory to the Lender.

5.2      The Note.  The Lender  shall have  received the Note,  duly  completed,
executed, and delivered by the Borrower in the form of Exhibit "5.2" hereto.

5.3      The  Guaranty.  The  Lender  shall have  received  the  Guaranty,  duly
completed, executed, and delivered by Verne E. Bray and Beverly Bray in the form
of Exhibit "5.3" hereto.

5.4      The Security  Agreement.  The Lender  shall have  received the Security
Agreement duly completed, executed, and delivered by the Borrower in the form of
Exhibit "5.4" hereto.

5.5      Opinion of the Borrower's  Counsel.  The Lender shall have received the
legal opinions of Hillyard,  Anderson & Olsen,  Weintraub Genshlea & Sproul, and
Calihan, Brown, Burgardt,  Wurst & Daniel, dated as of the Closing Date and duly
executed,  completed,  and delivered in the form of Exhibits  "5.5(a)," "5.5(b)"
and "5.5(c)" hereto.

5.6      No Change.  No material adverse change shall have occurred with respect
to the financial condition of Verne E. Bray or Beverly Bray.

                                       16

<PAGE>

5.7      Third-Party Consents. The Lender shall have received the consents (and,
if  necessary,  waivers  of  defaults)  of any  third-parties  required  for the
Borrower to consumate the transactions contemplated by this Agreement.

5.8      Corporate  Authorization.  The Lender shall have received any corporate
documents and resolutions  necessary to authorize the execution,  delivery,  and
performance by the Borrower of the Loan Documents to which the Borrower is or is
to be a party.

5.9      Environmental  Report. The Lender shall have received from the Borrower
a certified  environmental  report  regarding  the Real Property of the Borrower
prepared  in  accordance  with  "Standard   Practices  for  Environmental   Site
Assessments  :  Transaction  Screen  Questionnaire"  and "Phase I  Environmental
Assessment," both published by the American Society of Testing and Materials.

5.10     Change of Control.  No Change in Control shall have occurred.

5.11     Insurance.  The Borrower  shall have  obtained the  insurance  policies
required by Section 4.2 hereof, and made proof of the same to Lender.

5.12     Appraisal.  Lender shall have received (i) a certified appraisal of the
Real  Property  of Borrower  meeting the  requirements  of  Instruction  4279-B,
published by United States  Department of Agriculture  Rural  Development and in
form  and  substance  satisfactory  to  Lender,  and (ii) an  itemized  list and
valuation  of  all  other   collateral  for  the  Loan  in  form  and  substance
satisfactory to Lender.

5.13     Survey.  Lender  shall  have  received  a  current  survey  of the Real
Property in form  acceptable to Lender and prepared by a surveyor  acceptable to
Lender.

5.14     Title Insurance.  Lender shall have received a title policy in favor of
Lender issued by an underwriter  acceptable to Lender,  (i) showing  Borrower to
own fee simple title in its Real Property, (ii) insuring the Mortgage as a first
lien on the Borrower's  Real  Property,  and (iii) not containing any exceptions
other than those approved in writing by Lender.

5.15     Flood Hazard Determination. Lender shall have received a duly completed
Form 81-93, "Standard Flood Hazard Determination," published by the Federal
Emergency Management Administration.

5.16     Mortgage.  The Lender shall have received the Mortgage duly  completed,
executed, and delivered by the Borrower in the form of Exhibit "5.16" hereto.

                                       17

<PAGE>

5.17     The Deposit and Escrow  Account.  The Lender  shall have  received  the
Deposit and Escrow  Agreement  duly  completed,  executed  and  delivered by the
Borrower in the form of Exhibit "5.17" hereto.

                                    ARTICLE 6

                 REPRESENTATIONS AND WARRANTIES OF THE BORROWER

         The   Borrower   represents   and   warrants  to  the   Lender,   which
representations  and warranties  shall survive the Closing and the execution and
delivery of this Agreement, that:

6.1      Incorporation,  Good Standing, and Due Qualification. The Borrower is a
corporation duly  incorporated,  validly  existing,  and having an active status
under the laws of the State of Utah;  has the  corporate  power and authority to
own its  assets  and to  transact  the  business  in which it is now  engaged or
proposed to be engaged;  and is duly qualified as a foreign  corporation  and in
good  standing  under  the  Laws  of  each  other  jurisdiction  in  which  such
qualification is required, if any.

6.2      Corporate Power and Authority. The execution, delivery, and performance
by the  Borrower  of the Loan  Documents  to which it is a party  have been duly
authorized by all necessary corporate action and do not and will not (1) require
any consent or  approval  of its  stockholders;  (2)  contravene  its charter or
bylaws;  (3) violate any  provision  of any law,  rule,  regulation  (including,
without  limitation,  Regulation  U of the  Board of  Governors  of the  Federal
Reserve System), order, writ, judgment,  injunction,  decree, determination,  or
award presently in effect having applicability to the Borrower;  (4) result in a
breach  of or  constitute  a  default  under  any  indenture  or loan or  credit
agreement or any other agreement,  lease, or instrument to which the Borrower is
a party or by which it or its properties may be bound or affected; (5) result in
or require the creation or imposition of any lien upon or with respect to any of
the  properties now owned or hereafter  acquired by the Borrower;  and (6) cause
the Borrower to be in default under any such law, rule, regulation,  order writ,
judgment,  injunction,  decree,  determination,  or award or any such indenture,
agreement, lease, or instrument.

6.3      Capitalization.  The authorized  capital stock of the Borrower consists
solely of 10,000,000 shares of common stock, par value $.01, 2,147,102 shares of
which are issued and outstanding,  and 330,000 shares of 7% cumulative preferred
stock, par value $3.00,  165,412 of which are issued and  outstanding.  Schedule
"6.3"  sets  forth the  record and  beneficial  ownership  of the fully  diluted
outstanding  common stock of the Borrower held by Verne E. Bray.  Except for the

                                       18

<PAGE>

common stock and the preferred stock,  there are no other authorized  classes or
series of capital stock of the Borrower.  All outstanding shares of common stock
and preferred stock of each of the Borrower are duly authorized, validly issued,
fully paid, and nonassessable and have been offered, issued, sold, and delivered
by the Borrower in compliance with applicable securities laws. Other than as set
forth on Schedule "6.3," there are no preemptive rights, rights of first refusal
or similar  rights with respect to the capital stock of the Borrower.  Except as
set forth on Schedule  "6.3," there are no outstanding  subscriptions,  options,
warrants,  rights,  or other  arrangements  or  commitments,  whether express or
implied,  obligating  the  Borrower  to issue  any  shares  of  common  stock or
securities  exchangeable  for or convertible  into common stock.  Except for the
Articles of  Incorporation  and Bylaws of the Borrower  and the Loan  Documents,
there are no outstanding  agreements or documents binding on the Borrower or its
shareholders regarding the transfer, voting, pledge, optioning or gifting of any
capital stock of the Borrower.  If there are any  preemptive  rights,  rights of
first  refusal,  or similar  rights  with  respect to the  capital  stock of the
Borrower,  the Borrower has complied with all applicable corporate and statutory
procedures  and  requirements  relating  to  such  rights  (including,   without
limitation,  procedures for giving the holders of such rights the opportunity to
exercise such rights).

6.4      Brokerage  Fees.  Except as set forth on  Schedule  "6.4"  there are no
claims for investment  bankers' fees,  brokerage  commissions,  finders' fees or
similar   compensation  in  connection  with  the  Transactions   based  on  any
arrangement or agreement made by or on behalf of the Borrower.

6.5      Environmental  Compliance.  Except as set forth on Schedule "6.5" there
has been no Hazardous Discharge or generation, treatment, storage or disposal of
any Hazardous  Substance by the Borrower or any other Person  resulting from the
operations  of the Business or the  ownership or use of the Assets,  in a manner
which violates any applicable Environmental Law. Except as set forth on Schedule
"6.5"  there are no  Environmental  Complaints  now  pending to or  against  the
Borrower or any other Person  resulting  from the  operations of the Business or
the  ownership  or  use of the  Assets,  and,  to  the  best  of the  Borrower's
knowledge,   there  is  no  reasonable   basis  for  believing   that  any  such
Environmental  Complaint  may be  asserted  against  the  Borrower  or any other
persons with respect to the Borrower's operations. Schedule "6.5" lists, for the
entire  period  of  operations  of  the  Borrower,  any  and  all  Environmental
Complaints  resulting from the Borrower's  operations or the ownership or use of
the  Assets  and the  disposition  of each such  Environmental  Complaint.  With
respect to each such pending or prior  Environmental  Complaint,  Schedule "6.5"
lists the date of the  Environmental  Complaint;  the claimant or  investigating
agency; the nature and a brief description of the matter; the damages claimed or
relief sought;  and the status or outcome of the matter. In addition,  except as

                                       19

<PAGE>

listed  on  Schedule  "6.5,"  the  Borrower  is  operating  and has at all times
previous hereto operated the Business in compliance with all Environmental Laws.

6.6      Other  Information.  All information  relating to the Borrower has been
disclosed  to Lender  which would  reasonably  be  material  to any  prospective
third-party investor in the Borrower.  In furtherance of the foregoing,  and not
in limitation thereof,  all information  furnished by the Borrower to the Lender
or its representatives in connection with the Loan Documents (including, without
limitation,  information  contained in the  Schedules  and  Exhibits  hereto and
thereto,  the  instruments  referred to in such  Exhibits and  Schedules and the
certificates and other documents to be executed or delivered  pursuant hereto or
thereto by the Borrower) is not, nor at the Closing will be, false or misleading
in any material  respect,  or  contains,  or at the Closing  will  contain,  any
misstatement  of material fact, or omits,  or at the Closing will omit, to state
any material fact required to be stated in order to make the statements  therein
not materially misleading.

6.7      Employee  Benefits  Matters.  The  Borrower is in  compliance  with all
applicable  provisions  of ERISA.  Neither a  Reportable  Event nor a Prohibited
Transaction  has occurred and is continuing  with respect to any Plan. No notice
of intent to terminate a Plan has been filed,  nor has any Plan been terminated.
No circumstances  exist which constitute grounds entitling the PBGC to institute
proceedings to terminate,  or appoint a trustee to  administer,  a Plan, nor has
the PBGC  instituted  any such  proceedings.  Neither the Borrower nor any ERISA
Affiliate has completely or partially  withdrawn from a Multiemployer  Plan. The
Borrower and each ERISA  Affiliate have met their minimum  funding  requirements
under ERISA with respect to all of their Plans.  The present value of all vested
benefits  under each Plan do not exceed the fair market value of all Plan assets
allocable to such benefits,  as determined on the most recent  valuation date of
the Plan and in  accordance  with  ERISA.  Neither  the  Borrower  nor any ERISA
Affiliate  has  incurred  any  liability  to the PBGC under  ERISA  (other  than
liability for the payment of PBGC premiums in the ordinary course of business).

6.8      Legally Enforceable Agreement.  This Agreement is and each of the other
Loan  Documents  to which the  Borrower is a party,  when  delivered  under this
Agreement,  will be  legal,  valid,  and  binding  obligations  of the  Borrower
enforceable  against the  Borrower in  accordance  with their  respective  terms
except  to the  extent  that  such  enforcement  may be  limited  by  applicable
bankruptcy,  insolvency,  and other  similar laws  affecting  creditor's  rights
generally and  principles of equity.  The Borrower  represents and warrants that
neither it or any  Guarantor is insolvent  or  contemplating  filing a voluntary
petition for bankruptcy  nor is the Borrower aware of any  possibility or threat
of being subject to any petition for involuntary bankruptcy.

                                       20

<PAGE>

6.9      Financial  Statements.  All financial  statements of the Borrower which
have been  furnished to the Lender are  complete and correct and fairly  present
the financial condition of the Borrower and the results of the operations of the
Borrower for the periods covered by such statements, all in accordance with GAAP
consistently  applied  to the  Borrower's  statements,  and  there  has  been no
Material  Adverse  Change.  There are no liabilities  of the Borrower,  fixed or
contingent, which are material but are not reflected in the financial statements
or in the notes thereto,  other than liabilities  arising in the ordinary course
of business of the Borrower. No information, exhibit, or report furnished by the
Borrower to the Lender in  connection  with the  negotiation  of this  Agreement
contains any material  misstatement of fact or omits to state a material fact or
any fact  necessary  to make the  statement  contained  therein  not  materially
misleading.

6.10     Other Agreements.  The Borrower is not a party to any indenture,  loan,
or credit  Agreement,  or, to the  Borrower's  knowledge,  to any lease or other
Agreement  or  instrument,  or subject to any charter or  corporate  restriction
which could have a material adverse effect on the business,  properties, assets,
operations,  or  conditions,  financial  or  otherwise,  of the  Borrower or the
ability of the Borrower to carry out its obligations under the Loan Documents to
which it is a party.  The Borrower is not in default in any material  respect in
the performance, observance, or fulfillment of any title obligations, covenants,
or conditions  contained in any Agreement or instrument material to its business
to which it is a party.

6.11     Litigation.  There  is no  pending  or,  to the  Borrower's  knowledge,
threatened  action or proceeding  against or affecting  the Borrower  before any
court,  governmental  agency or arbitrator  which may, in any one case or in the
aggregate,  materially  adversely  affect the financial  condition,  operations,
properties,  or  business  of the  Borrower  or the  ability of the  Borrower to
perform its obligation under the Loan Documents to which it is a party.

6.12     No  Defaults on  Outstanding  Judgments  or Orders.  The  Borrower  has
satisfied all judgments,  and the Borrower is not in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court, arbitrator,
or federal,  state,  municipal,  or other  governmental  authority,  commission,
board, bureau, agency or instrumentality, domestic or foreign.

6.13     Operation  of Business.  To the best of the  Borrower's  knowledge,  it
possesses all licenses, permits, franchises, patents, copyrights, trademarks and
trade names, or rights  thereto,  to conduct its business  substantially  as now
conducted and as presently proposed to be conducted,  is not in violation of any
valid  rights  of  others  with  respect  to  any of  the  foregoing,  and is in
compliance  with all  rules  and  regulations  regarding  the  operation  of its
business.

                                       21

<PAGE>

6.14     Taxes.  The  Borrower  has filed all Tax  returns  (federal,  state and
local) required to be filed and has paid all Taxes which are due.

6.15     Adverse Change.  The Borrower certifies that by accepting the Loan, the
Borrower  understands that the intent of RBS/USDA  Instruction  4279-B,  Section
4279.181(m),  is that no adverse  change has occurred  during the period of time
from  RBS/USDA's  issuance  of the  Conditional  Commitment  to  issuance of the
RBS/USDA Guaranty relating to the Borrower, regardless of the cause or causes of
the change and  whether  the change or  cause(s)  of the change  were within the
Borrower's control.

Upon the issuance of the RBS/USDA Guaranty, the Borrower must certify that there
have been no unremedied adverse changes since the date of the application in the
financial or other  condition of the Borrower which warranty  withholding or not
making the Loan.  Therefore,  the Borrower does hereby  represent and warrant to
the Lender that there have been no adverse changes since the date of its initial
loan application in its financial condition.

6.16     Subsidiaries. The Borrower does not own, directly or indirectly, any of
the  capital  stock  of  any  other  company  or  any  equity,  profit  sharing,
participation or other interest in any other entity.

6.17     Patents,  Trademarks  and  Licenses.  Schedule  "6.17"  sets  forth all
patents,  patents pending,  inventions  (whether or not patentable),  trademarks
(registered and  unregistered),  service marks  (registered  and  unregistered),
trade  names  (registered  and   unregistered),   brand  names  (registered  and
unregistered) or copyrights  (registered and unregistered),  owned or used by or
licensed to or by the  Business,  together with a summary  description  and full
information  in respect of the  filing,  registration  or issuance or the status
thereof.  All of such patents,  inventions,  trademarks,  service  marks,  trade
names, brand names, copyrights,  pending applications and licenses are valid and
in  good  standing  and  will  not  be  materially  adversely  affected  by  the
Transactions;  no patent  application or patent used in the Business is involved
in any interference proceeding,  and no trademark,  service mark, trade name, or
brand name, whether or not registered, nor any application therefor, is involved
in  any  opposition  or  cancellation  proceeding.  No  licenses,   sublicenses,
covenants  or  agreements  have been  granted or entered into by the Borrower in
respect of such patents,  inventions,  trademarks,  service marks,  trade names,
brand names,  copyrights,  applications  or licenses,  except those described on
Schedule  "6.17." The Borrower  validly owns, is validly  licensed under, or has
legal right to use all patents, patent applications,  trademarks, service marks,
trade names, brand names,  inventions,  processes,  know-how,  trade secrets and
copyrights which are necessary for the conduct of the Business as now conducted,
and all such rights are  valid and in good  standing,  and free and clear of all

                                       22

<PAGE>

Liens and have not been  challenged in any way or involved in any  interference,
opposition  or  cancellation  proceedings.  With respect to the Business and the
operations  of the  Borrower  and  the use or  publication  by the  Borrower  in
connection with its patents, trademarks, service marks, trade names, brand names
and advertising,  technical or other  literature do not involve  infringement or
claim  infringement  of any  patent,  trademark,  service  mark,  trade  name or
copyright.  Except  as set  forth  on  Schedule  "6.17"  no  director,  officer,
employee,  consultant or Affiliate of the Borrower owns, directly or indirectly,
in whole or in part, any inventions or patents, trademarks, service marks, trade
names, brand names, or copyrights or applications therefor which the Business is
presently  using  or  which is  necessary  or  useful  for the  Business  as now
conducted  or has made any  invention  not  assigned  to the  Borrower  which is
necessary  or useful for the Business as now  conducted.  Except as set forth on
Schedule  "6.17," no officer,  director,  employee,  agent or  Affiliates of the
Borrower has entered  into any  agreement  regarding  know-how,  trade  secrets,
assignment of rights in inventions, or prohibition or restriction of competition
or  solicitation  of customers,  or any other similar  restrictive  agreement or
covenant  relating to the  Business,  whether  written or oral,  with any Person
other than the Borrower.

                                    ARTICLE 7

                                EVENTS OF DEFAULT

7.1      Events  of  Default.  The  occurrence  of one or more of the  following
events or existence of one or more of the following  conditions shall constitute
an Event of Default (each such occurrence or existence an "Event of Default"):

         A. The Borrower shall fail to perform or observe any term, covenant, or
agreement  contained in this Agreement,  and such failure is not cured within 30
days after written notice to the Borrower,  provided,  that no cure period shall
apply if such failure to perform is a breach pursuant to Section 7.1(B) hereof.

         B. The Borrower  shall  default in the payment of principal or interest
on the Note or any other fee, charge,  tax or other payment due under any of the
Loan Documents  (including,  without limitation,  premiums on insurance policies
required by this  Agreement)  when the same becomes due and payable,  whether on
maturity, acceleration, or otherwise.

         C. A  default  occurs  under  any  document   evidencing   Indebtedness
(including Indebtedness incurred after the date hereof) or any related document,
and is not cured or waived within the applicable grace period.

                                       23

<PAGE>

         D. Any representation or warranty made by the Borrower herein or in any
other Loan Document  shall prove to have been false or incorrect in any material
respect when made.

         E. The  Borrower  shall  (i)  discontinue  its  business,  (ii) make an
assignment  for the benefit of creditors,  (iii) fail generally to pay its debts
as such debts  become due,  (iv) apply for or consent to the  appointment  of or
taking  possession  by a  trustee,  receiver  or  liquidator  (or other  similar
official)  of the  Borrower  or any  substantial  part of the Assets or (v) take
action to dissolve or liquidate the Borrower.

         F. If,  within  sixty  (60) days  after the  commencement  against  the
Borrower  of a case  under the  federal  bankruptcy  laws,  as now or  hereafter
constituted, or any other applicable federal or state bankruptcy,  insolvency or
other similar law, (i) such case shall have been  consented to or shall not have
been dismissed or all orders or proceedings  thereunder affecting the operations
or the business of the Borrower stayed, or (ii) if the stay of any such order or
proceeding  shall  thereafter  be set aside or (iii) if within  sixty  (60) days
after the entry of a decree  appointing a trustee,  receiver or  liquidator  (or
other similar official ) of the Borrower or any substantial part of the property
of the Borrower, such appointment shall not have been vacated.

         G. An uninsured final judgment which, with other outstanding  uninsured
final judgments against the Borrower,  exceeds $50,000 shall be rendered against
the Borrower  unless such  judgment has been  appealed and an execution  thereof
stayed pending appeal or unless,  within sixty (60) days after the expiration of
any such stay, such judgment has been discharged,  or if any such judgment shall
not be discharged  forthwith upon the  commencement  of proceedings to foreclose
any Lien  which may  attach as  security  therefor  and before any of the Assets
shall have been seized in satisfaction thereof.

         H. A Material Adverse Change shall occur.

         I. A Change in Control shall occur.

         J. A  defined  Event  of  Default  shall  occur  under  any of the Loan
Documents.

7.2      Remedies Upon Default; Acceleration.  In case any one or more Events of
Default shall occur and be continuing:

         A. The  Lender,  at its sole  option and  discretion,  may  declare the
principal of and accrued  interest in respect of the Note to be immediately  due

                                       24

<PAGE>

and payable,  whereupon the principal of and accrued  interest in respect of the
Note  shall  become  immediately  due and  payable  without  notice of intent to
accelerate, notice of acceleration, presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by the Borrower; and

         B. The Lender  may  proceed to  protect  and  enforce  its rights by an
action at law, suit in equity or other appropriate  proceeding,  whether for the
specific  performance  of any  provision  contained  herein or in any other Loan
Document or for an injunction  against a violation of any of the terms hereof or
thereof,  or in aid of the exercise of any power granted hereby or thereby or by
law; and

         C. The Lender shall be entitled to any other remedy available at law or
under any of the Loan Documents.

                                    ARTICLE 8

                                  MISCELLANEOUS

8.1      Amendments, Etc. No amendment, modification,  termination, or waiver of
any  provision of any Loan Document to which the Borrower is a party nor consent
to any  departure by the Borrower  from any Loan Document to which it is a party
shall in any event be  effective  unless the same shall be in writing and signed
by the Lender and  RBS/USDA,  and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.

8.2      Notices,  Etc. All notices and other communications  provided for under
this  Agreement  and under the other Loan  Documents  to which the Borrower is a
party   shall   be  in   writing   (including   telefacsimile   or   telegraphic
communications) and faxed, mailed, telegraphed, or delivered

If to the Borrower:

                  NACO Industries, Inc.
                  395 West 1400 North
                  Logan, UT  84341
                  Attention:  Verne E. Bray

                                       25

<PAGE>

If to the Lender:

                  WebBank Corporation
                  P.O. Box 1831
                  136 Heber Avenue, Ste. 209
                  Park City, UT  84060-1831
                  Attention:  Douglas L. Hesse

                                    and

                  Parr Waddoups Brown Gee & Loveless
                  185 South State Street, Ste. 1300
                  Salt Lake City, UT  84111
                  Attention:  Douglas C. Waddoups

or, as to each party, at such other address as shall be designated by such party
in a written  notice to the other party  complying as to delivery with the terms
of this Section 8.2. All such notices and  communications  shall, when mailed or
telegraphed,  be  effective  when  deposited  in the mails or  delivered  to the
telegraph company,  respectively,  addressed as aforesaid,  and when faxed, when
machine  confirmation of receipt is acquired,  except that notices to the Lender
pursuant to the provisions of Article 3 shall not be effective until received by
the Lender.

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

8.4      Successors and Assigns.  This Agreement shall be binding upon and inure
to the benefit of the  Borrower and the Lender and their  respective  successors
and  assigns,  except that the  Borrower  may not assign or transfer  any of its
rights  under any Loan  Document to which the  Borrower  is a party  without the
prior written consent of the Lender and RBS/USDA. Notwithstanding the foregoing,
an assumption fee equal to one percent (1%) of the outstanding principal balance
shall  be paid  by the  Borrower  to the  Lender  upon  written  consent  of any
assignment.

8.5      Costs,  Expense,  and Taxes.  The Borrower  agrees to pay on demand all
costs and expenses in  connection  with the  preparation,  execution,  delivery,
filing,  recording,  administration and termination of any of the Loan Documents

                                       26

<PAGE>

including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Lender,  with  respect  thereto and with respect to advising the
Lender as to its rights and  responsibilities  under any of the Loan  Documents,
and all costs and expenses, if any, in connection with the enforcement of any of
the Loan Documents all as provided in the Loan commitment letter from the Lender
to the Borrower. In addition, the Borrower shall pay any and all stamp and other
taxes and fees  payable  or  determined  to be payable  in  connection  with the
execution,  delivery,  filing and recording of any of the Loan Documents and the
other  documents to be delivered  under any such Loan  Documents,  and agrees to
save the Lender harmless from and against any and all  liabilities  with respect
to or resulting from any delay in paying or omission to pay such taxes and fees.
Notwithstanding  the foregoing,  the Borrower  shall not be responsible  for the
Lender's  attorneys'  fees and costs incurred in connection with the preparation
of the Loan Documents and the Closing which exceed $10,000.

8.6      Governing  Law. This  Agreement  shall be governed by, and construed in
accordance with, the laws of the State of Utah, without reference to conflict of
law principles.

8.7      Severability of Provisions. Any provision of any Loan Document which is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating  the remaining  provisions of such Loan  Documents or affecting the
validity or enforceability of such provision in any other jurisdiction.

8.8      Headings.  Article  and  Section  headings  in the Loan  Documents  are
included in such Loan Documents for the  convenience of reference only and shall
not constitute a part of the applicable Loan Documents for any other purpose.

8.9      Survive Closing.  The covenants  contained  herein,  which obligate the
Borrower to perform any covenant following  closing,  shall be deemed to survive
the closing.

8.10     WAIVER OF JURY TRIAL. AS AN IMPORTANT INDUCEMENT TO THE LENDER TO ENTER
THIS  AGREEMENT,  THE  BORROWER  WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION
ARISING  UNDER OR IN ANY WAY RELATED TO THIS  AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.

8.11     Indemnification.  The  Borrower  and its  successors  and assigns  will
indemnify and hold  harmless  Lender,  its  directors,  officers,  shareholders,
agents, employees, servants, partners,  contractors, any person who controls the
Lender and  Lender's  successors  and assigns  (collectively,  the  "Indemnified

                                       27

<PAGE>

Persons") from and against any and all claims,  suits, costs,  damages,  losses,
liabilities,  judgments, and expenses (including, without limitation, attorney's
fees and litigation expenses) (collectively,  "Losses") which are incurred by or
asserted against any Indemnified Person in connection with or arising out of any
litigation, investigation, proceeding, or subpoena involving, or act or omission
of,  the  Borrower  or  its  Affiliates,   Subsidiaries,   directors,  officers,
shareholders,  agents, employees,  servants,  partners,  contractors,  invitees,
licensees,  successors, or assigns. Without limiting the foregoing, the Borrower
and its successors and assigns will indemnify and hold harmless the  Indemnified
Persons from and against any and all Losses  connected  with or arising from any
Hazardous  Discharge,  whether  such  discharge  occurred  before  or after  the
execution  of this  Agreement  or before or after  Lender  exercises  any of its
remedies  available  upon  default,  and from  and  against  any and all  losses
relating to any Environmental Complaint.

8.12     Jurisdiction.   Each  of  the  parties  hereto  hereby   expressly  and
irrevocably  submits to the  non-exclusive  personal  jurisdiction of the United
States  District  Court for the  District of Utah - Central  Division and to the
jurisdiction  of any other  competent  court of the State of Utah located in the
County of Salt Lake (collectively,  the "Utah Courts"), preserving, however, all
rights of  removal  to such  federal  court  under 28 U.S.C.  Section  1441,  in
connection with all disputes arising out of or in connection with this Agreement
or  the  transactions  contemplated  hereby  and  agrees  not  to  commence  any
litigation relating thereto except in such courts. If the aforementioned  courts
do not have subject matter jurisdiction, then the proceeding shall be brought in
any other  state or  federal  court  located  in the State of Utah,  preserving,
however,  all rights of removal to such  federal  court under 28 U.S.C.  Section
1441. Each party hereby waives the right to any other  jurisdiction or venue for
any  litigation  arising  out of or in  connection  with this  Agreement  or the
transactions  contemplated hereby to which any of them may be entitled by reason
of its present or future domicile.  Notwithstanding  the foregoing,  each of the
parties  hereto  agrees that each of the other  parties  shall have the right to
bring any action or proceeding for enforcement of a judgment entered by the Utah
Courts in any other court or jurisdiction,  including,  without limitation,  the
States of Kansas and California. Additionally, the foregoing shall not be deemed
to  prohibit  any party  hereto or any other  person or entity that may have the
right to enforce or sue under this  Agreement  from  commencing an action in any
court that may have jurisdiction.

8.13     Service of Process.  Each party irrevocably  consents to the service of
process outside the  territorial  jurisdiction of the Utah Courts referred to in
Section 8.12 hereof in any such action or proceeding by mailing  copies  thereof
by registered United States mail, postage prepaid,  return receipt requested, to
its address as  specified  in or pursuant  to Section 8.2 hereof.  However,  the
foregoing  shall not limit the right of a party to effect  service of process on
the other party by any other legally available method.

                                       28

<PAGE>

8.14     Other  Certification.  The Borrower shall execute such certification as
may be required by Lender and RBS/USDA from time to time.

            (The remainder of this page is intentionally left blank)

                                       29

<PAGE>

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

                                            THE BORROWER:

                                            NACO INDUSTRIES, INC.
                                            a Utah corporation

                                            By:  __________________________
                                            Title:  _________________________

                                            THE LENDER:

                                            WEBBANK CORPORATION
                                            a Utah corporation

                                            By:  __________________________
                                            Title:  _________________________

                               NOTICE TO BORROWER
                               ------------------

         THIS  WRITTEN  LOAN  AGREEMENT  IS THE  FINAL  EXPRESSION  OF THE  LOAN
AGREEMENT  BETWEEN  BORROWER AND LENDER.  THIS WRITTEN LOAN AGREEMENT MAY NOT BE
CONTRADICTED   BY   EVIDENCE  OF  ANY  PRIOR  ORAL  LOAN   AGREEMENT   OR  OF  A
CONTEMPORANEOUS ORAL LOAN AGREEMENT BETWEEN BORROWER AND LENDER.

         Affirmation of No Unwritten Oral Credit Agreements. Borrower and Lender
affirm by their initials below that no unwritten,  oral credit  agreement exists
between them.

            ----------                                  -----------
            Borrower's                                  Lender's
            Initials                                    Initials

                                       30

<PAGE>

                                 Schedule "4.8"
                                 --------------

                          PERMITTED SENIOR INDEBTEDNESS

                         [See document attached hereto.]

                                        i

<PAGE>

                                 Schedule "6.3"
                                 --------------

                                 CAPITALIZATION

                         [See document attached hereto.]

                                       ii

<PAGE>

                                 Schedule "6.4"
                                 --------------

                                 BROKERAGE FEES

                         [See document attached hereto.]

                                       iii

<PAGE>

                                 Schedule "6.5"
                                 --------------

                            ENVIRONMENTAL COMPLIANCE

                         [See document attached hereto.]

                                       iv

<PAGE>

                                 Schedule "6.17"
                                 ---------------

                        PATENTS, TRADEMARKS, AND LICENSES

                         [See document attached hereto.]

                                        v

<PAGE>

                                  Exhibit "2.3"
                                  -------------

                         WIRE TRANSFER INSTRUCTIONS AND
                       ACKNOWLEDGMENT OF RECEIPT OF FUNDS

                         [See document attached hereto.]

                                       vi

<PAGE>

                                  Exhibit "3.2"
                                  -------------

                             COMPLIANCE CERTIFICATE

Date:    _________________________

To:      WebBank  Corporation,  as the Lender under that certain Loan  Agreement
         dated as of April ____,  1999 (as  extended,  renewed or restated  from
         time  to  time,  the  "Loan   Agreement"),   between  Lender  and  NACO
         Industries, Inc. (the "Borrower").

         Capitalized  terms used herein shall be given the  respective  meanings
set forth in the Loan Agreement.

         Enclosed  herewith  is a  copy  of  the  [annual]  [quarterly]  [other]
financial statement (the "Statement") of the Borrower required by Section 3.1 of
the  Loan  Agreement.  The  undersigned,  as the  [president]  [chief  financial
officer] of the Borrower hereby certifies, represents and warrants to the Lender
that,  (i) for the  period  for  which  the  Statement  has been  prepared,  the
Statement fairly and accurately  presents the financial condition and results of
operations  of the Borrower and its  Subsidiaries,  if any, in  accordance  with
GAAP;  (ii) for the  period  for  which the  Statement  has been  prepared,  the
Borrower has fully complied with each financial  covenant set forth in Article 3
of the Loan Agreement;  and (iii) as of the date hereof, the Borrower is in full
compliance  with each  financial  covenant  set  forth in  Article 3 of the Loan
Agreement.

         The undersigned  further  certifies,  represents,  and warrants that no
Event of Default has occurred  and is  continuing  as of the date hereof  [other
than the  following:  [INSERT  DESCRIPTION  AND STEPS,  IF ANY,  BEING  TAKEN TO
CURE]].

                                   NACO INDUSTRIES, INC.

                                   By:      _____________________________
                                   Name:    _____________________________
                                   Title:   _____________________________

                                       vii

<PAGE>

                                  Exhibit "4.9"
                                  -------------

                                JOINDER AGREEMENT

         This  Joinder  Agreement  is  executed  by  ___________________________
("Subsidiary"), a newly created or acquired subsidiary of NACO Industries, Inc.,
a Utah corporation ("Borrower"),  pursuant to the requirements of Section 4.9 of
that  certain  Loan  Agreement   entered  into  between   Borrower  and  WebBank
Corporation,  a Utah corporation  ("Lender"),  as of the ____ day of April, 1999
(the "Loan Agreement").

         Subsidiary  hereby agrees to guarantee the payment and  performance  of
Borrower  under the Loan  Agreement  or under any other  document  or  agreement
executed  by  Borrower in  connection  therewith,  to become a party to the Loan
Agreement,  and to undertake  all  obligations  and to be bound to all covenants
that may be  applicable  to  Subsidiary  with  respect  to the  Loan  Agreement.
Subsidiary  further  agrees to grant a  security  interest  in all its assets to
Lender by separate agreement.

         Executed as of the ____ of ___________, _____.

                            By:__________________________________
                            Name:________________________________
                            Title:_________________________________

                                      viii

<PAGE>

                                  Exhibit "5.2"
                                  -------------

                                    THE NOTE

                         [See document attached hereto.]

                                       ix

<PAGE>

                                  Exhibit "5.3"
                                  -------------

                                  THE GUARANTY

                         [See document attached hereto.]

                                        x

<PAGE>

                                  Exhibit "5.4"
                                  -------------

                             THE SECURITY AGREEMENT

                         [See document attached hereto.]

                                       xi

<PAGE>

                                Exhibit "5.5(a)"
                                ----------------

                    OPINION LETTER OF THE BORROWER'S COUNSEL

                         [See document attached hereto.]

                                       xii

<PAGE>

                                Exhibit "5.5(b)"
                                ----------------

                OPINION LETTER OF THE LENDER'S CALIFORNIA COUNSEL

                         [See document attached hereto.]

                                      xiii

<PAGE>

                                Exhibit "5.5(c)"
                                ----------------

                  OPINION LETTER OF THE LENDER'S KANSAS COUNSEL

                         [See document attached hereto.]

                                       xiv

<PAGE>

                                 Exhibit "5.16"
                                 --------------

                                  THE MORTGAGE

                         [See document attached hereto.]

                                       xv

<PAGE>

                                 Exhibit "5.17"
                                 --------------

                        THE DEPOSIT AND ESCROW AGREEMENT

                         [See document attached hereto.]

                                       xvi

<PAGE>

                         ADJUSTABLE RATE PROMISSORY NOTE
                         -------------------------------

$1,100,000                                               Dated:  April ___, 1999

         FOR VALUE RECEIVED,  NACO INDUSTRIES,  INC., a Utah corporation with an
office at 395 West 1400 North, Logan, UT 84341 ("Maker"), promises to pay to the
order of WEBBANK  CORPORATION,  a Utah corporation  having an office at P.O. Box
1831, 136 Heber Avenue,  Suite 209, Park City, UT 84060-1831  (together with its
successors and assigns,  "Payee"),  at such office of Payee, or such other place
as Payee may  designate  from time to time in writing,  the principal sum of ONE
MILLION, ONE HUNDRED THOUSAND AND NO/100s DOLLARS ($1,100,000),  in lawful money
of the United States of America,  together  with interest  thereon from the date
hereof as follows:

                  1.       The  Note.
                           ----------

                           This Adjustable Rate Promissory Note (this "Note") is
being issued by Maker pursuant to a Loan  Agreement  dated as of the date hereof
by and  between  Payee  and  Maker (as  amended,  from  time to time,  the "Loan
Agreement"), and Payee's rights and Maker's obligations hereunder are subject to
the provisions of the Loan  Agreement.  Capitalized  terms used in this Note and
not  otherwise  defined  shall have the  meanings  given those terms in the Loan
Agreement.  Reference  to  the  Loan  Agreement  shall  in  no  way  impair  the
negotiability  hereof or the absolute and  unconditional  obligation of Maker to
pay both principal and interest hereon as provided herein. The principal balance
of the Note which is outstanding  and unpaid from time to time is referred to as
the "Principal Amount."

                  2.       Interest Rate.
                           --------------

                           a.  Note Rate;  Default  Rate. The  Principal  Amount
shall bear  interest  beginning on and  including  the date hereof at a variable
rate equal to The Wall Street  Journal Prime Interest Rate plus one and one-half
percent (1.5%) ("Note Rate"), provided,  however, that the Note Rate shall never
exceed 14.75% nor be less than 9.75%.  The initial Note Rate is 9.75% per annum.
While  an  Event  of  Default  (as  defined  hereinafter)  has  occurred  and is
continuing,  the Principal  Amount shall  immediately  and without notice accrue
interest at the lesser of The Wall Street  Journal Prime Interest Rate plus five
percent (5%) or the highest interest rate permitted by law (the "Default Rate").
Interest shall be calculated on the basis of a 360-day year and shall accrue for

                                        1

<PAGE>

the actual  number of days  elapsed.  The term "The Wall  Street  Journal  Prime
Interest  Rate" as used herein shall mean, as of any  particular  date, the rate
quoted as the "Prime  Rate" (or  comparable  reference  rate) in the Money Rates
Column of the Wall Street  Journal as  published on such day (or, if such day is
not a business day of the Lender,  as published on the most recent  business day
of the  Lender),  but if more  than one such rate is quoted on any such day then
the rate shall be the highest of such rates. In the event of the  discontinuance
of such  publication  or such section  thereof,  the Wall Street  Journal  Prime
Interest  Rate shall mean the average  monthly rate as reported and published in
the Federal Reserve Bulletin  published monthly by the Board of Governors of the
Federal Reserve System under the table styled "Prime Rate Charged by Banks Short
Term Business Loans." The rate of interest will be adjusted quarterly on January
1st,  April 1st, July 1st, and October 1st of each year or if such date is not a
business day on the next  following  business day (each such date an "Adjustment
Date"), which adjustment shall be effective on the next following payment date.

                           b.  Maximum  Rate.  Notwithstanding  anything  to the
contrary  contained herein,  the effective rate of interest  hereunder shall not
exceed the maximum  effective  rate of interest  permitted by applicable  law or
regulation.  If the amount of interest payable on any date under this Note would
exceed the maximum amount  permitted by applicable  law or regulation,  then the
amount of interest  payable on such date shall be reduced  automatically to such
maximum  amount.  If any  interest  or other  charge paid or payable by Maker in
connection with this Note results in charging, compensation,  payment or earning
of interest in excess of the maximum  allowed by applicable law or regulation as
aforesaid,  then any and all such excess shall be and the same is hereby  waived
by Payee,  and any and all such excess  previously  paid shall be  automatically
credited against and in reduction of the Principal Amount.

                  3.       Payments of Principal and Interest.
                           ----------------------------------

                           a.  The Principal  Amount and all  accrued and unpaid
interest shall be payable in full on April _____,  2014 (the  "Maturity  Date").
Beginning on June 1, 1999,  and  continuing  each month until the Maturity Date,
monthly  payments of principal  and  interest  shall be made on the first day of
each month, or if such date is not a business day on the next following business
day, in an amount  sufficient to fully  amortize the  Principal  Amount over the
remaining  time  period  before the  Maturity  Date.  The  monthly  payments  of
principal and interest will be made according to the Payment  Schedule  attached
as Exhibit A hereto  which  shall be revised by Payee and  provided to the Maker
within 15 business days after each  Adjustment Date and shall be incorporated by
reference  into and made a part of this Note upon receipt by Maker.  Any payment
of principal or interest  made more than fifteen (15) days after it is due shall
bear a late penalty of five percent (5%) of the late payment. Interest shall not
accrue on late penalties. All amounts of principal, interest, and late penalties
made hereunder  shall be paid by Maker by automated bank transfer in immediately

                                        2

<PAGE>

available and freely transferable funds. All payments shall be credited first to
late penalties,  second, to Payee's costs and expenses as provided in Section 13
hereof,  third,  to accrued and unpaid  interest,  and fourth,  to the Principal
Amount.

                           b.  Funds on Deposit. In all circumstances when Maker
has funds  available on deposit in the Escrow Account (as defined in the Deposit
and Escrow  Agreement  as defined  below)  maintained  pursuant to that  certain
Deposit and Escrow  Agreement (the "Deposit and Escrow  Agreement")  dated as of
the date hereof  among  Maker,  Payee,  and Payee in Payee's  capacity as Escrow
Agent ("Escrow Agent"),  Maker agrees and acknowledges that Payee shall have the
right  pursuant to Section 2(a) of the Deposit and Escrow  Agreement to instruct
Escrow Agent to release funds from the Escrow Account to make payments  required
under this Note.

                  4.       Prepayment Premium. Subject to the provisions of this
Section 4, the Principal Amount may be prepaid in whole or in part upon not less
than thirty (30) days' prior written  notice,  provided that each and every such
prepayment, whether made voluntarily or involuntarily because of acceleration of
the payment  date due to an Event of Default and  whether  made  directly by the
Borrower or otherwise, shall be accompanied by a prepayment premium as set forth
on the following table (the "Prepayment Premium"):

================================================================================
                   YEAR IN WHICH
                  PREPAYMENT MADE                      PREPAYMENT PENALTY
--------------------------------------------------------------------------------
First year following closing of Loan                  5% of amount prepaid
--------------------------------------------------------------------------------
Second year following closing of Loan                 4% of amount prepaid
--------------------------------------------------------------------------------
Third year following closing of Loan                  3% of amount prepaid
--------------------------------------------------------------------------------
Fourth year following closing of Loan                 2% of amount prepaid
--------------------------------------------------------------------------------
Fifth year following closing of Loan or               1% of amount prepaid
any year thereafter
================================================================================

The Maker agrees that the Prepayment  Premium has been freely bargained  between
the  parties  to  provide  the  Payee  with  compensation  for  the  loss of the
contracted-for return on the Loan, that the Prepayment Premium is not a penalty,
and that such Prepayment Premium is reasonable. The Payee's determination of the
Prepayment  Premium  shall be conclusive  and binding,  absent  manifest  error.
Prepayments  shall be credited first to Prepayment  Premiums,  second to Payee's
costs and  expenses  as  provided  in Section 13 hereof,  third,  to accrued and
unpaid interest, and fourth, to the Principal Amount.

                                        3

<PAGE>

                  5.       Events of Default. The occurrence or existence of any
one or more of the following  events or conditions  shall constitute an Event of
Default hereunder (each such occurrence or existence an "Event of Default"):

                           a.  Maker shall fail to pay any principal or interest
under this Note when due.

                           b.  A defined  Event of Default shall occur under the
Loan Agreement.

                  6.       Remedies.  Upon  the  occurrence  of and  during  the
continuation of any Event of Default,  Payee shall have the rights, and shall be
entitled to the  remedies,  set forth in the Loan  Agreement  and the other Loan
Documents,  which rights  include,  but are not limited to, the right to declare
the outstanding  Principal  Amount together with accrued  interest to be due and
payable immediately.

                  7.       Remedies Cumulative;  Waiver;  Jurisdiction;  No Jury
Trial.

                           a.  Remedies Cumulative. No right or remedy conferred
upon or reserved to Payee,  or now or hereafter  existing at law or in equity or
by statute or other  legislative  enactment,  is intended to be exclusive of any
other  right or  remedy,  and each  and  every  such  right or  remedy  shall be
cumulative and concurrent, and shall be in addition to every other such right or
remedy, and may be pursued singly, concurrently,  successively, or otherwise, at
the sole  discretion  of Payee,  and shall not be  exhausted by any one exercise
thereof but may be exercised as often as occasion  therefor shall occur.  No act
of Payee shall be deemed or  construed  as an election to proceed  under any one
such  right or  remedy  to the  exclusion  of any other  such  right or  remedy.
Furthermore, each such right or remedy of Payee shall be separate, distinct, and
cumulative  and none shall be given effect to the  exclusion  of any other.  The
failure to  exercise  or delay in  exercising  any such right or remedy,  or the
failure to insist upon strict  performance of any term of this Note shall not be
construed  as a waiver  or  release  of the  same,  or of any  event of  default
thereunder, or of any obligation or liability of Maker thereunder.

                           b.  Waiver  of  Notice,   etc.  Maker  hereby  waives
presentment  for payment,  demand of notice of  nonpayment,  protest,  notice of
protest,  or  other  notice  of  dishonor,  and  any and all  other  notices  in
connection with any default in the payment of, or any enforcement of the payment
of all amounts due under this Note. To the extent permitted by law, Maker waives
the right to any stay of execution and the benefit of all exemption  laws now or
hereafter in effect.

                                        4

<PAGE>

                           c.  Submission to  Jurisdiction.  Maker hereby agrees
that any  action or  proceeding  against  Maker to  enforce  this Note  shall be
commenced  in any court  having  jurisdiction  in the County of Salt Lake in the
State of Utah (the "Utah Courts") and Maker waives  personal  service of process
and agrees that a summons and  complaint  commencing  an action or proceeding in
any such court shall be properly served and shall confer  personal  jurisdiction
if  served  by  registered  or  certified  mail in  accordance  with the  notice
provisions set forth herein.  Notwithstanding the foregoing, each of the parties
hereto  agrees that each of the other  parties shall have the right to bring any
action or proceeding for enforcement of a judgment entered by the Utah Courts in
any other court or jurisdiction,  including,  without limitation,  the courts of
the states of California and Kansas.  Additionally,  the foregoing  shall not be
deemed to prohibit  any party hereto or any other person or entity that may have
the right to  enforce or sue under  this Note from  commencing  an action in any
court that may have jurisdiction.

                           d.  Service of Process. Maker irrevocably consents to
the service of process outside the  territorial  jurisdiction of the Utah Courts
in any such action or proceeding by mailing copies thereof by registered  United
States  mail,  postage  prepaid,  return  receipt  requested,  to its address as
specified in the first paragraph of this Note. However,  the foregoing shall not
limit the right of a party to effect  service of  process on the other  party by
any other legally available method.

                           e.  Waiver of Jury Trial. AS AN IMPORTANT  INDUCEMENT
TO THE PAYEE TO ENTER  THIS  AGREEMENT,  THE MAKER  WAIVES THE RIGHT TO TRIAL BY
JURY IN ANY ACTION  ARISING  UNDER OR IN ANY WAY  RELATED TO THIS NOTE OR ANY OF
THE OTHER LOAN DOCUMENTS.

                  8.       Guaranty;  Security.  Payment and performance of this
Note is  guaranteed  by Verne E. Bray and  Beverly  Bray  pursuant to a Guaranty
dated as of the date hereof. This Note is secured by a Security Agreement by and
between  Maker and Payee and dated as of the date  hereof,  by a Mortgage by and
between  Maker  and Payee  dated as of the date  hereof,  and by an  Escrow  and
Deposit Agreement by and between Maker and Payee dated as of the date hereof.

                  9.       Severability.  If for any  reason  one or more of the
provisions of this Note or their application to any person or circumstance shall
be held to be  invalid,  illegal,  or  unenforceable  in any  respect  or to any
extent,  such provisions shall nevertheless remain valid, legal, and enforceable
in all  such  other  respects  and to  such  extent  as may be  permissible.  In
addition, any such invalidity,  illegality, or unenforceability shall not affect
any other  provisions of this Note,  but this Note shall be construed as if such
invalid, illegal, or unenforceable provision had never been contained herein.

                                        5

<PAGE>

                  10.      Successors  and  Assigns.  This  Note  inures  to the
benefit of Payee and binds Maker, and their  respective  successors and assigns,
and the words "Payee" and "Maker" whenever  occurring herein shall be deemed and
construed to include such respective successors and assigns.

                  11.      Notices.  All notices  required to be given to any of
the parties hereunder shall be given as provided in the Loan Agreement.

                  12.      Captions.  The captions or headings of the paragraphs
in this  Note are for  convenience  only and  shall not  control  or affect  the
meaning or construction of any of the terms or provisions of this Note.

                  13.      Reimbursement  of  Expenses.  Maker  shall  reimburse
Payee  for the  reasonable  costs  and  expenses  incurred  by Payee  (including
reasonable   attorneys'  fees,   advisory  and  consulting   fees,   travel  and
communication expenses, and reproduction costs) in connection with this Note and
all reasonable costs and expenses incurred in amending,  modifying, or enforcing
this Note.

                  14.      Governing  Law.  This Note shall be  governed  by and
construed  in  accordance  with the  internal  laws of the State of Utah without
regard to conflict of law principles.

                  [Remainder of Page Left Blank Intentionally]

                                        6

<PAGE>

         IN WITNESS WHEREOF, Maker has executed this Note as of the day and year
first above written.

                                      NACO INDUSTRIES, INC.
                                      a Utah corporation

                                      By: _____________________________

                                      Its: _____________________________

                                        7

<PAGE>

                                    Exhibit A
                                    ---------

                                       to

                         ADJUSTABLE RATE PROMISSORY NOTE

                         -------------------------------

                                Payment Schedule

         Initial  payments under this Note will be made monthly in the amount of
$11,653.01.  Payee will provide Maker an updated Payment Schedule as provided in
Section 3(a) of the Note.

                                        8

<PAGE>

                               SECURITY AGREEMENT
                               ------------------

         THIS SECURITY AGREEMENT (the "Security  Agreement") is made as of April
__, 1999, by NACO Industries, Inc. a Utah corporation, with principal offices at
395 West  1400  North,  Logan,  Utah  84341  ("Debtor"),  in  favor  of  WEBBANK
CORPORATION,  a Utah  corporation,  with offices at 136 Heber Avenue,  Ste. 209,
P.O. Box 1831, Park City, Utah 84060-1831 ("Lender" or "Secured Party").

                                    RECITALS
                                    --------

         A. Pursuant to that certain Loan Agreement of even date herewith by and
between Debtor and Lender (the "Loan  Agreement")  Lender has advanced a loan to
Debtor (the "Loan"),  as evidenced by that certain  Adjustable  Rate  Promissory
Note dated of even date herewith (as amended,  modified or restated from time to
time, the "Note"); and

         B. It is a  condition  to  Lender's  willingness  to make the Loan that
Debtor has entered into this Security Agreement.

                                    AGREEMENT
                                    ---------

         NOW THEREFORE,  to induce Lender to make the Loan, and in consideration
of the  mutual  covenants  herein  contained,  and for other  good and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, Debtor and Lender hereby agree as follows:

                  1.       Definitions.  All  capitalized  terms  not  otherwise
defined  herein  shall  have  the  meaning  ascribed  to such  terms in the Loan
Agreement  except as the context  requires  otherwise.  For the purposes of this
Security Agreement, the following terms shall have the following meanings:

                           a. "Books and  Records"  means all of Debtor's  books
and records, including, but not limited to, records indicating,  summarizing, or
evidencing  the  Collateral,  the Secured  Obligations,  and Debtor's  property,
business  operations,  or financial condition,  computer runs, invoices,  disks,
cd-roms, tapes, processing software, processing contracts (such as contracts for
computer  time  and  services)  and any  computer-prepared  information,  disks,
cd-roms, tapes, or data of every kind and description, whether in the possession
of Debtor or in the possession of third parties.

                                        1

<PAGE>

                           b. "Collateral"  means all  tangible  and  intangible
property  owned by Debtor or in which Debtor has an interest,  whether now owned
or hereafter acquired,  including, but not limited to, Debtor's interest now and
in the future in the following types or items of property:

                                    (1)  Accounts:   All  presently   owned  and
hereafter  acquired  accounts,  accounts  receivable,  contract  rights,  bills,
acceptances,  and other forms of obligations  arising out of the sale,  lease or
consignment  of goods or the rendition of services by Debtor;  together with any
property  evidencing  or relating to the Accounts  (such as  guaranties,  credit
insurance,  Letters of Credit),  any  security for the  Accounts,  all Books and
Records relating  thereto,  and all Proceeds of any of the foregoing,  including
returned or reclaimed inventory;

                                    (2)  Inventory:   All  presently  owned  and
hereafter  acquired inventory of every nature,  kind, and description,  wherever
located,  including,  without limitation, raw materials, goods, work in process,
finished goods, parts or supplies; all goods and property held for sale or lease
or to be  furnished  under  contracts  of service;  and all goods and  inventory
returned,  reclaimed or  repossessed,  together  with all Proceeds of any of the
foregoing;

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

                                    (4)  Chattel Paper: All presently  owned and
hereafter acquired chattel paper, including,  but not limited to, any writing or
writings which evidence both a monetary obligation and a security interest in or
a lease of specific goods, together with all Proceeds of any of the foregoing;

                                    (5)  General Intangibles:All presently owned
and hereafter acquired general intangibles,  including,  without limitation, any
"general intangible" as that term is defined in the Uniform Commercial Code, any
software products,  any personal property,  choses in action,  causes of action,
designs,  plans, goodwill,  tax refunds,  licenses,  franchises,  IP Collateral,
trade agreements, customer lists and all rights under license agreements for use
of the same, together with all Proceeds of any of the foregoing;

                                        2

<PAGE>

                                    (6)  Instruments:  All  presently  owned and
hereafter  acquired  instruments,   including,   without  limitation,  bills  of
exchange,  notes, and all negotiable instruments,  all certificated  securities,
all  certificates of deposit and any other writing that evidences a right to the
payment  of money and is not itself a  security  agreement  or lease and is of a
type that is in the ordinary course of business transferred by delivery with any
necessary  endorsement or  assignment,  together with all Proceeds of any of the
foregoing;

                                    (7)  Documents:   All  presently  owned  and
hereafter acquired documents,  including, but not limited to, documents of title
(as  that  term is  defined  in the  Uniform  Commercial  Code)  and any and all
receipts,  including,  but not limited to,  receipts  of the kind  described  in
Article 7 of the Uniform  Commercial Code,  together with all Proceeds of any of
the foregoing;

                                    (8)  Letters of Credit: All presently  owned
and hereafter  acquired  letters of credit,  including,  but not limited to, any
written  undertaking to pay money  conditioned  upon  presentation  of specified
documents,  and advices of letters of credit,  together with all Proceeds of any
of the foregoing; and

                                    (9)  Proceeds:   All  presently   owned  and
hereafter acquired  proceeds,  as that term is defined in the Uniform Commercial
Code, including,  without limitation,  whatever is received upon the use, lease,
sale, exchange,  collection,  any other utilization or any disposition of any of
the  Collateral  described in this section 1(b),  whether cash or non-cash,  all
rental or lease  payments,  accounts,  chattel  paper,  instruments,  documents,
contract  rights,  general  intangibles,  equipment,  inventory,  substitutions,
additions, accessions,  replacements, products, and renewals of, for, or to such
property and all insurance therefor.

                                    (10) The  Escrow  Account:  All of  Debtor's
interest in and to the deposit and escrow  account  established  and  maintained
pursuant to that certain Deposit and Escrow Agreement among Debtor,  Lender, and
Escrow Agent dated of even date herewith.

                           c. "Loan  Documents"   means  collectively,  the Loan
Agreement,  the  Note,  all  credit  accommodations,   notes,  loan  agreements,
guarantees,  security  agreements,  mortgages,  instruments,  pledge agreements,
assignments,  acceptance  agreements,  commitments,   facilities,  reimbursement
agreements and any other agreements, documents and instruments, now or hereafter
existing, creating, evidencing,  guarantying, securing or relating to any or all
of  the  Secured  Obligations,  together  with  all  amendments,  modifications,
renewals, or extensions thereof.

                                        3

<PAGE>

                           d. "Event of  Default"  means any Event of Default as
defined in the Loan Agreement which is not cured within the cure period, if any,
provided in the Loan  Agreement or any Event of Default as defined in any of the
other Loan Documents,  (ii) failure of Debtor to pay any sum due pursuant to any
of the Secured Obligations as and when due, whether by stated maturity,  demand,
acceleration   or   otherwise,   or  (iii)  any  breach  or   violation  of  any
representation, warranty, covenant or term of this Security Agreement.

                           e. "IP Collateral" means any and all patents,  patent
applications and related filings, trademarks (both registered and unregistered),
trademark  applications and related filings,  service marks (both registered and
unregistered),  service  mark  applications  and related  filings,  trade names,
know-how and trade  secrets,  copyrights,  copyright  registrations  and related
filings, computer software,  programs and technology, and all other intellectual
property and proprietary rights, and shall include without limitation all of the
Debtor's right, title and interest in and to:

                                    (1)  all of its now  owned  or  existing  or
hereafter  acquired  trademarks,   service  marks,  trademark  or  service  mark
applications,  whether the foregoing are domestic (state or federal) or foreign,
including,  without limitation, each mark, registration,  and application listed
on Schedule A, attached hereto and made a part hereof, and (A) renewals thereof,
(B) all income,  royalties,  damages and payments  hereafter due and/or  payable
with respect thereto,  including,  without  limitation,  damages and payment for
past, present or future  infringements  thereof,  (C) the right to sue for past,
present and future infringements  thereof, (D) all rights corresponding  thereto
throughout the world, (E) the Trademark License Rights, as hereinafter  defined,
(F)  trade  dress,  (G) all  customer  and  other  lists  related  to any of the
foregoing,  (H)  together in each case with the  goodwill  of Debtor's  business
connected  with  the use of,  and  symbolized  by any of the  foregoing  and (I)
Debtor's  entire  right,  title  and  interest  in,  to and  under  all  license
agreements  with any person or entity,  whether  Debtor is  licensor or licensee
under any such license agreement,  including,  without limitation,  the licenses
listed on Schedule A (the  "Trademark  License  Rights," and  together  with all
other interests described in this clause (1), the "Trademark Collateral");

                                    (2)  all of its now  owned  or  existing, or
hereafter acquired  inventions  (whether  patentable or not), patents and patent
applications,  whether the foregoing be domestic or foreign,  including  without
limitation the inventions and improvements  described and claimed therein, those
patents  listed on Schedule B which is attached  hereto and made a part  hereof,
and  together  with  (A)  the  reissues,  divisions,  continuations,   renewals,
extensions and continuations-in-part thereof, (B) all income, royalties, damages
and payments now or hereafter due and/or payable with respect thereto, including

                                        4

<PAGE>

without   limitation   damages  and  payments   for  past,   present  or  future
infringements  thereof,  (C) the  right  to sue for  past,  present  and  future
infringements  thereof,  (D) all rights  corresponding  thereto  throughout  the
world,  and (E) all rights as licensor or licensee  with respect to any patents,
patent  applications  and  rights  thereto  and  thereunder,  including  without
limitation  the  licenses  listed on  Schedule  B (such  rights as  licensor  or
licensee, collectively, the "Patent License Rights," and together with all other
interests described in this clause (2), the "Patent Collateral"); and

                                    (3)  all of its now owned  or  existing,  or
hereafter acquired copyrights, copyright registrations, whether the foregoing be
domestic or foreign,  including without  limitation each copyright  registration
listed on  Schedule  C which is  attached  hereto  and made a part  hereof,  and
together with (A) the derivatives  thereof, (B) all income,  royalties,  damages
and payments now or hereafter due and/or payable with respect thereto, including
without   limitation   damages  and  payments   for  past,   present  or  future
infringements  thereof,  (C) the  right  to sue for  past,  present  and  future
infringements  thereof,  (D) all rights  corresponding  thereto  throughout  the
world,  (E) all rights as licensor or licensee  with respect to any  copyrights,
copyright  registrations  and rights thereto and thereunder,  including  without
limitation  the  licenses  listed on  Schedule  C (such  rights as  licensor  or
licensee,  collectively,  the "Copyright  License Rights," and together with all
other interests described in this clause (3), the "Copyright Collateral");

                           f. "Secured  Obligations"  shall mean,  collectively,
the principal of and interest on the Loan, the Note, and all other amounts owing
to the  Lender  by Debtor  under,  the Loan  Agreement,  the Loan  Documents  or
hereunder; and

                           g. "Uniform  Commercial  Code" shall mean the Uniform
Commercial Code as in effect in the State of Utah from time to time.

                  2.       Security  Interest.  As  security  for  the  due  and
punctual  payment  and  full and  complete  performance  of each of the  Secured
Obligations, Debtor hereby grants to Lender for the benefit of the Secured Party
a security  interest in and general lien upon all of Debtor's  right,  title and
interest in and to all the Collateral and any part thereof.

                  3.       Representations and Warranties. Debtor represents and
warrants to Lender for the benefit of the Secured Party,  which  representations
and warranties shall be continuing  representations  and warranties until all of
the Secured Obligations are satisfied in full, as follows:

                           a. Locations.   The chief  place of  business,  chief
executive  offices and the office(s) where Debtor's  records are kept concerning

                                        5

<PAGE>

accounts,  contract rights and other similar Collateral, and the locations where
its inventories,  goods,  equipment,  fixtures and other similar  Collateral are
kept,  are as set  forth on  Schedule  D  attached  hereto,  and as set forth on
Schedule D, Borrower either owns such premises free and clear of any mortgage or
other  liens and  encumbrances,  except as set forth on Schedule D, or it leases
such premises from the record owner identified on Schedule D.

                           b. Trade  names.   It  conducts  business  under  and
through its legal name as set forth on the signature  page hereto,  and no other
names, except as set forth on Schedule D attached hereto.

                           c. Authority.   Debtor is duly  organized and validly
existing  and in good  standing  under  the  laws of the  State  of Utah  and is
qualified and licensed to do business in those  jurisdictions  where the conduct
of its business or  ownership of its  properties  requires  such  qualification.
Debtor  has the power and  authority  to own the  Collateral,  to enter into and
perform this Security Agreement and any other documents or instruments  executed
in connection herewith, and to incur the Secured Obligations.

                           d. Duly  Authorized;  Not in Violation  of Law.  This
Security Agreement and any other documents or instruments executed in connection
herewith have been duly authorized,  executed, and delivered, and constitute the
legal, valid, and binding  obligations of Debtor,  enforceable against Debtor in
accordance with their respective  terms.  This Security  Agreement and any other
documents and  instruments  executed in connection  herewith do not and will not
violate any law, the charter, organizational documents, or by-laws of Debtor, or
any other  agreement or instrument to which Debtor or any of its property may be
bound or subject.

                           e.       No Consents Necessary.
                                    ---------------------

                                    (1)  No consent or approval of any person or
entity, including,  without limitation,  any debt or equity holder of Debtor, or
of any public  authority,  is necessary  for the valid  execution,  delivery and
performance of this Security  Agreement by Debtor, or any document or instrument
executed in connection herewith.

                                    (2)  Except  for  the   recording   of  this
Security  Agreement  with the United States Patent and Trademark  Office and the
United States  Copyright Office (with respect to the Trademark  Collateral,  the
Patent  Collateral  and the  Copyright  Collateral)  and the  filing of  Uniform
Commercial  Code  financing  statements  naming Debtor as "debtor" and Lender as
"secured party" in the appropriate  filing offices,  no authorization,  consent,
approval or other action by, and no notice to or filing or recording  with,  any
governmental,  administrative  or  judicial  authority  or  regulatory  body  is
currently or is reasonably expected to be required either  (A)  for the grant by

                                        6

<PAGE>

Debtor of the liens and security  interests granted hereby or for the execution,
delivery or  performance  of this Security  Agreement by Debtor,  or (B) for the
perfection of or the exercise by Lender of its rights and remedies hereunder.

                           f.       Rights in Collateral.
                                    --------------------

                                    (1)  Debtor  has  the  right  to  grant  the
security  interests  created by this Security  Agreement.  The Collateral is not
subject to liens, claims or encumbrances,  licenses or similar interests except:
(A) as  otherwise  disclosed  on  Schedule  A  (with  respect  to the  Trademark
Collateral), Schedule B (with respect to Patent Collateral) and Schedule C (with
respect to the Copyright  Collateral);  (B) the liens and encumbrances of Lender
or as is otherwise set forth on Schedule E made a part hereto.

                                    (2)  Set forth on Schedule A, Schedule B and
Schedule C are complete and accurate  lists of all Trademark  License Rights and
other Trademark Collateral and Patent License Rights and other Patent Collateral
and  Copyright  Rights and other  Copyright  Collateral  respectively,  owned by
Debtor.

                           g.       Regarding the IP Collateral.
                                    ---------------------------

                                    (1)  Each  item  of   Trademark   Collateral
identified on Schedule A, each item of Patent Collateral  identified on Schedule
B, and each item of Copyright Collateral identified on Schedule C, is subsisting
and has not been adjudged  invalid or  unenforceable,  in whole or in part,  and
each such item is, to the best of  Debtor's  knowledge,  validly  registered  or
registerable  and enforceable  and subject to no claims or adverse  limitations.
Debtor has notified the Lender in writing of: (A) all prior uses of any material
item of  Trademark  Collateral  of which Debtor is aware that could lead to such
items becoming invalid or  unenforceable,  including prior  unauthorized uses by
third parties;  (B) any  infringement on any proprietary  right or default under
any IP Collateral; and (C) prior uses or publications of any material item of IP
Collateral  of which  Debtor is aware which  could lead to Debtor's  interest in
such item becoming  invalid or  unenforceable,  including any publication or use
which might place the work in the public domain.

                                    (2)  The Trademark  License  Rights  and the
Patent  License Rights are in full force and effect and Debtor is not in default
of any of the foregoing  License Rights and no event has occurred with notice or
the passage of time,  or both,  might  constitute  a material  default by Debtor
under the foregoing license rights.

                                        7

<PAGE>

                           h.       Materially Misleading Statements.
                                    ---------------------------------0

                                    No  representation,  warranty  or  statement
made herein, on any Schedule hereto or in any certificate or document  furnished
or to be furnished pursuant hereto contains or will contain any untrue statement
of  material  fact or omits  or will  omit  any  fact  necessary  to make it not
misleading in any material respect.

                                    (1)  No Fictitious  Names.  Debtor  does not
operate or issue invoices under any name other than the name(s) set forth on the
signature page hereof.

                  4.       Further Assurances; Filing.

                           a.       Delivery   of   Documents;   Inspection   of
Collateral. At any time and from time to time, upon the demand of Lender, Debtor
will, at Debtor's expense:  (i) immediately deliver and pledge to Lender for the
benefit of the Secured Party,  properly endorsed to Lender and/or accompanied by
such instruments of assignment and transfer in such form and substance as Lender
may request, any and all instruments,  documents, and/or chattel paper as Lender
may specify in demand;  (ii) give,  execute,  deliver,  file,  and/or record any
notice, statement, instrument,  assignment, document, agreement, or other papers
that may be necessary  or  desirable,  or that Lender may  request,  in order to
create,  preserve,  perfect,  or validate any security interest granted pursuant
hereto or intended to be granted  hereunder  or to enable  Lender to exercise or
enforce  for the  benefit  of the  Secured  Party its rights  hereunder  or with
respect to such security interest;  (iii) keep, stamp, or otherwise mark any and
all documents, Instruments, Chattel Paper, and its Books and Records relating to
the  Collateral  in such manner as Lender may  reasonably  require;  and/or (iv)
permit  representatives  and agents of Lender access to its premises at any time
reasonably  requested  by Lender to  inspect  the  Collateral  and the Books and
Records and to audit and make abstracts from the Books and Records.

                           b.       Filing of Financing  Statement.  At the sole
option of  Lender,  and  without  Debtor's  consent,  Lender  may file a carbon,
photographic or other  reproduction of this Security  Agreement or any financing
statement executed pursuant hereto as a financing  statement in any jurisdiction
so  permitting  or as a  registration  of Lender's  interest as to any of the IP
Collateral  in any office so  permitted.  Without the prior  written  consent of
Lender,  Debtor  will  not  file or  authorize  or  permit  to be  filed  in any
jurisdiction  any such  financing or like statement in which Lender is not named
as the sole secured party.

                           c.       Lender  Collateral   Custody  Duties.   With
respect to the Collateral,  or any part thereof, which at any time may come into
the  possession,  custody or under the  control of Lender or any of its  agents,

                                        8

<PAGE>

associates or  correspondents,  Debtor hereby  acknowledges  and agrees that the
sole duty of Lender  with  respect  to the  custody,  safekeeping  and  physical
preservation  of such  Collateral,  whether  pursuant  to  Section  9-207 of the
Uniform  Commercial  Code or  otherwise,  shall  be to deal  with it in the same
manner as it deals with similar  property for its own account.  Neither  Lender,
nor any of its directors, officers, employees, affiliates, agents, associates or
correspondents  shall be liable for failure to demand,  collect or realize  upon
any of the Collateral or for any delay in doing so.

                  5.       Covenants.  Debtor  hereby  covenants and agrees that
for as long as any Secured Obligations are outstanding:

                           a. Defense of  Collateral.   Debtor  shall defend the
Collateral against all claims and demands of all persons or entities at any time
claiming any interest therein other than those of Lender.

                           b. Notice of Changes in  Location of Chief  Executive
Office, Residence,  Books and Records,  Collateral.  Debtor shall provide Lender
with immediate written notice of: (i) any intended change in the chief executive
office or residence of Debtor,  and/or the office  where  Debtor  maintains  its
Books and Records;  (ii) the location or movement of any  Collateral,  excluding
movement of motor  vehicles in the normal course of business to or at an address
other than Debtor's address as set forth on the signature page hereof; and (iii)
the creation or acquisition  of any  additional IP  Collateral.  If any such new
location is on leased or mortgaged  premises,  then Debtor will furnish  Lender,
prior to the effective date of any such change,  with  landlord's or mortgagee's
waivers pertaining to such premises in form and substance satisfactory to Lender
in its sole discretion.

                           c. Prompt   Payment of Taxes;  Delivery  to Lender of
Proof of Payment.  Debtor  shall  promptly  pay any and all taxes,  assessments,
and/or  governmental  charges  upon the  Collateral  on the  dates  such  taxes,
assessments,  and/or  governmental  charges are due and  payable,  except to the
extent that such taxes, assessments,  and/or charges are contested in good faith
by Debtor  by  appropriate  proceedings  and for  which  Debtor  is  maintaining
adequate reserves.  Upon request of Lender,  Debtor shall deliver to Lender such
receipts and other proofs of payment as Lender may reasonably request.

                           d. Delivery  of   Instruments,    Chattel  Paper  and
Documents of Title. Immediately upon receipt of any and all Instruments, Chattel
Paper,  and/or  documents  of title  (including  bills of lading  and  warehouse
receipts),  Debtor shall deliver such Collateral to Lender and shall execute any
form of assignment or  endorsement  reasonably  requested by Lender with respect
thereto.

                                        9

<PAGE>

                           e. Notice of  Adverse  Changes,   Events of  Default,
Seizures and Institution of Litigation.  Debtor shall immediately  notify Lender
of: (i) the occurrence of any event or circumstance that is reasonably likely to
result  in a  Material  Adverse  Change  (as  defined  in the  Loan  Agreement),
including, without limitation, any loss of or damage to any Collateral; (ii) the
occurrence of an Event of Default; (iii) any seizure of the Collateral; (iv) any
claim or alleged claim of third parties to the Collateral that, either singly or
in the  aggregate,  is  reasonably  likely  to have a  Material  Adverse  Change
(including,  without limitation,  any loss of or damage to any Collateral);  and
(v) the institution of any litigation,  arbitration,  governmental investigation
or  administrative  proceedings  against  or  affecting  Debtor  or  any  of the
Collateral that, if adversely determined, is reasonably likely, either singly or
in the aggregate, to result in an Event of Default or to have a Material Adverse
Change.

                           f. Insurance.  Debtor shall maintain insurance at all
times with respect to the  Collateral  (including  all  risk-extended  coverage)
against  the  risks of fire,  theft and such  other  risks,  including,  without
limitation, liability, errors and omissions and business interruption, as Lender
may require,  containing such terms, in such form and amounts,  for such periods
and written by such  companies  as are  acceptable  to Lender in its  reasonable
discretion.  All such policies of insurance shall name Lender for the benefit of
the Lender as lender/loss  payee and shall provide for not less than thirty (30)
days' prior written  notice to Lender of intended  cancellation  or reduction in
coverage.  Upon request of Lender, Debtor shall furnish Lender with certificates
or other  evidence  satisfactory  to Lender  of  compliance  with the  foregoing
insurance  provisions.  Lender  shall  have  the  right  (but  shall be under no
obligation)  to pay any of the premiums on such  insurance and all such payments
made by Lender shall become part of the Secured Obligations and be considered an
advance at the highest  rate of  interest  provided  for in the Loan  Documents.
Debtor  expressly  authorizes  its  insurance  carriers  to pay  proceeds of all
insurance  policies  covering  all or any  part of the  Collateral  directly  to
Lender.

                           g. Disposition  of  Collateral.    Debtor  shall  not
license,  sell,  offer to sell,  otherwise  assign  or  permit  the  involuntary
transfer of, or disposition of the Collateral or any interest  therein,  without
the prior written consent of Lender;  provided,  however, that unless, following
(i) a  demand  for  payment  under  the  Loan  Agreement  or  Note,  or (ii) the
occurrence of an Event of Default, or (iii) Lender or any Lender notifies Debtor
otherwise,  Debtor may sell its Inventory or grant nonexclusive  licenses in the
ordinary course of its business.

                           h. Security  Interests in  Collateral.   Debtor shall
keep the Collateral free from any lien,  security interest or encumbrance except

                                       10

<PAGE>

(i) those set forth on  Schedule E hereto and (ii) those in favor of Lender,  in
good order and repair,  reasonable wear and tear excepted, and will not waste or
destroy the Collateral or any part thereof.  If reasonably  requested by Lender,
Debtor shall give notice of Lender's security interests in the Collateral to any
third  person  with  whom  Debtor  has any  actual  or  prospective  contractual
relationship or other business dealings.

                           i. Collateral   Not to Be Used in  Violation of Laws.
Debtor shall not use the  Collateral  or any of its property in violation of any
law, statute, regulation, or ordinance.

                           j. Compliance with Laws.  Debtor shall continue to be
in compliance with all applicable laws, statutes, rules, and regulations.

                           k. Maintenance,  Inspection  of  Books  and  Records.
Debtor shall maintain complete and accurate Books and Records in accordance with
generally  accepted  accounting  principles  in effect in the United States from
time to time, and shall make all necessary entries therein to reflect the costs,
values and locations of its Inventory and Equipment and the transactions  giving
rise to its Accounts and all payments,  credits and adjustments thereto.  Debtor
shall  keep  Lender  fully  informed  as to the  location  of all such Books and
Records and shall permit Lender and its authorized agents to have full, complete
and unrestricted  access thereto at all reasonable  times to inspect,  audit and
make copies of any and all such Books and  Records,  at Lender's  sole  expense.
Lender's rights  hereunder shall be enforceable at law or in equity,  and Debtor
consents  to the entry of  judicial  orders or  injunctions  enforcing  specific
performance of such obligations hereunder.

                           l. Assignment of United States  Accounts.   If any of
the  Accounts  arise  out of  contracts  with the  United  States  or any of its
departments, agencies or instrumentalities,  Debtor shall immediately notify and
identify same to Lender,  and shall  promptly  execute and deliver to Lender for
the benefit of the Secured  Party an assignment of claims for such Accounts in a
form reasonably  acceptable to Lender, and shall take all steps deemed necessary
or desirable by Lender to protect  Lender's  interest  therein under the Federal
Assignment of Claims Act or any similar law or regulation.

                           m. Maintenance  and   Inspection  of   Equipment  and
Inventory.  With respect to Equipment  and  Inventory,  Debtor  shall:  (i) keep
accurate books and records with respect thereto, including,  without limitation,
maintenance  records and current  stock,  and cost and sales records  accurately
itemizing the types and quantities thereof; (ii) upon request, deliver to Lender
all evidence of ownership in such  Collateral,  including  certificates of title

                                       11

<PAGE>

with Lender's  interests  appropriately  noted on the certificate;  (iii) permit
Lender and its  authorized  agents to inspect  any or all of the  Inventory  and
Equipment at all reasonable times; and (iv) preserve the Inventory and Equipment
in good condition and repair, and pay the cost of all replacement parts, repairs
to and maintenance of the Inventory and Equipment.

                           n. Assignment of Accounts.   Following (i) demand for
payment under the Loan  Agreement or Note, or (ii) the occurrence of an Event of
Default,  and  upon  request  by  Lender,  Debtor  shall  promptly  give  Lender
assignments,  in a form acceptable to Lender, of all Accounts,  all original and
other documents evidencing a right to payment of Accounts, financial statements,
agings, reports, lists of account debtors, copies of purchase orders,  invoices,
contracts,  shipping and delivery  receipts and such other data  concerning  the
Accounts as Lender may  request.  Debtor  agrees that Lender and its  authorized
agents shall at all times have the right to confirm  orders and to verify any or
all of the Accounts in Lender's name, or in any  fictitious  name used by Lender
for verifications.

                           o.      Continuing of Perfected Status of Collateral.

                                   (1)   Debtor agrees to cooperate and join, at
its  expense,  with  Lender  in  taking  such  steps  as are  necessary,  in the
reasonable  judgment of Lender,  to perfect or continue the perfected  status of
the security  interests  granted  herein,  including,  without  limitation,  the
execution  and  delivery of any  financing  statements,  amendments  thereto and
continuation statements, the delivery of Chattel Paper, Documents or Instruments
to Lender,  the  obtaining of landlords'  and  mortgagees'  waivers  required by
Lender,  the  notation of  encumbrances  in favor of Lender on  certificates  of
title,  prompt  registration of all copyrights with the United States  Copyright
Office,  prompt registration of all trademarks with the United States Patent and
Trademark Office, and the execution and filing of any collateral assignments and
any other Instruments  requested by Lender to perfect its security  interests in
any and  all of  Debtor's  patents,  trademarks,  service  marks,  trade  names,
copyrights and other General Intangibles  including,  without  limitation,  with
respect to the  issuance  of any  patents  pursuant to any now pending or future
patent applications. Lender is expressly authorized to file financing statements
without Debtor's signature.

                                    (2)  Following indefeasible  payment in full
of all Secured  Obligations,  Lender  agrees to cooperate  and join, at Debtor's
expense, in executing and delivering all documents and taking all actions as are
necessary  to  release  and  terminate   Lender's  security   interests  in  and
assignments of the Collateral.

                                       12

<PAGE>

                           p. Joinder by  Subsidiaries.  Debtor  agrees to cause
any and all  subsidiaries  that may be  acquired  at any time during the term of
this Security Agreement to sign a joinder to this Security Agreement.

                  6.       General Authority.

                           a. Lender  as   Attorney-in-Fact.     Debtor   hereby
irrevocably appoints Lender (and any of its attorneys,  officers,  employees, or
agents) as its true and lawful attorney-in-fact,  said appointment being coupled
with an  interest,  with  full  power of  substitution,  in the name of  Debtor,
Lender,  or  otherwise,  for the  sole use and  benefit  of  Lender  in its sole
discretion,  but at Debtor's  expense,  to exercise,  to the extent permitted by
law,  in  Lender's  name or in the name of Debtor or  otherwise,  the powers set
forth  herein,  whether  or not any of the  Secured  Obligations  are due,  such
powers,  including,  but not limited to, the powers at any time following demand
for payment under the Loan  Agreement or Note, or the  occurrence of an Event of
Default:  (i) to endorse  the name of Debtor  upon any  instruments  of payment,
invoice, freight, or express bill, bill of lading, storage, or warehouse receipt
relating to the Collateral; (ii) to demand, collect, receive payment of, settle,
compromise or adjust all or any of the Collateral; (iii) to sign and file one or
more financing  statements  naming Debtor as debtor and Lender, as secured party
and indicating  therein the types or describing  the items of Collateral  herein
specified;  (iv) to correspond and negotiate directly with insurance carriers to
the extent  necessary to provide  Lender with the benefit of the rights  granted
pursuant to Section 5(f) hereof;  (v) to sign and record one or more assignments
or  other  instruments  in favor  of  Lender  to  transfer  ownership  of any IP
Collateral  to Lender;  and (vi) to execute any notice,  statement,  instrument,
agreement, or other paper that Lender may require to create, preserve,  perfect,
or validate any security interest granted pursuant hereto or to enable Lender to
exercise  or  enforce  its rights  hereunder  or with  respect to such  security
interest.

                           b. Liability of Lender as  Attorney-in-Fact.  Neither
Lender nor its  attorneys,  officers,  employees,  or agents shall be liable for
acts, omissions,  any error in judgment or mistake in fact in its/their capacity
as  attorney-in-fact.   Debtor  hereby  ratifies  all  acts  of  Lender  as  its
attorney-in-fact  other  than as a result of the  gross  negligence  or  willful
misconduct of Lender. This power, being coupled with an interest, is irrevocable
until the Secured  Obligations  have been fully  satisfied.  Lender shall not be
required  to take any steps  necessary  to  preserve  any rights  against  prior
parties with respect to any of the Collateral.

                           c. Effect of Extensions and Modifications. Lender may
extend the time of payment,  arrange for payment in  installments  or  otherwise

                                       13

<PAGE>

modify  the  terms  of,  or  release,  any of the  Collateral,  without  thereby
incurring responsibility to, or discharging or otherwise affecting any liability
of, Debtor.

                  7.       Remedies.

                           a. Acceleration  of  Secured  Obligations;    General
Rights of Lender.  Upon the occurrence of an Event of Default,  at Lender's sole
option,  all Secured  Obligations  shall  immediately  become due and payable in
full, all without protest, presentment,  demand or further notice of any kind to
Debtor,  all of which  are  expressly  waived.  Upon and  following  an Event of
Default,  Lender may, at its option, exercise any and all rights and remedies it
has under this Security  Agreement,  any other Credit Document and/or applicable
law, including,  without limitation, the right to charge and collect interest on
the principal portion of the Secured  Obligations at a rate equal to the highest
rate allowed by law, such rate of interest to apply to the Secured  Obligations,
at Lender's option, both before and after an Event of Default, maturity (whether
by acceleration or otherwise) and entry of a judgment in favor of Lender for the
benefit  of the  Secured  Party  with  respect  to  any  or  all of the  Secured
Obligations.

                           b. Right of Set-off.  Upon the occurrence of an Event
of Default, Lender shall have the right, without notice to Debtor and regardless
of the adequacy of the Collateral for the Secured  Obligations or other means of
obtaining repayment of the Secured Obligations,  and is specifically  authorized
hereby to apply toward and set-off  against and apply to the then unpaid balance
of the Secured Obligations any items or funds held by Lender including,  without
limitation,  any and all deposits  (whether general or special,  time or demand,
matured  or  unmatured)  or any other  property  of Debtor,  including,  without
limitation,  securities,  now or  hereafter  maintained  by  Debtor  for its own
account  with  Lender  and any other  indebtedness  at any time held or owing by
Lender to or for the credit or the  account of Debtor,  even if  effecting  such
set-off  results in a loss or  reduction  of  interest  or the  imposition  of a
penalty  applicable to the early withdrawal of time deposits.  For such purpose,
Lender  shall  have,  and Debtor  hereby  grants to Lender,  a first lien on and
security  interest  in such  deposits,  property,  funds  and  accounts  and the
proceeds thereof. Such right of set- off shall exist whether or not Lender shall
have made any demand under any Credit Document,  or any other document  executed
in connection therewith,  and whether or not the Secured Obligations are matured
or unmatured.

                           c. Additional Rights and Remedies. In addition to the
rights and remedies  available to Lender as set forth above and any other rights
or remedies  available to Lender under applicable law, upon the occurrence of an
Event of Default hereunder, or at any time thereafter, Lender may at its option,
immediately and without notice, do any or all of the following, which rights and

                                       14

<PAGE>

remedies are cumulative, may be exercised from time to time, and are in addition
to any rights and  remedies  available  to Lender  under any other  agreement or
instrument by and between Debtor and Lender:

                                    (1)  Exercise  any and all of the rights and
remedies  of a secured  party  under the  Uniform  Commercial  Code,  including,
without  limitation,  the right to require Debtor to assemble the Collateral and
make it available to Lender at a place reasonably convenient to the parties;

                                    (2)  Operate,  utilize,  recondition  and/or
refurbish any of the  Collateral  for the purpose of enhancing or preserving the
value  thereof by any means  deemed  appropriate  by Lender,  in its  reasonable
discretion,  including,  without  limitation,  converting  raw materials  and/or
work-in-process into finished goods;

                                    (3)  Notify the account  debtors  for any of
the Accounts to make payment  directly to Lender,  or to such post office box as
Lender may direct;

                                    (4)  Demand, sue for,collect or retrieve any
money or property at any time  payable,  receivable on account of or in exchange
for, or make any compromise,  or settlement deemed desirable with respect to any
of the Collateral;

                                    (5)  Notify the post  office authorities  to
change the address for  delivery of Debtor's  mail to an address  designated  by
Lender and to  receive,  open,  and  distribute  all mail  addressed  to Debtor,
retaining all mail relating to the  Collateral  and forwarding all other mail to
Debtor; and/or

                                    (6)  Upon  seven (7)  calendar  days'  prior
written  notice to Debtor or one (1) day's notice by  telephone  with respect to
Collateral  that is perishable or threatens to decline  rapidly in value,  which
Debtor hereby acknowledges to be sufficient, commercially reasonable and proper,
Lender may sell,  lease or otherwise  dispose of any or all of the Collateral at
any time and from  time to time at  public  or  private  sale,  with or  without
advertisement thereof, and apply the proceeds of any such sale first to Lender's
expenses in preparing the Collateral for sale (including  reasonable  attorneys'
fees) and second to the complete  satisfaction of the Secured Obligations in any
order deemed  appropriate  by Lender in its sole  discretion.  Debtor waives the
benefit of any  marshaling  doctrine  with  respect to Lender's  exercise of its
rights  hereunder.  Lender or anyone else may be the  purchaser of any or all of
the Collateral so sold and thereafter hold such Collateral absolutely, free from
any claim or right of  whatsoever  kind,  including  any equity of redemption of
Debtor any such notice, right and/or equity of redemption being hereby expressly
waived and released.

                                       15

<PAGE>

                  8.       Grant of License to Use  Intangibles.  In addition to
the grant of a security interest in the IP Collateral hereinbefore provided, for
the purposes of enabling Lender to exercise its rights and remedies hereunder at
such  time as  Lender,  without  regard to this  Section  8,  shall be  lawfully
entitled  to exercise  such rights and  remedies,  the Debtor  hereby  grants to
Lender an irrevocable,  non-exclusive  license  (exercisable  without payment of
royalty or other  compensation to the Debtor,  provided that the actual proceeds
received  by Lender of any use or sale of  Lender's  rights  under such  license
shall be applied to the Secured Obligations) to use, assign or sublicense any of
the IP Collateral,  now owned or hereafter  acquired by Debtor, and wherever the
same may be located, including in such license reasonable access to all media in
which any of the licensed items may be recorded or stored, all computer software
and  programs  and all source  code and object code  relating  to such  computer
software and programs.

                  9.       Miscellaneous.

                           a. Remedies Cumulative; No Waiver. The rights, powers
and remedies of Lender provided in this Security  Agreement and any of the other
Loan Documents are  cumulative  and not exclusive of any right,  power or remedy
provided  by law or equity.  No failure or delay on the part of Lender or either
of them in the exercise of any right,  power or remedy shall operate as a waiver
thereof,  nor shall any single or partial exercise of any right, power or remedy
preclude  any other or further  exercise  thereof,  or the exercise of any other
right, power or remedy.

                           b. Notices. All notices,  requests, demands and other
communications  which are required or permitted to be given under this Agreement
will be in writing  and will be deemed to have been duly given if (i)  delivered
in person,  or (ii) mailed,  first class certified,  registered or express mail,
return  receipt  requested  and  postage  prepaid,  or (iii) sent by  recognized
overnight courier, with proof of delivery requested and charges prepaid, to:

                  If to Debtor:

                           NACO Industries, Inc.
                           395 West 1400 North
                           Logan, Utah  84341

                                       16

<PAGE>

                  If to Lender:

                           WebBank Corporation
                           136 Heber Avenue, Suite 209
                           P.O. Box 1831
                           Park City, Utah  84060-1831

                  with a copy to:

                           Douglas C. Waddoups

                           Parr Waddoups Brown Gee & Loveless
                           185 South State, Suite 1300
                           Salt Lake City, Utah  84111
                           Facsimile:  (801) 532-7750

or to such other  address as a party may specify by written  notice to the other
parties.

                           c. Costs   and   Expenses.     Whether   or  not  the
transactions  contemplated  by  this  Security  Agreement  and  the  other  Loan
Documents are fully  consummated,  Debtor shall promptly pay (or  reimburse,  as
Lender may elect) all costs and  expenses  that  Lender may  hereafter  incur in
connection  with the  perfection  and  enforcement  of the Loan  Documents,  the
collection  of all amounts  due under the Loan  Documents,  and all  amendments,
modifications,  consents or waivers,  if any, to the Loan Documents.  Such costs
and  expenses  shall  include,  without  limitation,  the  reasonable  fees  and
disbursements of counsel to Lender, the costs of appraisals,  searches of public
records,  costs of filing and recording documents with public offices,  internal
and/or external audit and/or examination fees and costs, stamp, excise and other
taxes,  the  reasonable  fees of  Lender's  accountants,  consultants  or  other
professionals,  costs and expenses  from any actual or attempted  sale of all or
any  part  of  the  Collateral,  or  any  exchange,   enforcement,   collection,
compromise,  or settlement  of any of the  Collateral or receipt of the proceeds
thereof, and for the care and preparation for sale of the Collateral  (including
insurance  costs) and defending and asserting the rights and claims of Lender in
respect thereof, by litigation or otherwise.  Debtor's reimbursement obligations
under this Section 9 shall survive any termination of the Loan Documents.

                           d. Governing Law.  This Security  Agreement  shall be
construed in accordance with and governed by the  substantive  laws of the State
of Utah without  reference to conflict of laws  principles  provided  that as to
Collateral  located in any  jurisdiction  other than Utah, the Lender shall have
all the rights to which a secured party under the laws of such  jurisdiction  is
entitled.

                                       17

<PAGE>

                           e. Integration. This Security Agreement and the other
Loan Documents  constitute the sole agreement of the parties with respect to the
subject matter hereof and thereof and supersede all oral  negotiations and prior
writings with respect to the subject matter hereof and thereof.

                           f. Amendment;  Waiver.  No amendment of this Security
Agreement,  and no waiver of any one or more of the  provisions  hereof shall be
effective unless set forth in writing and signed by the parties hereto.

                           g.  Successors and Assigns.  This Security  Agreement
(i) shall be binding  upon  Debtor  and  Lender  and,  where  applicable,  their
respective heirs, executors,  administrators,  successors and permitted assigns,
and (ii) shall inure to the benefit of Debtor and Lender and, where  applicable,
their  respective  heirs,  executors,  administrators,  successors and permitted
assigns;  provided,  however, that Debtor may not assign its rights hereunder or
any interest  herein  without the prior written  consent of Lender,  in its sole
discretion,  and any such assignment or attempted  assignment by Debtor shall be
void and of no effect with respect to Lender.

                           h. Severability.  The illegality or  unenforceability
of any  provision  of this  Security  Agreement or any  instrument  or agreement
required  hereunder  shall  not in any way  affect  or impair  the  legality  or
enforceability  of the remaining  provisions  of this Security  Agreement or any
instrument  or  agreement  required  hereunder.   In  lieu  of  any  illegal  or
unenforceable  provision  in this  Security  Agreement,  there  shall  be  added
automatically  as a part of this  Security  Agreement  a legal  and  enforceable
provision as similar in terms to such illegal or unenforceable  provision as may
be possible.

                           i. Headings.  The headings of sections and paragraphs
have been included  herein for  convenience  only and shall not be considered in
interpreting this Security Agreement.

                  [Remainder of Page Left Blank Intentionally]

                                       18

<PAGE>

         IN WITNESS  WHEREOF,  the parties  hereto have  executed  this Security
Agreement on this date above first written.

                                               NACO INDUSTRIES, INC.,
                                               a Utah corporation

                                               --------------------------------

                                               By:

                                               Its:

                                               WEBBANK CORPORATION,
                                               a Utah Corporation

                                               --------------------------------

                                               By:

                                               Its:

                                       19

<PAGE>

                                   Schedule A
                                   ----------

             Trademarks, Service Marks or Service Mark Applications

                                       20

<PAGE>

                                   Schedule B
                                   ----------

                         Patents and Patent Applications

                                       21

<PAGE>

                                   Schedule C
                                   ----------

                     Copyrights and Copyright Registrations

                                                 22

<PAGE>

                                   Schedule D
                                   ----------

              Debtor Places of Business and Location of Collateral

NACO Industries, Inc.
395 West 1400 North
Logan, Utah  84321

NACO Industries, Inc.
3445 West Jones Avenue
Garden City, Kansas  67846

NACO Industries, Inc.
2395 Maggio Circle
Lodi, California  95240

                                       23

<PAGE>

                                   Schedule E
                                   ----------

                       Liens or Encumbrances on Collateral

                                       24INTERCREDITOR AGREEMENT

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

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

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

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

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

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

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

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

                                        1

<PAGE>

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

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

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

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

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

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

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

         4.       License to Use IP Collateral.

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

                                        2

<PAGE>

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

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

         5.       Application of Proceeds of Collateral.

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

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

         6.       Adjustment of Insurance Proceeds.

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

                                        3

<PAGE>

         7.       Occupation of the Borrower's Premises.

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

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

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

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

                                        4

<PAGE>

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

         9.       Miscellaneous.

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

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

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

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

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

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

                                        5

<PAGE>

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

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

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

WEBBANK CORPORATION

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

ACKNOWLEDGED BY:

Naco Industries, Inc.

By:
Its: President

                                        6

<PAGE>

                                    Exhibit A

                             INTERCREDITOR AGREEMENT
                        DESCRIPTION OF WEBBANK COLLATERAL

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

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

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

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

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

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

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

                                        7

<PAGE>

                                    GUARANTY

                                                                Denver, Colorado
                                                                  April 22, 1999

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

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

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

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

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

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

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

                                       -1-

<PAGE>

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

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

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

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

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

                                       -2-

<PAGE>

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

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

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

                                       -3-

<PAGE>

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

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

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

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

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

                                       -4-

<PAGE>

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

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

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

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

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

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

                                               Notary Public

                                       -5-

<PAGE>

                            CERTIFICATE OF AUTHORITY

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

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

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

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

                                First Resolution

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

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

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

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

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

                                       -1-

<PAGE>

                                Second Resolution

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

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

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

                                Third Resolution

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

                                Fourth Resolution

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

                                       -2-

<PAGE>

                                Fifth Resolution

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

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

             Name            Title                        Sample Signature

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

                  I further certify (check one):

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

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

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

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

                                       -3-

<PAGE>

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

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

                                                 Secretary

Attest by One Other Officer

President

                                       -4-

<PAGE>

                                            Exhibit A to Secretary's Certificate

                            ARTICLES OF INCORPORATION
                          [TO BE PROVIDED BY BORROWER]

                                       A-1

<PAGE>

                                            Exhibit B to Secretary's Certificate

                                     BYLAWS

                          [TO BE PROVIDED BY BORROWER]

                                       B-1

<PAGE>

                                            Exhibit C to Secretary's Certificate

                          CERTIFICATE OF GOOD STANDING
                          [TO BE PROVIDED BY BORROWER]

                                       C-1

<PAGE>

                     PATENT AND TRADEMARK SECURITY AGREEMENT

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

                                    Recitals

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

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

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

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

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

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

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

                                       -1-

<PAGE>

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

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

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

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

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

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

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

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

                                       -2-

<PAGE>

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

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

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

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

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

                                       -3-

<PAGE>

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

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

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

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

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

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

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

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

                                       -4-

<PAGE>

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

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

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

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

By:
Its Vice President

NACO INDUSTRIES, INC.

By:
Its President

                                       -5-

<PAGE>

STATE OF UTAH                               )
                                            )
COUNTY OF SALT LAKE                         )

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

                                                     Notary Public

STATE OF UTAH                               )
                                            )
COUNTY OF SALT LAKE                         )

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

                                                     Notary Public

                                       -6-

<PAGE>

                                    EXHIBIT A
                                    ---------

                          UNITED STATES ISSUED PATENTS

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

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

                             FOREIGN ISSUED PATENTS

                                      None

                                       A-1

<PAGE>

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

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

                                      None

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

                                      None

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

                                      None

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

                                      None

                                       B-1

<PAGE>

                       MORTGAGEE'S DISCLAIMER AND CONSENT

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

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

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

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

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

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

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

                                       -1-

<PAGE>

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

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

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

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

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

                                                 WEBBANK CORPORATION

                                                 By
                                                 Its

                                       -2-

<PAGE>

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

STATE OF UTAH                               )
                                      : ss.

COUNTY OF SALT LAKE                         )

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

                                                              Notary Public

                                       -3-

<PAGE>

                                    EXHIBIT A

                                       TO

                       MORTGAGEE'S DISCLAIMER AND CONSENT

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

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

<PAGE>

                                    EXHIBIT B

                                       TO

                       MORTGAGEE'S DISCLAIMER AND CONSENT

                               [copy of Mortgage]

<PAGE>

                               WAIVER OF INTEREST

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

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

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

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

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

Dated April ___, 1999.

                                   Name:  _____________________________

                                       -1-

<PAGE>

STATE OF UTAH                       )
                                    )
COUNTY OF SALT LAKE                 )

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

                                                              Notary Public

Accepted this ____ day of April, 1999

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

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

                                       -2-

<PAGE>

                              OFFICER'S CERTIFICATE

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

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

Dated: April 22, 1999

                                                     Very truly yours,

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

<PAGE>

                       ASSIGNMENT OF LIFE INSURANCE POLICY
                                  AS COLLATERAL

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

                                    Recitals
                                    --------

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

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

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

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

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

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

                                       -1-

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                       -2-

<PAGE>

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

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

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

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

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

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

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

                                       -3-

<PAGE>

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

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

Signed and sealed this ___ day of February, 1999.

Witness

Witness
Assignor:

By:
Its President

                                       -4-

<PAGE>

STATE OF                            )
                                    )  ss.
COUNTY OF                           )

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

                                                              Notary Public

Assignee:

NORWEST BUSINESS CREDIT, INC.

By

Its Vice President

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

                                               (Life Insurance Company)

                                               By
                                               Its

                                       -5-

<PAGE>

                          CREDIT AND SECURITY AGREEMENT

                           Dated as of April 22, 1999

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

                                                     ARTICLE I

                                                    Definitions

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

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

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

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

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

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

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

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

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

                  (a) the Maximum Line; or

                                       -1-

<PAGE>

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

                           (i)  80% of Eligible Accounts,

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

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

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

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

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

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

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

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

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

                                       -2-

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                       -3-

<PAGE>

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

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

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

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

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

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

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

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

                           (iii) Work-in-process Inventory;

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

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

                                       -4-

<PAGE>

                           (vi)  Inventory that is perishable or live;

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

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

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

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

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

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

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

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

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

                  "Guarantor" means Verne Bray.

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

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

                                       -5-

<PAGE>

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

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

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

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

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

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

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

                  "Maturity Date" means April 30, 2002.

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

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

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

                  "Note" means the Revolving Note.

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

                                       -6-

<PAGE>

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

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

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

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

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

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

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

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

                                       -7-

<PAGE>

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

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

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

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

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

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

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

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

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

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

                                       -8-

<PAGE>

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

                                   ARTICLE II

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

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

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

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

                                       -9-

<PAGE>

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

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

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

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

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

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

                                      -10-

<PAGE>

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

                  Section 2.3 Fees.

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

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

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

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

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

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

                                      -11-

<PAGE>

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

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

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

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

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

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

                                      -12-

<PAGE>

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

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

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

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

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

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

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

                                      -13-

<PAGE>

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

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

                                   ARTICLE III

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

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

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

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

                                      -14-

<PAGE>

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

                  Section 3.4 Occupancy.

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

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

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

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

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

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

                                      -15-

<PAGE>

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

                  Name and address of Debtor:

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

                  Name and address of Secured Party:

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

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

                                   ARTICLE IV

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

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

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

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

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

                                      -16-

<PAGE>

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

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

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

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

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

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

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

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

                                      -17-

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

                                      -18-

<PAGE>

                                    ARTICLE V

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

                  The Borrower represents and warrants to the Lender as follows:

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

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

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

                                      -19-

<PAGE>

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

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

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

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

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

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

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

                                      -20-

<PAGE>

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

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

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

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

                  Section 5.12 Environmental Matters.

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

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

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

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

                                      -21-

<PAGE>

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

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

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

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

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

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

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

                                      -22-

<PAGE>

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

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

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

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

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

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

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

                                   ARTICLE VI

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

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

                                      -23-

<PAGE>

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

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

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

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

                                      -24-

<PAGE>

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

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

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

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

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

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

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

                                      -25-

<PAGE>

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

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

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

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

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

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

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

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

                                      -26-

<PAGE>

                  Section 6.4 Compliance with Laws.

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

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

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

                  Section 6.6 Maintenance of Properties.

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

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

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

                                      -27-

<PAGE>

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

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

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

                  Section 6.10 Collateral Account; Lockbox.

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

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

                                      -28-

<PAGE>

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

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

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

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

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

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

                                      -29-

<PAGE>

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

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

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

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

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

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

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

                                      -30-

<PAGE>

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

                                   ARTICLE VII

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

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

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

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

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

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

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

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

                  (a) indebtedness arising hereunder;

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

SL 605.3 57131 00596
                                                   -31-

<PAGE>

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

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

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

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

                  Section 7.4 Investments and Subsidiaries.

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

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

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

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

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

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

                                      -32-

<PAGE>

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

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

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

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

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

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

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

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

                                      -33-

<PAGE>

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

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

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

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

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

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

                                  ARTICLE VIII

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

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

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

                                      -34-

<PAGE>

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

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

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

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

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

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

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

                                      -35-

<PAGE>

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

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

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

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

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

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

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

                                      -36-

<PAGE>

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

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

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

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

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

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

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

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

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

                                      -37-

<PAGE>

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

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

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

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

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

                                   ARTICLE IX

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

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

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

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

                                      -38-

<PAGE>

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

                  If to the Borrower:

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

                  If to the Lender:

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

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

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

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

                                      -39-

<PAGE>

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

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

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

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

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

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

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

                                      -40-

<PAGE>

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

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

                  Section 9.9  Execution in  Counterparts.  This  Agreement  and
other Loan  Documents  may be  executed in any number of  counterparts,  each of
which when so executed and  delivered  shall be deemed to be an original and all
of which  counterparts,  taken together,  shall  constitute but one and the same
instrument.

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

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

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

                                      -41-

<PAGE>

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

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

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

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

NACO INDUSTRIES, INC.

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

                                       -1-

<PAGE>

                         Table of Exhibits and Schedules

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

                  Schedule 7.2            Permitted Indebtedness and Guaranties

                                       -2-

<PAGE>

                                                Exhibit A to Credit and Security
                                                Agreement

                                 REVOLVING NOTE

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

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

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

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

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

                                                     NACO INDUSTRIES, INC.

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

                                       A-1

<PAGE>

                                                Exhibit B to Credit and Security
                                                Agreement

                             COMPLIANCE CERTIFICATE

To:               Kimberly Carmichael
                  Wells Fargo Business Credit, Inc.

Date:             __________________, ______

Subject:          Naco Industries, Inc.
                  Financial Statements

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

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

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

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

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

                  I hereby certify to the Lender as follows:

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

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

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

                                       B-1

<PAGE>

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

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

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

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

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

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

                                       B-2

<PAGE>

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

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

                                     NACO INDUSTRIES, INC.

                                     By:
                                         Its Chief Financial Officer

                                       B-3

<PAGE>

                                                Exhibit C to Credit and Security
                                                Agreement

                                    PREMISES

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

395 West 1400 North
Logan, Utah 84341

3445 West Jones Avenue
Garden City, Kansas 67846

812 West 17th Street
Ogden, Utah 84404

                                       D-1

<PAGE>

                                             Schedule 5.1 to Credit and Security
                                             Agreement

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

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

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

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

                                   395 West 1400 North
                                   Logan, Utah 84341

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

                                   3445 West Jones Avenue
                                   Garden City, Kansas 67846

                                   812 West 17th Street
                                   Ogden, Utah 84404

                                   2395 Maggio Circle
                                   Lodi, California 95240

<PAGE>

                                            Schedule 5.4  to Credit and Security
                                            Agreement

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

                                      None

<PAGE>

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

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

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

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

</TABLE>

<PAGE>

                  Schedule 7.2 to Credit and Security Agreement

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

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

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

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

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

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

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

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

                                   Guaranties
                                   ----------

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

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

<PAGE>

                              FORM OF LEGAL OPINION

                               February ___, 1999

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

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

Ladies and Gentlemen:

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

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

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

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

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

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

                  Based upon the foregoing, it is our opinion that:

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

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

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

                                      Very truly yours,

<PAGE>

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