INDUSTRIAL RUBBER PRODUCTS INC, SB-2, 1998-02-20

INDUSTRIAL RUBBER PRODUCTS INC
SB-2, 1998-02-20

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As filed with the Securities and Exchange Commission on February 20, 1998
File No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

INDUSTRIAL RUBBER PRODUCTS, INC.
(Name of small business issuer in its charter)

MINNESOTA 3532 41-1550505
(State of Incorporation) (Primary Standard Industrial (IRS Employer I.D. Number)
Classification I.D. Number)

3804 EAST 13TH AVENUE
HIBBING, MINNESOTA 55746
(218) 263-8831
(Address and telephone number of principal executive offices)

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

3804 EAST 13TH AVENUE
HIBBING, MINNESOTA 55746
(218) 263-8831
(Address of principal place of business)

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

DANIEL O. BURKES, PRESIDENT
INDUSTRIAL RUBBER PRODUCTS, INC.
3804 EAST 13TH AVENUE
HIBBING, MINNESOTA 55746
(218) 263-8831
(Name, address and telephone number of agent for service)

COPIES TO:
John Nys, Esq. Melodie R. Rose, Esq.
Johnson, Killen, Thibodeau & Seiler, P.A. Fredrikson & Byron, P.A.
811 Norwest Center 900 Second Avenue South, Suite 1100
Duluth, Minnesota 55802 Minneapolis, Minnesota 55402
(218) 722-6331 (612) 347-7000
Fax: (218) 722-3031 Fax: (612) 347-7077

APPROXIMATE DATE OF PROPOSED COMMENCEMENT OF SALE TO THE PUBLIC:
From time to time after the Registration Statement becomes effective.

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

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OF SHARES OFFER PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED SHARE PRICE REGISTRATION FEE
- ---------------------------- ----------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock ............... 1,610,000 $ 5.00 $8,050,000 $2,375
==========================================================================================================
</TABLE>

================================================================================

The Company hereby amends the Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Acts of 1933 or until the Registration Statement shall become
effective.

<PAGE>

SUBJECT TO COMPLETION, DATED, FEBRUARY 20, 1998

PROSPECTUS

1,400,000 SHARES

OF COMMON STOCK

INDUSTRIAL RUBBER PRODUCTS, INC.

All of the 1,400,000 shares of Common Stock (the "Shares") offered hereby (this
"Offering") are being sold by Industrial Rubber Products, Inc. ("Industrial
Rubber" or the "Company"). Prior to this Offering, there has been no public
market for the Common Stock of the Company. See "Underwriting" for the factors
considered in determining the initial public offering price. The Company has
applied for listing of its Common Stock on the Nasdaq SmallCap Market(TM) under
the symbol "INRB."

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

THE COMMON STOCK OFFERED BY THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK AND DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 5 AND
"DILUTION."

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share ......... $ 5.00 $ .3750 $ 4.625
Total(3) .......... $7,000,000 $525,000 $6,475,000
================================================================================

(1) The Company has agreed to pay R.J. Steichen & Company, as representative of
the several Underwriters (the "Representative"), a nonaccountable expense
allowance in an amount equal to 2.0% of the gross proceeds of this
Offering. The Company has also agreed to sell the Representative, for a
nominal price, a five-year warrant to purchase up to 140,000 shares of the
Common Stock, exercisable at 120% of the Price to Public (the
"Representative's Warrant"). In addition, the Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."

(2) Before deducting expenses payable by the Company, estimated at $340,000
(including the Representative's nonaccountable expense allowance referenced
in Note 1 above). See "Underwriting."

(3) Assumes no exercise of a 45-day option the Company has granted to the
Underwriters to purchase up to 210,000 additional shares of Common Stock
solely to cover overallotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $8,050,000, $603,750 and $7,446,250, respectively. See
"Underwriting."

The Shares are being offered by the several Underwriters subject to prior sale,
to withdrawal, cancellation or modification of the offer without notice, to
delivery to and acceptance by the Underwriters and to certain other conditions.
It is expected that delivery of the Shares will be made on or about , 1998 in
Minneapolis, Minnesota.

[LOGO] R J STEICHEN & CO

The date of this Prospectus is , 1998

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

<PAGE>

[PHOTOS TO COME]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

<PAGE>

PROSPECTUS SUMMARY

THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL INFORMATION IN THIS PROSPECTUS, UNLESS
OTHERWISE INDICATED, REFLECTS A STOCK SPLIT OF THE OUTSTANDING SHARES OF
INDUSTRIAL RUBBER'S COMMON STOCK INTO 2,934,000 SHARES OF COMMON STOCK EFFECTIVE
JANUARY 30, 1998. UNLESS OTHERWISE INDICATED, ALL INFORMATION HEREIN ASSUMES NO
EXERCISE OF (I) THE UNDERWRITERS' OVERALLOTMENT OPTION FOR 210,000 SHARES OF
COMMON STOCK, (II) THE REPRESENTATIVE'S WARRANT FOR 140,000 SHARES OF COMMON
STOCK AND (III) OUTSTANDING OPTIONS TO PURCHASE UP TO 113,600 SHARES OF COMMON
STOCK.

THE COMPANY

Industrial Rubber is in the business of designing, producing and supplying
protective materials, abrasion resistant products and equipment,
erosion/corrosion protective linings and proprietary rubber products. The
Company's first customers were the low grade iron ore (taconite) processing
plants in Minnesota. It has expanded its operations to include sales to mineral
processing plants throughout the U.S. and Canada, as well as the power, paper,
pulp and other heavy industries in these geographical regions.

The Company has three product lines. Its pipe lining and pipe products line
consists of rubber lined pipe and other pipe parts fabricated primarily for the
mineral processing industry. Its proprietary products are engineered replacement
parts primarily for mineral processing facilities. Its standard rubber products
are sold, along with related services, to the Company's customers in the various
industry segments served by the Company.

The Company's net sales in its first full year of operations in 1987 were
$1,989,000. The Company's net sales in 1997 were $14,421,000. The Company
estimates that in 1997 it provided over 50% of the North American market for
rubber lined tailings pipe for the mineral processing industry.

The Company seeks to leverage its strength in the pipe products field by
expanding its business. Its expansion plans include opening additional satellite
production locations strategically located to service customers, increasing its
sales to existing customers by offering an expanded line of products including
both steel and iron products as well as products integrating several material
types, and expanding its sales, when appropriate, internationally.

The Company seeks to provide both products and service for its customers by
providing products designed and modified to meet the particular needs of each
customer's applications. The Company believes that this emphasis on customer
service has resulted in repeat business for the Company.

The Company's growth to date has been financed with internally generated
funds. In order to continue its expansion, it will use the proceeds of this
Offering to acquire additional facilities and capabilities as well as to develop
for its customers a closed-loop recycling system so that worn out products are
recycled and remanufactured for the customer, addressing the concerns in the
mineral processing and other industries about future landfill/disposal costs.

Industrial Rubber was incorporated as a Minnesota corporation on March 5,
1986, as Industrial Rubber Applicators, Inc. The Company's executive offices are
located at 3804 E. 13th Avenue, Hibbing, MN 55746, and its telephone number is
(218) 263-8331.

THE OFFERING

Common Stock Offered......................... 1,400,000 shares

Common Stock to be outstanding after this
Offering.................................... 4,334,000 shares

Use of Proceeds.............................. Acquisition of production and
processing equipment or
facilities, establishment of
satellite production and
distribution facilities, S
corporation distribution,
working capital and general
corporate purposes. See "Use of
Proceeds."

Proposed Nasdaq SmallCap Market Symbol....... INRB

<PAGE>

SUMMARY FINANCIAL DATA

The following table sets forth the summary financial data for the Company
for the periods indicated. This information should be read in conjunction with
the Financial Statements and related Notes appearing elsewhere herein and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." The summary financial data as of and for the year ended December 31,
1995 have been derived from unaudited financial statements (not included in this
Prospectus), which, in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The summary financial data as of and for the years ended December
31, 1996 and 1997 have been derived from the Company's financial statements
which have been audited by McGladrey & Pullen, LLP, independent auditors, as
indicated in their report included elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales ................................... $ 3,646,316 $ 6,309,775 $ 14,421,359
Gross profit ................................ 944,634 1,533,141 4,473,489
Operating expense ........................... 701,202 1,122,968 1,664,611
----------- ----------- ------------
Operating income ............................ 243,432 410,173 2,808,878
----------- ----------- ------------
Net income .................................. $ 188,490 $ 319,785 $ 2,701,767
=========== =========== ============
PRO FORMA STATEMENTS OF INCOME DATA(1)
Income before income taxes .................. $ 188,490 $ 319,785 $ 2,701,767
Provision for income taxes .................. 75,400 145,300 1,038,000
----------- ----------- ------------
Net income .................................. $ 113,090 $ 174,485 $ 1,663,767
=========== =========== ============
Basic earnings per share .................... $ 0.04 $ 0.06 $ 0.57
=========== =========== ============
Weighted average shares outstanding ......... 2,934,000 2,934,000 2,934,000
=========== =========== ============
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
1997 1997(2) 1997(2)(3)
---------- ---------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets ............... $3,308,711 $3,308,711 $ 8,643,711
Total Assets ................. 4,949,584 4,949,584 10,284,584
Current Liabilities .......... 2,534,680 3,334,680 2,534,680
Long-term Debt ............... 171,095 171,095 171,095
Stockholder's Equity ......... 2,243,809 1,443,809 7,578,809
</TABLE>

- -----------------
(1) The pro forma statements of income data reflect the effects on the
historical statements of income data for each period presented as if the
Company had not been treated as an S Corporation for income tax purposes.
See "Dividend Policy and S Corporation Status" and Note 7 of Notes to
Financial Statements. The weighted average number of shares outstanding
have been adjusted to reflect a stock split. See Note 6 of Notes to
Financial Statements.

(2) Reflects the amount of dividends paid or payable to the Company's existing
stockholder for the income tax liability (estimated to approximate
$800,000) resulting from the Company's earnings and status as an S
Corporation through December 31, 1997. Does not reflect additional amounts
to be distributed to the stockholder through the date of closing of this
Offering. See "Dividend Policy and S Corporation Status," "Use of
Proceeds," "Capitalization," and Note 7 of Notes to Financial Statements.

(3) Adjusted to reflect the sale of shares of common stock offered by the
Company hereby at an assumed offering price of $5.00 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."

<PAGE>

RISK FACTORS

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. THIS
PROSPECTUS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS WHICH REFLECT INDUSTRIAL
RUBBER'S PLANS, ESTIMATES AND BELIEFS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED IN THE FOLLOWING
RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. IN EVALUATING AN INVESTMENT IN
THE COMMON STOCK, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS.

LIMITED PRODUCTION FACILITIES

All of Industrial Rubber's production is performed at its facilities in
Hibbing, Minnesota, and Clearfield, Utah. At the present time the estimated
operating capacity of those facilities is sufficient to permit approximately
$17,000,000 per year in sales. The Company's 1997 sales were $14,421,359. The
Company cannot significantly expand its sales without acquiring additional
equipment and facilities and hiring additional personnel. If facilities and
equipment are not available or if there is a shortage of adequately trained
personnel, Industrial Rubber's ability to maintain or grow its revenues may be
adversely affected. If the Company's facilities are significantly damaged by
fire or other casualty, production may be substantially interrupted and such
casualty loss and business interruption would have a material adverse effect on
the Company's operations and profitability. Industrial Rubber maintains business
interruption insurance but there can be no assurance that such coverage will be
sufficient to cover the Company's losses or that the Company will be able to
regain its market share or customer base after resuming operations.

MANAGEMENT OF EXPANSION AND GROWTH

Industrial Rubber is currently experiencing a period of growth that could
place a significant strain on its management and other resources. The Company's
ability to manage its growth will require it to continue to improve its
operational, financial and management systems, and to motivate and effectively
manage its employees. If the Company's management is unable to manage growth
effectively, the quality of the Company's products, its ability to identify,
hire and retain key personnel and its results of operations could be materially
and adversely affected.

Industrial Rubber anticipates using a portion of the proceeds from this
Offering to expand its production operations both geographically and by product
line. These expansions will require a significant expenditure of time, effort
and capital by the Company. These expansions will divert the Company's key
employees from other management and sales tasks and will likely result in
decreased sales and profitability while the expansion is taking place. The
Company's operations may also be adversely affected as the Company integrates
the new locations and product lines into its current manufacturing, distribution
and sales operations and systems. There can be no assurance that Industrial
Rubber will be able to successfully and profitably achieve such integration.
Although the Company believes that the addition of locations and products will
improve the Company's ability to supply its existing customers by providing more
rapid response to customer orders, increase the volume of orders from existing
customers by supplying more of their product needs and attract new customers,
there can be no assurance that the Company will be able to generate sufficient
additional revenue to offset the expenditures incurred in connection with the
expansion. Failure to successfully integrate the satellite production and
distribution locations and product lines or to offset these additional
expenditures could have a material adverse effect on the Company's results of
operations. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Strategy for
Continued Growth."

POSSIBLE ACQUISITIONS

Although Industrial Rubber is exploring potential acquisitions, no
acquisition targets have been identified, no acquisitions are currently being
negotiated and no portion of the proceeds of the Offering has been allocated to
specific acquisitions. The Company's expansion may include the acquisition of
existing businesses, which will subject it to all of the risks inherent in
acquiring existing businesses and attempting to integrate such businesses into
the Company's existing operations, such as unknown

<PAGE>

liabilities and other unforeseen expenses, difficulties, complications and
delays. The evaluation of potential acquisitions will divert management
resources from the Company's regular operations and will likely result in a
temporary reduction in sales and profitability while the acquisitions are being
evaluated and made. No assurance can be given that the Company will consummate
such future business opportunities, if any, or that such business opportunities,
if consummated, will ultimately be advantageous for the Company.

DEPENDENCE ON ADDITIONAL CAPITAL

Industrial Rubber's expansion plans will require substantial capital
investment. The Company intends to pay for its expansion using cash, capital
stock, notes and/or assumption of indebtedness. Most of the proceeds from this
Offering will be required by the Company for, among other purposes,
acquisitions, establishing new locations, integrating completed acquisitions,
acquiring equipment and funding inventory, work in process and accounts
receivable. If the cash generated internally and cash available from the
Offering are not sufficient to provide the capital required for such purposes
and future operations, the Company will require additional debt and/or equity
financing in order to provide for such capital. There can be no assurance,
however, that such financing will be available on terms satisfactory to the
Company, if at all. Failure by the Company to obtain sufficient additional
capital in the future could limit the Company's ability to implement its
business strategy. Future debt financings, if available, may result in increased
interest and amortization expense, increased leverage, decreased income
available to fund further acquisitions and expansion, and may limit the
Company's ability to withstand competitive pressures and render the Company more
vulnerable to economic downturns. Future equity financings may dilute the equity
interest of existing stockholders. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DEPENDENCE ON LARGE CONTRACTS

A substantial portion of Industrial Rubber's revenues are from large
project contracts, typically contracts for rubber lined tailings pipe. In 1997
one customer accounted for $8,094,517 of net sales. The companies purchasing
such products and services from the Company pursuant to large contracts vary
from year to year. There is no assurance that the Company will be able to
continue to obtain large contracts in the future. The failure to obtain such
large contracts would result in a significant decrease in the Company's sales
and income. All such large contracts have been pursuant to purchase orders
rather than long-term purchase agreements. See "Business -- Products and
Technology."

DEPENDENCE ON KEY PERSONNEL

Industrial Rubber's success depends to a significant degree upon the
continued contributions of its management, operations, sales/marketing and
technical personnel, including Daniel O. Burkes, President and Chief Executive
Officer, Christopher M. Liesmaki, Vice President -- Operations, and Richard M.
Radovich, Vice President -- Engineering. The Company has an employment
agreement only with Mr. Burkes. The Company maintains a key person life
insurance policy of $1,000,000 on Mr. Burkes. It does not maintain key person
life insurance policies on other management personnel. The Company believes
that its future success will also depend in large part on its ability to
attract and retain highly skilled managerial, technical operations and
sales/marketing personnel, who are generally in great demand. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's results of operations. See "Management."

PATENTS AND OTHER PROPRIETARY RIGHTS

Industrial Rubber has patented one of its products and is developing other
products that it believes will be patentable. However, the Company can give no
assurance that further patents will be issued; that present or future patents
will be enforceable, will exclude competitors or provide competitive advantage,
and will be valid if challenged; or that competitors will not be able to design
around or develop similar products. The Company also seeks to maintain the
confidentiality of its proprietary rubber formula and production processes which
it believes are not patentable. However, the Company can give no assurance that
its confidentiality agreements will be enforced or that competitors could not
independently develop similar formulas or processes. See "Business --
Proprietary Rights."

<PAGE>

PRODUCT LIABILITY AND WARRANTY CLAIMS

Since Industrial Rubber's formation in 1986, the Company has never had a
significant claim brought against it for product liability. While the Company
has never incurred significant liability for such claims, any significant
increase in claims could have an adverse impact on the Company. The Company
believes that its product liability insurance is adequate and that it also has
certain rights to indemnification from third parties. There can, however, be no
assurance that claims exceeding such coverage will not be made, that the Company
will be able to continue to obtain insurance coverage or that the Company would
be successful in obtaining indemnification from such third parties. Although the
Company from time to time provides written limited warranties to its customers,
no significant warranty claims have been received. There can, however, be no
assurance that significant warranty claims will not be received in the future.

COMPETITION

The industry that Industrial Rubber is in is competitive. The Company faces
competition from national and regional manufacturers and distributors. The
national manufacturers and distributors provide proprietary design, large
distribution networks, large scale manufacturing to reduce costs and
sophisticated quality control programs. They may also have access to greater
financial resources than the Company. While the regional manufacturers and
distributors may lack these advantages, they do provide quick delivery and
personalized service to customers allowing them to effectively compete. See
"Business -- Competition."

GOVERNMENTAL AND ENVIRONMENTAL REGULATIONS

Industrial Rubber is subject to numerous federal, state and local laws and
regulations that govern the discharge and disposal of wastes, workplace safety
and other aspects of the Company's business. The Company's operations entail the
risk of noncompliance with environmental and other government regulations.
Environmental and other legislation and regulations have changed in recent years
and the Company cannot predict what, if any, impact future changes may have on
the Company's business. Further, environmental legislation has been enacted, and
may in the future be enacted, that creates liability for past actions that were
lawful at the time taken. As in the case with manufacturing companies in
general, if damage to persons or the environment has been caused, or is in the
future caused, by the Company's use of hazardous solvents or by hazardous
substances located at the Company's facilities, the Company may be fined or held
liable for the cost of remediating such damage. Imposition of such fines or the
incurrence of such liability may have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Governmental and Environmental Regulation."

BUSINESS CYCLES

The demand for Industrial Rubber's products within any market segment that
it serves is tied to the production levels of that market segment. For example,
decreases in the price of copper will result in decreased copper mining activity
and a decreased need for the Company's products. These business cycles could
result in significant yearly fluctuations in financial results. See "Business --
Markets."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

Industrial Rubber may experience variability in its sales and net income on
a quarterly basis as a result of many factors, including: changes in world
commodity prices for processed minerals which affect its customers' usage of its
products; labor stoppages at its customers' facilities; changes in its raw
materials costs; and delays or accelerations of its customers' capital spending
programs. If revenues do not meet expectations in any given quarter and the
Company is unable to adjust spending in a timely manner, operating results may
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Sales and
Marketing."

CONTROL BY MANAGEMENT

Upon completion of this Offering, the Company's President will own
approximately 67.7% of the issued and outstanding shares of Common Stock. As a
result of such ownership, he will have the ability

<PAGE>

to elect or remove all members of the Board of Directors and thereby control
the Company and will have the power to approve actions requiring shareholder
approval. Such a level of ownership can delay, defer or prevent a change in
control of the Company and can adversely affect the voting and other rights of
the other holders of Common Stock. See "Principal Shareholders."

NO PRIOR PUBLIC MARKET

Prior to this Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active trading market for the
Common Stock will develop or be sustained after this Offering.

DETERMINATION OF OFFERING PRICE

The initial public offering price for the Shares has been determined by
negotiation between the Company and the Representative. Such price bears no
relationship to the book value of the Company and may bear no relationship to
the market price of the Shares subsequent to this Offering. See "Underwriting."

POSSIBLE VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced significant price and
volume fluctuations that may be related or unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In addition,
the market price of the shares of Common Stock of the Company may be highly
volatile. Factors such as a small market float, fluctuations in the Company's
operating results, failure to meet analysts' expectations, announcements of
major contracts by the Company or its competitors, developments with respect to
the Company's major markets, changes in stock market analyst recommendations
regarding the Company, its competitors or the industry generally, and general
market conditions may have a significant effect on the market price of the
Company's Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of Common Stock in the public market following this Offering could
adversely affect prevailing market prices. The existing shareholder has agreed
with the Underwriters not to sell or otherwise dispose of any shares or rights
to purchase shares of Common Stock beneficially held by him for 12 months from
the date of this Prospectus without the prior written consent of the
Representative. Upon expiration of this period, the 2,934,000 shares of Common
Stock held by the existing shareholder will be eligible for sale in the public
market subject to compliance with the volume limitations of Rule 144. Additional
shares of Common Stock, including shares issuable upon exercise of options, will
become eligible for sale in the public market from time to time in the future
and significant quantities of shares could become eligible if the Company makes
acquisitions of existing businesses with its stock. See "Description of
Securities," "Shares Eligible for Future Sale" and "Underwriting."

UNDESIGNATED STOCK

The Company's authorized capital consists of 25,000,000 shares of capital
stock of which 19,916,000 shares are undesignated shares. The Board of
Directors, without any action by the Company's shareholders, is authorized to
designate and issue these undesignated shares in such classes or series
(including classes or series of preferred stock) as they deem appropriate and to
establish the rights, preferences and privileges of such shares, including
dividends, liquidation and voting rights. No shares of preferred stock or any
other class of common stock are currently designated and there is no current
plan to designate or issue any such securities. The rights of holders of
preferred stock and other classes of common stock that may be issued may be
superior to the rights granted to the holders of the Shares. Further, the
ability of the Board of Directors to designate and issue such undesignated
shares could impede or deter an unsolicited tender offer or takeover proposal
regarding the Company and the issuance of additional shares having preferential
rights could adversely affect the voting power and other rights of holders of
Common Stock. See "Description of Securities."

<PAGE>

DILUTION

Purchasers of Shares in this Offering will experience an immediate
substantial decline in net tangible book value per share of their Shares equal
to $3.07 (a 61.4% decline from the purchase price). See "Dilution."

NO DIVIDENDS

While the Company has historically operated as an S Corporation and has
distributed a portion of previously taxed earnings, it has not paid dividends on
its Common Stock. Other than S Corporation distributions to be paid as described
in this Prospectus, the Company does not anticipate paying dividends in the
foreseeable future. The Company intends to use retained earnings to fund its
future growth. See "Dividend Policy and S Corporation Status."

ANTI-TAKEOVER LAWS

Certain provisions of the Minnesota Business Corporation Act may have the
effect of delaying or preventing a change in control or merger of the Company,
which could operate to the detriment of the shareholders. See "Description of
Securities."

APPLICABILITY OF "PENNY STOCK RULES"

Federal regulations under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), regulate the trading of so-called "penny stocks" (the
"Penny Stock Rules"), which are generally defined as any security not listed on
a national securities exchange or Nasdaq, priced at less than $5.00 per share
and offered by an issuer with limited net tangible assets and revenues. In
addition, equity securities listed on Nasdaq which are priced at less than $5.00
per share are deemed penny stocks for the limited purpose of Section 15(b)(6) of
the Exchange Act, which makes it unlawful for any broker-dealer to participate
in a distribution of any penny stock without the consent of the Securities and
Exchange Commission if, in the exercise of reasonable care, the broker-dealer is
aware of or should have been aware of the participation of previously sanctioned
person. Therefore, if, during the time in which the Common Stock is quoted on
the Nasdaq SmallCap Market, the Common Stock is priced below $5.00 per share,
trading of the Common Stock will be subject to the provisions of Section
15(b)(6) of the Exchange Act. In such event, it may be more difficult for the
broker-dealer to sell the Common Stock and purchasers of the Shares offered
hereby may have difficulty in selling their Shares in the future in the
secondary market.

In the event that the Company's Common Stock is delisted from the Nasdaq
SmallCap Market and the Company fails other relevant criteria, resulting in the
Common Stock being considered penny stock, trading, if any, of the Common Stock
would be subject to the full range of Penny Stock Rules. Accordingly, delisting
from the Nasdaq SmallCap Market and the application of the comprehensive Penny
Stock Rules may make it more difficult for broker-dealers to sell the Company's
Common Stock and purchasers of the Shares offered hereby may have difficulty in
selling their Shares in the future in the secondary market.

USE OF PROCEEDS

The net proceeds to Industrial Rubber from the sale of the 1,400,000 Shares
of Common Stock offered to the public hereby at the Price to Public of $5.00 per
share are estimated to be $6,135,000 ($7,106,250 if the Underwriters'
overallotment option is exercised in full) after deducting the underwriting
discount and estimated offering expenses payable by the Company. The Company
currently intends to apply these proceeds approximately as follows:

<PAGE>

Steel and iron casting, fabricating and machining capability ... $1,500,000
Rubber recycling, mixing, molding and calendaring capability ... 1,500,000
Satellite production and distribution facilities ............... 850,000
Product, process and marketing development ..................... 850,000
S Corporation distribution ..................................... 800,000
Working capital and general corporate purposes ................. 635,000
----------
Total ......................................................... $6,135,000
==========

With approximately $1,500,000 of the proceeds of this Offering, Industrial
Rubber plans to purchase a facility or otherwise develop the capacity to sell
and distribute steel and iron products. Approximately $1,500,000 of the proceeds
are intended to be used to purchase a facility or otherwise develop the capacity
for recycling, mixing, molding and calendaring rubber. Approximately $850,000
will be used to acquire existing businesses or to purchase equipment and obtain
facilities for satellite production and distribution. Approximately $850,000
will be used to fund additional development of proprietary engineered products,
improved rubber formulas and production processes and marketing and sales
activities. Approximately $800,000 will be used for an S Corporation
distribution to the existing shareholder. The remainder of the proceeds will be
used for working capital and general corporate purposes, including funding
increased inventory and accounts receivables. Any additional proceeds received
upon the exercise of the overallotment option or the Representative's Warrant
will be used for working capital and general corporate purposes.

Since Industrial Rubber has not entered into any acquisition or material
equipment purchase agreements, there can be no assurance that it will able to
carry out its expansion plans for the amounts budgeted. Accordingly, the Company
may decide to change its use of proceeds and reallocate its capital within the
above categories.

Pending utilization of the net proceeds of this Offering, the Company plans
to invest such net proceeds in short-term money market investments, including
money market funds, certificates of deposit and interest-bearing bank accounts.

<PAGE>

DIVIDEND POLICY AND S CORPORATION STATUS

For the foreseeable future, Industrial Rubber expects to follow a policy of
retaining earnings in order to finance the expansion and development of its
business. The payment of dividends is within the discretion of the Company's
Board of Directors.

Since 1989, Industrial Rubber has been treated for federal income tax
purposes as an S Corporation under Subchapter S of the Internal Revenue Code of
1986, as amended, and has been treated as an S Corporation under comparable
state tax laws. As a result, the Company's earnings from such dates through the
day preceding the date of termination of the Company's S Corporation status (the
"Termination Date") have been or will be, for federal and certain state income
tax purposes, taxed directly to the Company's shareholder at his individual
federal and state income tax rate, rather than to the Company. The Termination
Date will occur on or prior to the date of closing of this Offering. After the
Termination Date, the Company will no longer be treated as an S corporation and,
accordingly, will be subject to federal and state income taxes on its earnings.

Industrial Rubber has made or will make distributions to its existing
shareholder to enable him to pay income taxes on taxable income through December
31, 1997, and the Termination Date, which is estimated to be March 31, 1998. The
amount of such distributions will total more than the amount the Company would
have been required to pay had it been taxed as a C Corporation because of the
differences between tax rates for corporations and individuals. The Company
estimates that approximately $800,000 from the proceeds of this Offering will be
distributed with respect to taxable income for the year ended December 31, 1997;
no estimate is available for the period ending March 31, 1998. See "Use of
Proceeds."

<PAGE>

DILUTION

The net tangible book value of the Company's Common Stock at December 31,
1997, was $2,243,809, or $.76 per share. "Net tangible book value" represents
the tangible assets less total liabilities of the Company, and "net tangible
book value per share" was determined by dividing the net tangible book value of
the Company by the number of shares of Common Stock outstanding on December 31,
1997, after giving effect to the stock split effective January 30, 1998. See
"Capitalization." "Net tangible book value dilution" represents the difference
between the Price to Public per Share and the net tangible book value per share
after this Offering. Without taking into account any changes in the Company's
net tangible book value per share after December 31,1997, other than to give
effect to the sale of the Shares offered hereby at the Price to Public of $5.00
per Share (net of underwriting commissions and estimated Offering expenses of
$865,000), the net tangible book value of the Company at December 31, 1997,
would have been $8,378,809, or $1.93 per Share. This represents an immediate
increase in net tangible book value to the existing shareholder of $1.17 per
Share and an immediate net tangible book value dilution to purchasers of the
Shares of $3.07 per share, as illustrated by the following table:

<TABLE>
<CAPTION>
<S> <C> <C>
Price to Public per Share ......................................... $ 5.00
Net tangible book value per share at December 31, 1997 .......... $ .76
Increase per share attributable to this Offering ................ 1.17
------
Net tangible book value per share after this Offering ............. 1.93
------
Net tangible book value dilution per Share to new investors ....... $ 3.07
======
</TABLE>

The following table summarizes, on a pro forma basis, the difference
between the number of shares of Common Stock purchased from the Company by its
existing shareholder and by new investors in this Offering, the total
consideration paid to the Company and the average price paid per share. The
table assumes that none of the 1,400,000 Shares offered hereby are purchased in
this Offering by the existing shareholder.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
---------------------- ----------------------- CONSIDERATION
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shareholder ......... 2,934,000 67.7% $ 146,750 2.0% $ 0.05
New Investors ................ 1,400,000 32.3% 7,000,000 98.0% $ 5.00
--------- ----- ---------- -----
Total ....................... 4,334,000 100.0% $7,146,750 100.0%
========= ===== ========== =====
</TABLE>

- ------------------
(1) Does not reflect deduction of the underwriting discount or any other
expenses incurred in connection with this offering.

The foregoing figures relating to dilution do not reflect the S Corporation
distributions to be made after the closing of this Offering with respect to
taxable income for the year ended December 31, 1997 and for the period from
January 1, 1998 to the date of termination of the S Corporation status. See
"Dividend Policy and S Corporation Status."

<PAGE>

CAPITALIZATION

The following table presents the actual capitalization of the Company at
December 31, 1997. The pro forma column represents the actual balances after
giving effect to the payment of approximately $800,000 in cash dividends
subsequent to year end to the existing stockholder of the Company, reflecting
the amount of dividends paid or payable to the Company's existing stockholder
for the income tax liability resulting from the Company's earnings and status as
an S Corporation through December 31, 1997. The as adjusted column gives effect
to the sale of 1,400,000 shares of common stock by the Company in this Offering
at the initial public offering price of $5.00 per share.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- ------------
<S> <C> <C> <C>
Long-Term Debt, less current maturities ........... $ 171,095 $ 171,095 $ 171,095
Stockholder's Equity:
Common stock, $.001 par value; authorized
25,000,000 shares, issued 2,934,000 shares (as
adjusted, 4,334,000 shares outstanding) ......... 2,934 2,934 4,334
Additional paid in capital ....................... 143,816 143,816 6,277,416
Retained earnings ................................ 2,097,059 1,297,059 1,297,059(1)
---------- ---------- ------------
TOTAL STOCKHOLDER'S EQUITY ...................... 2,243,809 1,443,809 7,578,809
---------- ---------- ------------
TOTAL CAPITALIZATION ............................ $2,414,904 $1,614,904 $ 7,749,904
========== ========== ============
</TABLE>

- ------------------
(1) Does not reflect the S Corporation distribution to be made after the
closing of this Offering with respect to taxable income for the period from
January 1, 1998 to the date of termination of the S Corporation status. See
"Dividend Policy and S Corporation Status."

<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth the summary financial data for the Company
for the periods indicated. This information should be read in conjunction with
the Financial Statements and related Notes appearing elsewhere herein and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." The summary financial data as of and for the year ended December 31,
1995 have been derived from unaudited financial statements (not included in this
Prospectus), which, in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The summary financial data as of and for the years ended December
31, 1996 and 1997 have been derived from the Company's financial statements
which have been audited by McGladrey & Pullen, LLP, independent public
accountants, as indicated in their report included elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales ................................... $3,646,316 $ 6,309,775 $ 14,421,359
Cost of sales ............................... 2,701,682 4,776,634 9,947,870
Gross profit ................................ 944,634 1,533,141 4,473,489
Operating expense ........................... 701,202 1,122,968 1,664,611
---------- ----------- ------------
Operating income ............................ 243,432 410,173 2,808,878
Nonoperating expense ........................ 54,942 90,388 107,111
---------- ----------- ------------
Net income .................................. $ 188,490 $ 319,785 $ 2,701,767
========== =========== ============
PRO FORMA STATEMENTS OF INCOME DATA(1):
Income before income taxes .................. $ 188,490 $ 319,785 $ 2,701,767
Provision for income taxes .................. 75,400 145,300 1,038,000
---------- ----------- ------------
Net income .................................. $ 113,090 $ 174,485 $ 1,663,767
Basic earnings per share .................... $ 0.04 $ 0.06 $ 0.57
========== =========== ============
Weighted average shares outstanding ......... 2,934,000 2,934,000 2,934,000
========== =========== ============
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
1995 1996 1997 1997(2) 1997(2)(3)
----------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets ...................... $ 765,512 $1,943,747 $3,308,711 $3,308,711 $ 8,643,711
Property and Equipment, net ......... 397,975 1,275,371 1,518,093 1,518,093 1,518,093
Other Noncurrent Assets ............. 216,408 120,131 122,780 122,780 122,780
Total Assets ........................ 1,379,895 3,339,249 4,949,584 4,949,584 10,284,584
Current Liabilities ................. 742,944 2,741,941 2,534,680 3,334,680 2,534,680
Long-term Debt ...................... 112,846 240,613 171,095 171,095 171,095
Stockholder's Equity ................ 524,105 356,695 2,243,809 1,443,809 7,578,809
</TABLE>

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

(1) The pro forma statements of income data reflect the effects on the
historical statements of income data for each period presented as if the
Company had not been treated as an S Corporation for income tax purposes.
See "Dividend Policy and S Corporation Status" and Note 7 of Notes to
Financial Statements. The weighted average number of shares outstanding
have been adjusted to reflect a stock split. See Note 6 of Notes to
Financial Statements.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Prospectus.
See "Risk Factors."

GENERAL

The Company was incorporated in March of 1986 to acquire and operate a
rubber lining facility then owned by Irathane Systems Incorporated, a wholly
owned subsidiary of Illinois Tool Works, Inc., located in Hibbing, Minnesota. At
the time the acquisition was closed in April 1986, the facility had been shut
down and it had no employees.

The Company began operations in April of 1986. The Company's business
consists of applying and then vulcanizing rubber (for corrosion and abrasion
resistance purposes) to pipes, pumps, mill parts and other wearable parts that
are used in heavy industry, primarily the mining industry.

Initially, the Company was taxed as a C corporation under the Internal
Revenue Code. Effective January 1, 1989, the Company elected to be taxed as an S
corporation. The Company has continued to be taxed as an S corporation since
that date.

Until 1996, the Company operated only from the Minnesota facility. After
obtaining a major contract to supply pipe lining for tailing pipe to be used at
Kennecott Utah Copper, the Company opened its second production facility in
Clearfield, Utah in the second half of 1996. That facility tripled the Company's
production capacity. The Kennecott project constituted 22% of net sales in 1996
and 56% of net sales in 1997. The project has now been substantially completed.
Sales from the Utah facility comprised 22% of net sales in 1996 and 70% of net
sales in 1997. It is likely that sales from the Utah facility will decrease in
1998.

As discussed elsewhere in this Prospectus, sales to certain major customers
constitute a significant portion of the Company's net sales. These major
customers (each of whom accounted for 10% or more of sales) constituted 50% of
net sales in 1996 and 56% of net sales in 1997. These sales were made pursuant
to purchase orders, rather than long-term contracts.

RESULTS OF OPERATIONS

The following table sets forth certain financial data expressed as a
percentage of net sales for the periods indicated:

YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
------ ------ ------

Net Sales ....................................... 100% 100% 100%
Cost of Sales ................................... 74% 76% 69%
--- --- ---
Gross Profit ................................... 26% 24% 31%
Selling, General and Administrative Expense ..... 19% 18% 12%
Operating Income ................................ 7% 6% 19%
Nonoperating Expenses ........................... 2% 1% --%
--- --- ----
Net Income ...................................... 5% 5% 19%
=== === ===

NET SALES. The Company's net sales increased from $3,646,316 for 1995, to
$6,309,775 for 1996 and to $14,421,359 for 1997. Of the net sales in 1997,
$8,094,517 were related to Kennecott Utah Copper pipe lining project. The
Company's order backlog on January 15, 1998 was approximately $6,300,000.

COST OF SALES. Cost of sales as a percentage of sales was 69% in 1997
compared with 76% in 1996 and 74% in 1995. The decrease in 1997 was mainly due
to achieving a higher level of profitability on a

<PAGE>

major contract and the impact of increased volume on fixed overhead costs. As a
percentage of net sales, gross profit decreased from 26% of net sales in 1995 to
24% in 1996, before increasing to 31% of net sales in 1997. In dollar terms,
gross profit increased from $701,202 in 1995, to $1,533,141 in 1996, to
$4,473,489 in 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $701,202 (19% of net sales) in 1995, to
$1,122,968 (18% of net sales) in 1996, to $1,664,611 (12% of net sales) in 1997.
The increase in actual dollar amounts was due primarily to increased staffing
expenses, which were necessary to service increased sales and increased salaries
for key personnel, reflecting their efforts to increase sales and profitability
at the Company. The drop in selling, general and administrative expenses as a
percentage of net sales in 1997 reflected the fact that the Company was able to
achieve economies of scale thereby decreasing these expenses as a percentage of
sales.

NONOPERATING INCOME AND EXPENSE. The major nonoperating expense, interest
expense, increased from $72,227 in 1995, to $90,554 in 1996 to $110,731 in 1997.
Nonoperating income and expense was not a significant factor in the Company's
operating results in 1996 and 1997.

NET INCOME. Net income (before tax) in 1997 was $2,701,767 compared to
$319,785 in 1996 and $188,490 in 1995. Net income as a percentage of net sales,
increased from 5% in 1995 and 1996 to 19% in 1997. The increase was due
primarily to the successful completion of a major pipelining contract.

INCOME TAXES. As discussed elsewhere in this Prospectus, the Company is an
S Corporation, and as such is generally not responsible for income taxes.
Instead, the existing stockholder is taxed on the Company's taxable income. If
the Company had paid income taxes as a C Corporation, its estimated income taxes
in 1995 would have been $75,400, in 1996 income taxes would have been $145,300,
and in 1997 income taxes would have been $1,038,000.

FINANCIAL POSITION

Net working capital at December 31, 1996 and 1997 is summarized as follows:

1996 1997
---------- ---------

Current Assets:
Cash and equivalents .......................... $ 39,261 $ 132,344
Trade Receivables ............................. 1,220,933 2,282,637
Inventories ................................... 605,133 840,363
Other ......................................... 78,420 53,367
---------- ---------
1,943,747 3,308,711
---------- ---------
Current Liabilities:
Short-term debt (including current maturities
of long term) ................................ 1,844,634 1,353,861
Accounts payable and accrued expenses ......... 897,307 1,073,994
Other ......................................... -- 106,825
---------- ---------
2,741,941 2,534,680
---------- ---------
Net Working Capital (Deficit) ................. $ (798,194) $ 774,031
========== =========

<PAGE>

The increase in trade receivables at December 31, 1997 was primarily due to
a single major contract which was in progress at year end. The percentage of
increase (87%) followed the growth in the Company's sales. Inventories increased
from 1996 to 1997, but the percentage of increase (39%) was significantly less
than the growth in sales. The change in the level of inventory is in part
dependent on Company's mix of sales with some types of sales requiring the
Company to carry more inventory than others.

Short-term debt and current maturities decreased from December 31, 1996, to
December 31, 1997 primarily reflecting the payment of principal (current
maturities) of the Utah equipment loan. The Company funded its major equipment
purchases for Utah on a three-year note which will be fully paid out in August
1999. During 1997, the Company also funded other capital expenditures and
working capital needs with short term borrowings. Accounts payable and accrued
expenses increased at December 31, 1997 versus year-end 1996 mainly due to
increased sales activity.

Long-term debt at December 31, 1997 consisted of $171,095 (primarily bank
debt at 9.5%). Long-term debt decreased $69,518 from December 31,1996.

The percentage of total debt to total assets decreased from 89% at December
31, 1996 to 55% at December 31, 1997. Stockholder's equity was $2,243,809 at
December 31, 1997 compared with $356,695 at December 31, 1996.

The Statement of Cash Flows for the years ended December 1996 and 1997 is
summarized below:

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Net Income ............................................ $ 319,785 $ 2,701,767
Depreciation .......................................... 248,238 374,551
Increase in Receivables and Inventories ............... (1,194,215) (1,399,934)
Increase in Accounts Payable and Accrued Expenses ..... 598,363 176,687
Additions to Plant and Equipment ...................... (1,125,634) (617,273)
S Corporation Distributions ........................... (487,195) (711,653)
Net proceeds (repayments) of debt ..................... 1,528,401 (560,291)
Other, net ............................................ 70,036 129,229
------------ ------------
Net increase (decrease) in cash and equivalents ....... $ (42,221) $ 93,083
============ ============
</TABLE>

Net cash provided by operating activities of $1,845,624 in 1997 was
primarily used for additions to plant and equipment, for S Corporation
distributions, and to repay bank debt for plant and equipment. In 1996 operating
activities used net cash of $17,926 with increases in trade receivables and
inventories using all cash generated by operations. In 1997 net cash used in
investing activities of $587,422 was primarily used for additions to plant and
equipment. In 1996, investing activities used $1,061,857 which was also
primarily used for additions to plant and equipment and funded by bank
borrowings.

In 1997 financing activities used $1,165,119 of net cash, $711,653 being
used for S Corporation distributions to the Company's shareholder for payment of
income taxes and net pay downs on bank borrowings of $560,291. In 1996 financing
activities provided $1,037,562 of net cash most of which came from an increase
in bank borrowings of $1,528,401. Most of the cash generated by financing was
used to fund equipment purchases for the Utah facility. S Corporation
distributions of $487,195, primarily to pay income taxes, were also made in
1996.

LIQUIDITY

As disclosed elsewhere in this Prospectus, the Company has major contracts
which account for a large percentage of its sales. A delay in or failure to pay
on those contracts by those customers could seriously impact the Company's
liquidity. In addition, the Company will have to distribute to its existing
shareholder an estimated $800,000 to cover the taxes payable by the shareholder
on the Company's income through December 31, 1997 and an additional but
presently undeterminable amount based on income from January 1, 1998 though the
S Corporation termination date. See "Use of Proceeds."

The Company believes that the proceeds of this Offering, together with cash
on hand, interest expected to be earned thereon, anticipated revenues and bank
borrowings will be sufficient to fund its

<PAGE>

operations and expansion plans at least through 1998. In order to meet its
needs beyond such time, the Company may be required to raise additional
capital. There can be no assurance that sufficient capital will be available if
and when required on terms acceptable to the Company, if at all. See "Risk
Factors -- Dependence on Additional Capital."

YEAR 2000.

The Company does not expect that the Year 2000 problem will have any
significant impact on its internal operations. The Company believes that its
bookkeeping and computer design systems can be easily modified to correct any
computer program problems that occur at the turn of the century. However, the
Company cannot predict whether it will be affected by problems that its
suppliers and customers might have with their computerized billing, shipping and
payment systems.

<PAGE>

BUSINESS

GENERAL

Industrial Rubber designs, produces and supplies protective materials,
abrasion resistant products and equipment, erosion/corrosion protective linings
and proprietary rubber products to the mineral processing, power, paper, pulp
and other heavy industries.

Industrial Rubber has increased its sales from $3,646,316 in 1995 to
$14,421,359 in 1997, and its pro forma net income from $113,090 in 1995 to
$1,663,767 in 1997. This increase in sales and earnings has been the result of
the Company obtaining and successfully completing a number of large contracts.
During that three-year period, the Company has more than tripled its production
capacity by opening a production facility in Utah.

Industrial Rubber has three product lines. Its pipe and pipe lining
products line consists of rubber lined pipe and pipe parts fabricated primarily
for the mineral processing industry. Its proprietary products are engineered
replacement parts primarily for mineral processing facilities. Its standard
rubber products are sold, along with related services, to the Company's
customers in the various industry segments served by the Company.

Industrial Rubber operates two production and distribution centers. Its
Minnesota facility (located on the Mesaba Iron Range, the heart of the taconite
mining industry) is a 30,000 square foot manufacturing facility. Proprietary and
rubber lined pipe products produced at the Minnesota facility are used by
taconite pellet producing companies and are also shipped throughout North
America for use in copper, gold, molybdenum and other mineral processing
operations. The Minnesota facility also houses the Company's corporate
headquarters and sales and technical support staffs.

In 1996, due to customer demand, a second production facility in Utah,
equipped with over $1,000,000 in specially designed processing machinery, was
opened. The Utah plant is designed to supply Industrial Rubber's piping and pipe
products line. It uses the Company's proprietary erosion/corrosion protective
linings and a network of suppliers to produce and supply rubber lined pipe and
pipe products for slurry transportation and mineral handling. Due to the large
size of these products, the location of this production facility, close to the
copper, gold and molybdenum producing plants in the western United States and
Canada, is advantageous for shipping and technical support.

The Company markets its products through a direct sales force and
independent sales representatives. The Company's major customers in 1997
included Kennecott Utah Copper (copper mining), Hibbing Taconite Company, whose
majority owner is Bethlehem Steel (taconite production), Royal Oak Mining Kemess
Mine (gold mining), and Shaw -- NAPTech (power generation).

Industrial Rubber's expected growth will come through increased penetration
of the North American hard rock mining market with its present rubber products,
the development and sales of new products, sales to new mineral processing
markets outside of North America and sales of present and new products to the
power generation, paper and pulp manufacturing and other heavy industries.

INDUSTRY

The markets for the Company's products are the hard rock mineral
processing, power and coal generation, paper and pulp production, and other
similar heavy industries. Its marketing to date has focused primarily on the
mining industry.

The North American mining industry is considered heavy industry. The hard
rock that hosts important minerals (iron, copper, gold, molybdenum), is
generally blasted from the earth and then crushed and ground (processed) to
allow the extraction (benefication) of these minerals. The equipment needed to
process and beneficate this rock is subject to constant abrasion, corrosion and
erosion. Industrial Rubber has developed, designed, tested and produced rubber
products that protect the mineral processing and benefication equipment,
extending their serviceable life, and saving its customers money through
decreased replacement costs and reduced downtime. The Company's rubber products
also provide further benefits to its customers through noise abatement and dust
and dirt reductions.

<PAGE>

Although Industrial Rubber's products protect the mineral processing and
benefication equipment, the products do become worn and must be replaced. Many
of the Company's products are used to replace its own and other manufacturers'
protective products that have become worn.

MARKETS

North American taconite (iron ore), copper, gold and molybdenum plants are
major present customers for Industrial Rubber products. Mineral processors use
equipment to crush, grind, classify (size), separate and transport the rock,
mineral rock and wastes. This equipment is in a constant cycle of repair and
replacement due to the severe abrasion, corrosion and erosion qualities of the
material it is handling.

Industrial Rubber's first market was the Minnesota taconite industry where
taconite rock with a typical iron ore content of 25% to 30% is excavated,
crushed, ground and separated to make 46 million tons of high grade taconite
(iron ore) pellets annually.

The protective products, made from steel, iron, rubber, urethane, ceramics
and plastics are a large portion of a taconite plant's cost. For instance, to
protect the 36 foot diameter ore grinding mills at an 8,000,000 ton per year
operation, $5,500,000 to $6,000,000 is spent on abrasion resistant operating
materials. The taconite industry in northern Minnesota operates approximately
160 ore grinding mills, ranging from 10 foot diameters to 36 foot diameters, and
spends over $30,000,000 per year in protecting these grinding mills. This
expenditure is only a portion of the materials purchased to protect or replace
the process equipment in the taconite industry of Minnesota. According to the
Iron Mining Association of Minnesota, $1,426,000,000 is spent annually in
Minnesota by taconite producing companies and $925,000,000 of this total is
spent on operating supplies.

Peter Kakela, a taconite industry expert from Michigan State University,
projects a long-term, stable demand for taconite pellets from the Mesaba Iron
Range of Minnesota. In the United States, nine mines, seven in northern
Minnesota and two in the Michigan Upper Peninsula, accounted for 99.2% of
taconite production. In Canada, four mines in Northeast Canada accounted for 99%
of its taconite production. Minnesota taconite accounts for less than 10% of
worldwide production of iron ore. Globally, the growth in iron ore demand is
projected to continue over the next ten to 15 years.

In 1991, Industrial Rubber began to sell its products to other mineral
processing markets to diversify its business and minimize the effects of demand
cycles. For instance, while the demand for taconite and molybdenum remained
stable, the demand for copper and gold fell in 1997. In 1997, approximately 70%
of the Company's sales were to mineral processing facilities other than
taconite, much of those sales related to copper production.

The U.S. and Canada rank number two and number three, respectively, in
worldwide copper production and have slated many new mine openings and expansion
projects for copper production. Arizona is the number one copper producing
state.

Copper ore is typically a 1% to 1.5% grade. Gold ore is considerably lower.
The waste rock slurry pipe systems needed to transport this rock to large
impoundments have grown, due to environmental and practical needs. A North
American copper producer recently invested $450,000,000 in a new 3,500 acre
copper rock waste (tailings) impoundment. Of this total, $40,000,000 was spent
on highly abrasive resistant, lined pipe products.

Although North America is a large market for the Company's products, the
world mining industry is also large, with Chile alone operating a significant
number of grinding mills with resulting mine production of 3,000,000 metric
tons. Recently, the Company has begun to expand by selling its products outside
of North America. In 1997, less than 1% of the Company's sales were shipped
offshore. In 1998, the Company estimates that this will grow to approximately
20% of sales. The international market offers potential market growth for
Industrial Rubber, with most of the actual contracts coming from North American
engineering firms or their subcontractors. The Company's standard practice is to
have non-North American purchase orders guaranteed by letters of credit.

According to AME Mineral Economics of Australia, world demand for copper is
expected to grow over the next decade. China and other developing Asian
economies are expected to increase demand significantly. Eastern Europe and the
former Soviet Union may also become net importers of refined copper.

<PAGE>

STRATEGY FOR CONTINUED GROWTH

The Company's goal is to be a leading designer, producer and supplier of
protective materials for equipment in mining and mineral processing, coal and
power generation, paper and pulp and related industries on a global basis. It
seeks to achieve this goal by several methods.

INCREASED PENETRATION OF EXISTING MARKETS. The Company intends to increase
its penetration of its historic markets, specifically mineral processors and, to
a lesser extent, coal and power generators, with its present protective
materials, concentrating on slurry pipe and pipe products and engineered and
proprietary grinding mill products.

The Company is employing a variety of approaches that include a customer
identification program and need analysis, an increase in the direct sales force
and development of a network of independent representatives to serve
geographical areas that are not easily accessible to the Company's direct sales
force. The Company will seek to develop strategic business alliances with end
use customers and the engineering firms who serve them. The Company will focus
on its present relationships with large volume repeat customers.

GEOGRAPHICAL EXPANSION IN NORTH AMERICA. Industrial Rubber is planning to
increase its sales in North America by placing satellite production and
distribution facilities where justified by the local market. While the Company
has identified several potential satellite locations, the locations that
presently appear most promising are Canada and the southwestern United States,
particularly Arizona.

At the beginning of 1995, there were a total of 284 mines (excluding sand
and gravel quarries) in operation in Canada. As Natural Resources Canada has
recently stated:

"Total value of Canadian mineral production soared in 1996.
The Canadian mineral industry remains an essential and
dependable cornerstone for national economic growth and
employment. As the world's greatest exporter of minerals and
metals, Canada enjoys benefits to its economy from this
industry."

According to an article in the CANADIAN MINING JOURNAL, August 1997, "capital
spending is on the uptake and about 50 new mines are expected to open in
1997-98, creating more than 6,000 jobs in the process. Moreover, spending on
exploration is on the rise . . ." A stated goal for the Canadian government is
to ensure that much of the mining and exploration capital expenditures are spent
within the Canadian borders. This growth projection and past experience in
competing in the Canadian market, particularly in dealing with exchange rate
issues, has demonstrated to Industrial Rubber the need for a production facility
in Canada.

Another likely location for a satellite facility is Arizona. According to
the U.S. Bureau of Mines, in 1996, for the eighth time in the past nine years,
Arizona led the U.S. in total non-fuel mineral production valued at $3.5
billion. Arizona continued as the top copper-producing state, accounting for 65%
of the total U.S. copper mine production and value. There are eight major
existing copper mines in Arizona. Arizona also produces gold, silver, molybdenum
and zinc.

INTERNATIONAL SALES EXPANSION OF PRODUCTS AND TECHNOLOGIES. The Company is
planning to target a portion of its marketing efforts to international mineral
processing and power generation customers. The Company will use its engineering
customer database and international representatives to market its products
outside of North America. The Company's direct sales force will support these
efforts by attending and exhibiting at international expositions -- such as the
International Mining Expo in Santiago, Chile, and the S.M.E. Mining Expo in
Orlando, Florida.

VERTICAL EXPANSION OF PRODUCTS. The Company has identified other protective
material products, including steel and iron products, that are not presently
produced by Industrial Rubber, but are used by its customers. The Company's
growth strategy seeks to supply these products to its customers either through
the acquisition of appropriate production facilities or through developing
strategic relationships with the manufacturers of these products. This would
allow the Company to supply its customers with a full line of protective
products eliminating the disadvantage to the customers of acquiring components
from multiple suppliers. Customers should further benefit by having a single
source for the design and testing of protective product improvements.

<PAGE>

INTEGRATION OF RAW MATERIALS SUPPLY. The Company currently purchases its
rubber from multiple suppliers that manufacture to the Company's specifications
and formulas. The Company plans to either purchase a raw material supplier or
purchase the equipment to process natural and synthetic rubber using the
Company's formulas and calendared forms. This integration is expected to reduce
production costs and expand potential markets by providing the capability to
develop new formulas internally. Management believes that the direct control of
raw material quality and research and development in the mixing and calendaring
process should enhance the product performance of the Company's products for its
customers. By strategically locating the raw material processing operation,
transportation costs can be reduced.

ENVIRONMENTAL SOLUTIONS FOR ITS CUSTOMERS. Recent studies in Minnesota and
Michigan have demonstrated that there is a concern regarding the environmental
considerations both for present disposal costs and future liabilities arising
from landfill disposal of steel, rubber, urethane and other worn out products.
At the present time, grinding mill parts, pump parts, classification screens,
pipe products and other benefication equipment protective parts made of rubber,
steel and urethane, are disposed of after usable life, normally through a
landfill method. The Company's planned closed-loop recycling program would allow
its customers to return these used equipment products to the Company. The
Company will remove the elastomeric compounds, and through cryogenic technology
and the Company's and others' proprietary material enhancement processes,
produce recycled raw materials to be used in manufacturing molded rubber
protective parts for repurchase.

Industrial Rubber plans to incorporate a closed-loop recycling program into
its marketing strategies for all products and locations. A further benefit of
the "closed-loop" recycling process and re-manufacturing raw materials should be
to reduce the Company's dependency on natural rubber.

PRODUCTS AND TECHNOLOGY

The Company has three product lines: pipe and pipe products, proprietary
and engineered products and standard rubber products.

PIPE AND PIPE PRODUCTS. Industrial Rubber produces and supplies rubber and
steel slurry pipe and components for tailings pipeline systems. A proprietary
formulated rubber compound (I.R.P. X8220) is used which protects these pipelines
from abrasion and corrosion. This proprietary compound has increased pipeline
life expectancy by 50% in one North American taconite plant. A taconite plant
has advised Industrial Rubber that its operational evaluation has demonstrated
that unprotected steel tailing pipe has a service life of 20,000 hours, while
similar pipe lined with Industrial Rubber's proprietary compound X8220 has a
service life of 40,000 hours. The Company's proprietary compound X8220 has been
used in 600,000 feet of slurry transportation pipe products for 12 mineral
processing plants. Since its development it has demonstrated its ability to
extend service life and protect expensive tailings impoundment systems from
corrosion and abrasive wear.

In 1996, the Company designed and developed new processes and equipment
that decreased the cost and improved the overall product quality of overland
slurry pipelines. Mechanical couplings, historically used in connecting lined
pipe for long distance overland slurry systems, are typically high cost items to
the customer. This is particularly true in high pressure, large diameter
pipelines. Prior to 1996, industry standards and equipment limitations only
allowed for the production of 40' long pipe sections. Industrial Rubber has
designed its own production equipment, and presently supplies to its customers
60' pipe sections, eliminating one third of the required mechanical couplings,
and resulting in cost savings to the customers.

The Company used this technology in lining 120,000 linear feet of pipe for
the abrasive slurry transportation system of the Kennecott Utah Copper
Corporation at its $450,000,000 tailings impoundment modernization project in
Utah. Since 1996, three other major slurry transportation system products have
been purchased from Industrial Rubber:

1997 B & K Steel 8,200' 48" diameter pipe
1998 Royal Oak Kemess 47,000' 26" diameter pipe
1998 Newmont/Batu Haiju 21,000' 44" diameter pipe

<PAGE>

The Company believes that the development of 60` lined pipe has set the
standard for the industry. Industrial Rubber is continuing development efforts
to eliminate mechanical couplings in rubber lined pipe products for overland
slurry transportation systems.

In 1996, Industrial Rubber and its suppliers developed 1" thick calendared
rubber, the first in the industry to meet engineered specifications for an
abrasive slurry material. This rubber product doubled the expected service life
of industry standard 1/2" calendared rubber in slurry transport, and is
projected to result in cost savings for customers by reducing replacement cost.

Industrial Rubber's pipe product line includes large overland slurry system
pipe products and products as small as 2" in diameter. The Company can produce
rubber lined pipe from 2" to 72" in diameter, from 1" to 60` long, and with
calendared linings from 1/8" to 1" thick. It can provide all fittings, tees,
Y's, manifolds and other piping components typically used in mineral processing
and power generation facilities.

PROPRIETARY AND ENGINEERED PRODUCTS. Industrial Rubber's proprietary and
engineered products line includes engineered grinding mill parts. Examples of
such products are air bags, lifter bars and shell liners. The hard host rock
that contains minerals must be ground to small fragmented product size, using
large grinding mills. The wearable parts that protect these grinding mills have
a relatively short service life. They have been typically made of heavy iron
castings.

Industrial Rubber's patented rubber grinding mill discharger reduces
weight, matches or increases service life and provides improved fit when
compared to other dischargers. A North American mineral-processing plant has
reported that by using the Industrial Rubber patented grinding mill dischargers,
it has reduced grinding costs by increasing production and decreasing energy
costs per ton ground. The patented grinding mill discharger is being used at two
taconite, one molybdenum and three copper mines, operating in 17 grinding mills.
Grinding mill dischargers and other grinding mill products are being designed
for five additional mining properties.

STANDARD RUBBER PRODUCTS. The Company's standard rubber products range in
weight from less than one pound to over 10,000 pounds, with costs ranging from
$20 to $20,000 for individual parts. Examples of such products are manifolds,
screens, pulleys and rolls. All products are made to customer engineered
specifications. The Company's Quality Assurance Program seeks to insure product
conformity while limiting defects and reducing associated value added costs. The
Company, responding to the needs of international markets, has begun
preparations to qualify under an ISO 9000 program.

RESEARCH AND DEVELOPMENT. The Company has not incurred significant research
and development costs, although it has incurred certain such costs on a
job-by-job basis which are expensed as incurred. Management anticipates that
research and development efforts will increase in the future.

SALES AND MARKETING

Industrial Rubber markets and sells its products to hard rock mineral
processing companies, power plants and other heavy industrial companies whose
process equipment is subject to abrasion and corrosion.

The Company presently has a sales force comprised of a sales and marketing
manager, four direct salespeople, a sales clerk, a marketing and public
relations clerk, two independent sales representative companies that employ five
direct salespeople and a marketing consultant. The Company plans to grow its
number of direct salespeople and is in the process of establishing independent
sales representation in certain national and international markets.

Industrial Rubber's marketing strategy is to maximize penetration of
domestic markets, including mineral processors and coal and power generating
facilities, with its present products. The Company intends to expand its product
lines and new products will be cross-sold to existing and new customers.

The marketing plan includes prospective customer identification, customer
needs analysis and increased and strategic placement of the sales force, to
facilitate geographic market and product expansion. The marketing plan will be
implemented in the U.S. and Canadian markets and, when appropriate,
internationally. The Company intends to develop business partnerships with
existing customers and the engineering firms that serve them.

<PAGE>

Chile, Peru, Brazil, Argentina, Mexico and Australia are major mineral
processing countries, as are certain Southeast Asian countries. The Company will
direct its efforts to penetrate these markets by adding direct sales people,
adding independent representatives and forming strategic alliances with original
equipment manufacturers in these markets.

Industrial Rubber utilizes general and product specific brochures and sales
literature. Video is used as an additional marketing resource. Advertising and
articles in industry trade magazines, journals, newsletters and papers will be
increased. Tradeshow attendance and participation is expected to become a larger
part of the marketing effort. The Company's management is meeting with
international marketing consultants in preparation for international sales.

<PAGE>

From the grinding of the ore to the disposal to the waste rock (tailings)
in taconite, copper, gold and molybdenum processing plants, Industrial Rubber's
markets include products to protect the following equipment:

TRANSPORTATION CRUSHING GRINDING
- -------------- -------- --------
Thickeners Chutes Mill Liners
Feed Wells Dust Collection Systems Pulp Lifters
Shronds Pulleys Trommel Screens
Pulleys Skirt Boards Bucket Wheels
Skirt Boards Repair Coatings Dust Collection Systems
Repair Coatings Process Piping Return Tubes
Process Piping Valves Pulleys
Valves Skirt Boards
Repair Coatings
Process Piping
Valves

SEPARATION SLURRY TRANSPORTATION CLASSIFICATION
- ---------- --------------------- --------------
Sumps Plumes Launders
Cyclones Pipe Dust Collection Systems
Tanks Elbows Pump Parts
Dust Collection Systems Sumps Screens
Launders Launders Repair Coatings
Clarifiers Clarifiers Process Piping
Pump Parts Pump Parts Valves
Thickeners Thickeners
Feed Wells Feed Wells
Shrouds Shrouds
Agitator Shafts Repair Coatings
Filter Tanks Process Piping
Pipe Elbows Valves
Coatings
Screens
Hydro Separators
Mag. Separators
Flot. Cell Separators
Process Piping
Valves

The Company has current market, customer and competition research underway,
evaluating the markets in which its current customers are found and other
potential markets. For example, materials transportation using slurry methods is
continuing to grow for mineral processing, power generation and tar (oil) sands
operations. Other markets include both hard and soft rock mining, processing and
benefication and other industries with abrasion and corrosive issues, such as:

* Coal

* Rock Aggregate

* Sand & Gravel

* Paper & Pulp

* Agriculture, Food & Grain

* Power Generation

* Railroad

* Industrial Controls & Environmental

<PAGE>

BACKLOG

The Company's order backlog on January 15, 1998, was approximately
$6,300,000. All the Company's sales are made through purchase orders. The
Company currently anticipates that it will have filled all current backlog
orders by the end of the first half of 1998. For factors that might affect the
Company's ability to fill its orders, see "Risk Factors."

COMPETITION

The protective material products business that serves the mineral
processing and power generation industries is competitive. These protective
material products are made of steel, iron, rubber, urethane, ceramics, plastics
and hybrids of these materials. The Company's competitors fabricate, cast, mold,
shape, machine, and form the material into finished products. Both large and
small companies throughout the world compete on price and by adding value to
their products through fit and function, using physical design, chemical or
physical make up or proprietary data (patents). The competition falls into two
categories.

The first category is the regional manufacturer/supplier that services the
mineral processing and power generation properties that are close to its
production facility. Standard rubber liners, urethane castors and metal
fabricators typically fall within this category. They use personalized service
and quick delivery as an advantage to their regional customers.

The second category is national manufacturers of products that are used by
a large number of mineral processing and power generating plants. Rubber
molders, cast iron and metal makers, ceramic manufacturers and original
equipment manufacturers typically fall into this category. They use proprietary
design, large distribution networks and high volume to reduce manufacturing
costs. Sophisticated quality programs, managed inventories and just-in-time
deliveries are advantages to their customers, and their size provides them with
access to greater financial and other resources.

The Company believes that it can successfully compete with companies in
both categories, through focused service to customers located near its Minnesota
and Utah facilities and through its ability to provide quality products in
increasingly large quantities to customers located in geographically distant
areas. The Company also believes that the satellite facilities that it may
establish will increase its ability to compete in geographically distant
markets.

GOVERNMENTAL AND ENVIRONMENTAL REGULATION

Industrial Rubber is subject to a wide variety of governmental regulations,
with which it actively seeks to comply. As a manufacturing company, Industrial
Rubber is subject to safety regulation by the United States Department of Labor
and the Minnesota Department of Labor and Industry under the Occupational Safety
and Health Act ("OSHA"). Because its products are sold to the mining industry,
workplace safety at the Company is also subject to regulation by the Mine Safety
and Health Administration. The Company's operations are continually being
monitored and inspected. As new standards develop, the Company could be placed
in a situation of having to modify its production processes to comply with
changing regulations.

The Company uses hazardous solvents in its production processes and
disposes of waste products such as used solvents. These and other activities of
the Company are subject to various federal, state and local laws and regulations
governing the generation, handling, storage, transportation, treatment and
disposal of hazardous wastes. Under such laws, an owner or lessee of real estate
may be liable for, among other things, (i) the costs of removal or remediation
of certain hazardous or toxic substances located on, in or emanating from, such
property, as well as related costs of investigation and property damage and
substantial penalties for violations of such laws, and (ii) environmental
contamination at facilities where its waste is or has been disposed. Such laws
often impose such liability without regard to whether the owner or lessee know
of, or was responsible for, the presence of such hazardous or toxic substances.
While the Company's operations, to its best knowledge, are in full compliance
with all existing laws and regulations, environmental legislation and
regulations have changed rapidly in recent years and the Company cannot predict
what, if any, impact future changes in such legislation may have on the
Company's business. Further, environmental legislation has been enacted, and may
in the future be

<PAGE>

enacted, that creates liability for past actions that were lawful at the time
taken. As in the case with manufacturing companies in general, if damage to
persons or the environment has been caused, or is in the future caused, by the
Company's use of hazardous solvents or by hazardous substances located at the
Company's facilities, the Company may be fined or held liable for the cost of
remediating such damage. Imposition of such fines or the incurrence of such
liability may have a material adverse effect on the Company's business,
financial condition and result of operations. Further, changes in environmental
regulations in the future may require the Company to make significant capital
expenditures to change methods of disposal of hazardous solvents or otherwise
alter aspects of its operations.

The United States Environmental Production Agency ("EPA") in its October
1992 Preliminary Assessment of the Company's Minnesota facility reported that
the Company's predecessor had a 5,000 square foot unlined outdoor waste drum
storage area between 1967 and 1981. The EPA's assessment revealed no documented
releases from this area. In August 1997, the Company was requested by the
Minnesota Pollution Control Agency to perform soil tests in the area. Based on
information received to date by the Company, the Company does not believe that
the cost of testing and soil remediation, if necessary, will be material.

During February 1998, the Company received OSHA reports addressing a number
of deficiencies found by inspectors in the Company's production facilities, and
assessing fines against the Company totalling $7,950. Management believes that
neither the cost of correcting the alleged deficiencies nor the payment of any
fines will have a material effect on the operations of the Company. The Company
intends to participate with OSHA in a program to limit or correct future
deficiencies before fines are assessed.

PROPRIETARY RIGHTS

The Company currently holds one patent for a Discharge Millhead. The
Company is developing additional potentially patentable products and is also
developing processes for increasing the amount of recycled rubber that can be
used in its products. Since many of the Company's developments are extensions of
existing knowledge, no assurance can be given that patents for either the
products or processes being developed will be issued, that the scope of any
patent protection will exclude competitors or provide competitive advantages to
the Company, that any of the Company's patents will be held valid if
subsequently challenged or that others will not claim rights in or ownership to
the patents and other proprietary rights held by the Company. Further, there can
be no assurance competitors have not developed or will not develop similar
products, duplicate the Company's products or, if patents are issued to the
Company, design around such patents. In addition, whether or not patents are
issued, others may hold or receive patents which contain claims having a scope
that covers products developed by the Company. Industrial Rubber's proprietary
rubber formula is not patentable. While the Company obtains confidentiality
agreements from its suppliers and its key employees, competitors could
independently develop the formula. Further, litigation to protect either patents
or trade secrets, enforce patents issued to the Company, to protect trade
secrets or know-how owned by the Company, and to defend the Company against
claimed infringement may be necessary.

EMPLOYEES

As of February 20, 1998, Industrial Rubber had 95 employees, all of whom
were full-time; 60 were in Minnesota and 35 were in Utah, of whom 76 were in
production, seven in sales, two in engineering and design, and ten in executive,
administrative and clerical positions. The Company believes that its relations
with its employees are excellent, demonstrated by a low turnover rate. The
Minnesota production employees are covered by a collective bargaining agreement
with the United Steel Workers of America, Local No. 6860-1, which terminates on
April 1, 2000. There is no union affiliation at the Utah facility. The Company
believes that the representation of the Minnesota production employees by the
Union acts to remove a potential barrier to the sale of certain of the Company's
products to the taconite mining plants by responding to union contract language
that limits out-sourcing of work.

<PAGE>

FACILITIES

The Company owns a 30,000 square foot facility on eight acres of land in
the Hibbing Industrial Park, Hibbing, Minnesota. Newly renovated corporate
office space occupies approximately 4,000 square feet of this facility, with the
remainder dedicated to manufacturing space. Portions of the eight acres of land
are used for receiving, storage and sandblasting activities.

The Company leases a 60,000 square foot facility and a nearby lot in
Clearfield, Utah. The current lease agreement runs through July 31, 1998, and
the Company has options to renew the lease through July 31, 2001. Approximately
58,000 square feet of the facility are used for manufacturing and approximately
2,000 square feet are used for office space. The nearby lot is used for
receiving and storage.

LEGAL PROCEEDINGS

The Company has been involved from time to time in various legal
proceedings arising in the ordinary course of business. There are no pending or
threatened proceedings at this time.

<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The directors, executive officers and key employees of the Company are as
follows:

NAME AGE POSITION
---- --- --------
Daniel O. Burkes 45 President, Chief Executive Officer,
Treasurer and Director
Nancy J. Burkes 42 Vice President, Secretary, and Director
Christopher M. Liesmaki 40 Vice President -- Operations
Richard M. Radovich 54 Vice President -- Engineering
James A. Skalski 29 Controller

All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. Executive officers
of the Company are elected by and serve at the discretion of the Board of
Directors. Within 90 days of the completion of this Offering, it is anticipated
that Nancy J. Burkes will resign as a director and the Board of Directors will
be increased to five directors of which three will be outside directors. The
Board will establish an Audit Committee, which will review the results and scope
of the audit and other services provided by the Company's independent public
accountants.

DANIEL O. BURKES has been President, Chief Executive Officer and Treasurer
and a member of the Board of Directors of the Company since he founded it in
1986. He began working in 1975 in the rubber industry and from 1977 until 1986
he was the Sales and Marketing Director of Irathane Systems Incorporated, a
wholly owned subsidiary of Illinois Tool Works, Inc.

NANCY J. BURKES has been a Director, Vice President and Secretary of the
Company since its founding in 1986. Mrs. Burkes is married to Daniel O. Burkes,
and as indicated above will be resigning as a Director within 90 days after the
Offering.

CHRISTOPHER M. LIESMAKI has been with the Company since 1988 and currently
serves as the Company's Vice President -- Operations. He has previously held
the positions of Sales Engineer, Quality Assurance Coordinator, Sales and
Marketing Manager and General Manager. Prior to coming to the Company, Mr.
Liesmaki was a Materials Quality Engineer with Control Data Corporation for
eight years. Mr. Liesmaki is married to a sister of Nancy J. Burkes.

RICHARD M. RADOVICH has been with the Company since 1991 and serves as
Vice President -- Engineering. Mr. Radovich is also General Manager of Nelson
Roofing Company (see "Certain Transactions"). From 1985 to 1991 he was the
General Manager and a Product Engineering Estimator of Irathane Systems
Incorporated. Prior to 1985 he worked for 12 years as a Design Engineer with
Abe W. Mathews Engineering Company.

JAMES A. SKALSKI has been with the Company since 1997, and serves as the
Company's Controller. Mr. Skalski is a Certified Public Accountant. Before
joining the Company, Mr. Skalski taught accounting and computer courses at
Mesabi Range Technical College from 1995 to 1997, was controller of Viking
Supply from 1993 to 1994 and was an accounting employee at Irathane Systems
Incorporated in 1992.

<PAGE>

SUMMARY COMPENSATION

The following table sets forth certain information regarding compensation
earned or awarded to the President and Chief Executive Officer and each
executive officer of the Company who received annual salary and bonus
compensation in excess of $100,000 for 1997 (the "Named Executive Officer").

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
-------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ------------------------------- ---- -------- -------

Daniel O. Burkes, 1997 $255,216 --
President and Chief Executive
Officer, Treasurer

Christopher M. Liesmaki, 1997 $ 70,122 $78,000
Vice President -- Operations

Richard M. Radovich, 1997 $ 64,320 $50,000
Vice President -- Engineering

EMPLOYMENT AGREEMENT

On January 30, 1998, the Company entered into a two-year Employment
Agreement with Daniel O. Burkes, President and Chief Executive Officer of the
Company, pursuant to which Mr. Burkes is entitled to an initial annual base
salary of $255,216 per year and a bonus determined by the Board of Directors.
Mr. Burkes is required by the agreement to maintain confidentiality of all
Company trade secrets and upon termination of employment will be prohibited from
participating in a competing venture for a period of two years. The initial term
of the agreement ends on January 30, 2000, unless sooner terminated in
accordance with the provisions of the agreement.

STOCK OPTIONS

On January 30, 1998, the Board of Directors and sole shareholder of the
Company adopted the Industrial Rubber Stock Option Plan (the "Plan") in order to
provide for the granting of stock purchase options to employees, directors and
officers of the Company. The Plan permits the granting of incentive stock
options meeting the requirements of Section 422 of the Internal Revenue Code of
1986, as amended, and also nonqualified stock options which do not meet the
requirements of Section 422. The Company has reserved 400,000 shares of its
Common Stock for issuance upon exercise of options granted under the Plan. On
January 30, 1998, the directors granted five-year incentive stock options to 15
employees of the Company, providing for the purchase of an aggregate 113,600
shares at $4.50 per share. One-fourth of the options become exercisable on
January 30, 1999, and an additional one-fourth on January 30 of each of the
subsequent three years. The group of employees receiving options included
Messrs. Liesmaki and Radovich, who received options to purchase 30,000 shares
and 25,000 shares, respectively.

The Plan also provides for the automatic grant of a non-qualified option to
purchase 10,000 shares of Common Stock, which vests over five years, to each
non-employee director at the time of his or her initial election to the Board of
Directors, and an automatic grant of a non-qualified option to purchase 2,500
shares of Common Stock at the end of each year during which such non-employee
serves as a director of the Company. The Plan authorizes the Board of Directors
to increase or decrease the 10,000 share and 2,500 share amounts. All such
options will be granted at an exercise price equal to the fair market value of
the Common Stock on the date of grant.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Restated Articles of Incorporation limit the liability of
directors in their capacity as directors to the Company or its shareholders to
the full extent permitted by Minnesota law. The Articles provide that a director
shall not be liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional

<PAGE>

misconduct or a knowing violation of law, (iii) for dividends, stock repurchases
and other distributions made in violation of Minnesota law or for violations of
the Minnesota securities laws, or (iv) for any transaction from which the
director derived an improper personal benefit. These provisions do not affect
the availability of equitable remedies, such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty, although, as a practical
matter, equitable relief may not be available. The above provisions also do not
limit liability of the directors for violations of, or relieve them from the
necessity of complying with, the federal securities law.

The Restated Bylaws of the Company also provide that the Company will
exercise, to the full extent permitted by law, its power of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission (the "Commission")
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

CERTAIN TRANSACTIONS

Since August, 1992, the Company has provided certain services to Nelson
Roofing, Inc., a corporation owned by Daniel O. Burkes, the sole shareholder of
the Company. The services provided included accounting, human resource,
management and other miscellaneous services. Under this arrangement, Nelson
Roofing, Inc. paid the Company $120,000 in 1995, $73,000 in 1996 and $102,000 in
1997. Effective January 30, 1998, the arrangement with Nelson Roofing, Inc. was
formalized under a written agreement continuing the existing arrangement through
December 31, 1998, and requiring monthly itemized billing and payment.

Since January 1997, the Company has rented a home in Utah from Daniel O.
Burkes. The home is used as temporary housing for management and other Company
employees from the Hibbing facility who are on temporary assignment at the Utah
facility. During 1997, the Company paid a total of $61,100 in rent to Mr. Burkes
for use of the home. The Company intends to continue this arrangement on a
month-to-month basis, as needed.

The Company believes that all prior transactions between the Company and
its officers, directors or other affiliates of the Company were on terms no less
favorable than could have been obtained from unaffiliated third parties on an
arm's-length basis. All future transactions, loans and any forgiveness of loans,
with directors, officers or stockholders holding more than 5% of the Company's
outstanding Common Stock, or affiliates of any such persons, will be made for
bona fide business purposes and will be on terms no less favorable than could be
obtained from an unaffiliated third party and will be approved by a majority of
the independent outside directors who do not have an interest in the
transactions.

<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth as of the date of the Prospectus certain
information regarding beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director of the Company, (iii) each
Named Executive Officer and (iv) all executive officers and directors of the
Company as a group. The following information assumes that the named individuals
will not be purchasing any Shares in this Offering.

<TABLE>
<CAPTION>
SHARES PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------ ------------------ -------------- -------------
<S> <C> <C> <C>
Daniel O. Burkes ................... 2,934,000 100% 67.7%
Nancy J. Burkes .................... 2,934,000(2) 100% 67.7%
Christopher M. Liesmaki ............ 0(3) 0% 0%
Richard Radovich ................... 0(4) 0% 0%
All executive officers and directors
as a group (4 persons) ............ 2,934,000 100% 67.7%
</TABLE>

- ------------------
(1) The address of each named individual is 3804 E. 13th Avenue, Hibbing, MN
55746.

(2) Comprised of shares owned by Daniel O. Burkes, Mrs. Burkes' husband.

(3) Does not include 30,000 shares issuable to Mr. Liesmaki pursuant to a stock
option granted under the Company's Stock Option Plan, which option is not
currently exercisable.

(4) Does not include 25,000 shares issuable to Mr. Radovich pursuant to a stock
option granted under the Company's Stock Option Plan, which option is not
currently exercisable.

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 25,000,000 shares
of capital stock $.001 par value, of which 5,084,000 shares are Common Stock and
19,916,000 shares are not designated as to terms and preferences.

COMMON STOCK

The Company has 2,934,000 shares of Common Stock issued and outstanding.
The holders of the Common Stock: (i) have equal ratable rights to dividends from
funds legally available therefor, when, as and if declared by the Board of
Directors of the Company; (ii) are entitled to share ratably in all the assets
of the Company available for distribution to holders of the Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription or conversion rights and there are no
redemption or sinking fund provisions applicable thereto; and (iv) are entitled
to one vote per share on all matters which shareholders may vote on at all
meetings of shareholders. All shares of the Common Stock now outstanding are
fully paid and nonassessable.

The holders of the Common Stock do not have cumulative voting rights, which
means that the holders of more than 50 percent of such outstanding shares voting
for the election of directors can elect all of the directors of the Company to
be elected, if they so choose. In such event, the holders of the remaining
shares will not be able to elect any of the Company's directors.

UNDESIGNATED STOCK

Under governing Minnesota law and the Company's Restated Articles of
Incorporation, no action by the Company's shareholders is necessary, and only
action of the Board of Directors is required, to authorize the issuance of any
of the undesignated stock. The Board of Directors is empowered to establish, and
to designate the name of each class or series of the undesignated shares and to
set the terms of such shares (including terms with respect to redemption,
sinking fund, dividend, liquidation, preemptive, conversion and voting rights
and preferences). Accordingly, the Board of Directors, without shareholder
approval, may issue undesignated stock with terms (including terms with respect
to redemption, sinking fund, dividend, liquidation, preemptive, conversion and
voting rights and preferences) that could adversely affect the voting power and
other rights of holders of the Common Stock.

<PAGE>

The existence of undesignated stock may have the effect of discouraging an
attempt, through acquisition of a substantial number of shares of Common Stock,
to acquire control of the Company with a view to effecting a merger, sale or
exchange of assets or a similar transaction. The anti-takeover effects of the
undesignated shares may deny shareholders the receipt of a premium on their
Common Stock and may also have a depressive effect on the market price of the
Common Stock.

MINNESOTA BUSINESS CORPORATION ACT

Section 302A.671 of the Minnesota Business Corporation Act provides that,
unless the acquisition of certain new percentages of voting control of the
Company (in excess of 20%, 33 or 50%) by an existing shareholder or other person
is approved by the holders of a majority of the outstanding voting stock other
than shares held by the acquirer (if already a shareholder) and officers and
directors who are also employees of the Company, the shares acquired above any
such new percentage level of voting control will not be entitled to voting
rights. In addition, if the requirements of this Section are not satisfied, the
Company may redeem the shares so acquired by the acquirer at their market value.
Section 302A.671 generally does not apply to a cash offer to purchase all shares
of voting stock of the issuing corporation if such offer has been approved by a
majority vote of disinterested directors of the issuing corporation.

Section 302A.673 of the Minnesota Business Corporation Act restricts
certain transactions between the Company and a shareholder who becomes the
beneficial holder of 10% or more of any class of the Company's outstanding
voting stock (an "interested shareholder") unless a majority of the
disinterested directors of the Company have approved, prior to the date on which
the shareholder acquired a 10% interest, either the business combination
transaction suggested by such a shareholder or the acquisition of shares that
made such a shareholder a statutory interested shareholder. If such prior
approval is not obtained, this section imposes a four-year prohibition from the
interested shareholder's share acquisition date on mergers, sales of substantial
assets, loans, substantial issuance of stock and various other transactions
involving the Company and the interested shareholder or its affiliates.

In the event of certain tender offers for stock of the Company, Section
302A.675 of the Minnesota Business Corporation Act precludes the tender offeror
from acquiring additional shares of stock (including acquisitions pursuant to
mergers, consolidations or statutory share exchanges) within two years following
the completion of such an offer unless the selling shareholders are given the
opportunity to sell the shares on terms that are substantially equivalent to
those contained in the earlier tender offer. The Section does not apply if a
committee of the Board consisting of all of its disinterested directors
(excluding present and former officers of the corporation) approves the
subsequent acquisition before the shares are acquired pursuant to the earlier
tender offer.

These statutory provisions could have the effect of delaying or preventing
a change in the control of the Company in a transaction or series of
transactions not approved by the Board of Directors.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar with respect to the Company's Common Stock
is Norwest Bank, Minnesota, N.A.

<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding 2,934,000 shares of Common Stock. All of the
4,334,000 shares to be outstanding after the Offering will be freely tradeable
without restrictions or registration under the Securities Act, except as
follows. Of these shares, the 2,934,000 shares owned by the existing shareholder
are subject to a lockup agreement pursuant to which the existing shareholder
agreed not to offer, sell or otherwise dispose of any of his shares for a period
of 12 months after the effective date of this Offering, without the prior
written consent of the Representative. In addition, these shares are subject to
the restrictions of Rule 144 of the Securities Act with respect to the sale of
such shares.

In general, under Rule 144 a person (or persons whose sales are aggregated)
who beneficially owns shares acquired privately from the Company or an affiliate
of the Company at least one year previously and an affiliate of the Company who
beneficially owns shares acquired (whether or not such shares were acquired
privately) from the Company or an affiliate of the Company at least one year
previously, are entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Company's Common Stock or the average weekly trading volume in the Company's
Common Stock during the four calendar weeks preceding the filing of notice with
the Commission in connection with such sale. Sales under Rule 144 are also
subject to certain manner-of-sale provisions, notice requirements and the
availability of current public information about the Company. A person who has
not been an affiliate of the Company at any time during the three months
preceding a sale and who beneficially owns shares acquired from the Company or
an affiliate of the Company at least two years previously is entitled to sell
all such shares under Rule 144 without regard to any of the limitations of the
Rule.

The Company cannot predict the effect, if any, that sales of the securities
subject to the previously described lockup or Rule 144 restrictions or the
availability of such securities for sale could have on the market price, if any,
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Company's securities, including resale of the securities offered hereby, could
adversely affect prevailing market prices of the Company's securities and the
Company's ability to raise additional capital by occurring at a time when it
would be beneficial for the Company to sell securities.

<PAGE>

UNDERWRITING

The Underwriters named below, for whom R.J. Steichen & Company is acting as
representative (the "Representative"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement with the Company, to purchase
from the Company the 1,400,000 Shares of Common Stock offered hereby. The number
of Shares that each Underwriter has agreed to purchase is set forth opposite its
name below:

UNDERWRITING NUMBER OF SHARES
------------ ----------------

R.J. Steichen & Company ..........
---------

Total ........................... 1,400,000

The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all of the 1,400,000 Shares offered hereby, if any are
purchased.

The Underwriters propose to offer the shares to the public at the Price to
Public set forth on the cover page of this Prospectus and to dealers at such
price less a concession not in excess of $_________ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $________
per share to certain other brokers and dealers. After the initial public
offering, the Price to Public, concession and reallowance may be changed by the
Representative. Additionally, the Company has agreed to pay the Representative a
nonaccountable expense allowance equal to 2% of the aggregate public offering
price. The Company has paid the Representative $10,000 as an advance against
this nonaccountable expense allowance.

The Company has granted the Underwriters an option exercisable within 45
days after the effective date of the Registration Statement of which this
Prospectus is a part, to purchase up to an additional 210,000 shares of Common
Stock at the Price to Public, less the Underwriting Discount shown on the cover
page of this Prospectus. The Underwriters may exercise such option only for the
purpose of covering any overallotments in the sale of the Shares of Common Stock
offered hereby.

The Company has agreed to sell to the Representative, for nominal
consideration, a warrant to purchase up to 140,000 shares of Common Stock (the
"Representative's Warrant"). The Representative's Warrant may be exercised in
whole or in part commencing twelve months after the effective date of the
Registration Statement of which this Prospectus is a part and for a period of
four years thereafter, at an exercise price equal to 120% of the Price to
Public. The Representative's Warrant may not be transferred, sold, assigned or
hypothecated for a period of one year from the effective date of this Offering.
Thereafter, the Representative's Warrant may not be transferred other than by
will or pursuant to operation of law, except to officers of the Representative.
The Representative's Warrant contains anti-dilution provisions providing for
appropriate adjustments on the occurrence of certain events, and contains
customary demand and participatory registration rights with respect to the
underlying shares of Common Stock. Any profits realized by the Representative
upon the sale of such warrant or the securities issuable upon exercise thereof
may be deemed to constitute additional underwriting compensation.

The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.

<PAGE>

The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Underwriters and their controlling persons against civil
liabilities in connection with the Offering, including liabilities under the
Securities Act of 1933, as amended. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted pursuant to the
foregoing provisions, the Company has been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed in such
Act and is therefore unenforceable.

The sole shareholder of Common Stock of the Company, who owns 2,934,000
shares, has agreed that he will not, without the prior consent of the
Representative, publicly offer, sell or grant any option to sell any securities
of the Company in the open market or otherwise for a period of twelve months
from the effective date of this Offering.

In order to facilitate the offering of Common Stock, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
Common Stock. Specifically, the Underwriters may overallot Common Stock in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of Common stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing Common Stock
in the offering, if the Underwriters repurchase previously distributed Common
Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of Common
Stock above market level that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.

Prior to this Offering there has been no public trading market for the
Common Stock. The initial public offering price of the Shares has been
determined by negotiations between the Company and the Representative and bears
no relation to the Company's current earnings, book value, net worth or
financial statement criteria of value.

The foregoing is a brief summary of the provisions of the Underwriting
Agreement and the Representative's Warrant and does not purport to be a complete
statement of their terms and conditions. A form of the Underwriting Agreement,
including a form of the Representative's Warrant, has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Johnson, Killen, Thibodeau & Seiler, P.A. and Lommen, Nelson, Cole &
Stageberg, P.A. Certain legal matters for the Underwriters will be passed upon
by Fredrikson & Byron, P.A.

EXPERTS

The audited financial statements of the Company included in this Prospectus
and elsewhere in the Registration Statement have been audited by McGladrey &
Pullen LLP independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in auditing and accounting.

AVAILABLE INFORMATION

Prior to this Offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934. The Company has filed with
the Washington, D.C. office of the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 ("Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the sale of the Shares. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and

<PAGE>

regulations of the Commission. For further information with respect to the
Company and the Shares, reference is made to the Registration Statement,
including the exhibits thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement. The
Registration Statement may be inspected by anyone without charge at the
principal office of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, or at one of the Commission's regional offices located
at: Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661-2511 and 7 World Trade Center, 13th Floor, New York, New York, 10048.
Copies of all or any part of such material may be obtained upon payment of the
prescribed fees from the Public Reference Section of the Commission at 450 Fifth
Street, N.W, Washington, D.C. 20549. The Commission maintains a Website that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission
(http://www.sec.gov).

The Company intends to distribute to its shareholders annual reports
containing audited financial statements and interim reports containing unaudited
financial statements.

<PAGE>

INDEX TO FINANCIAL STATEMENTS

PAGE
NUMBER
------

Independent auditor's report ............................................. F-2
Balance sheets as of December 31, 1996 and 1997 .......................... F-3
Statements of income for the years ended December 31, 1996 and 1997 ...... F-4
Statements of stockholder's equity for the years ended December 31,
1996 and 1997 ........................................................... F-5
Statements of cash flows for the years ended December 31, 1996 and 1997 .. F-6
Notes to financial statements ............................................ F-7

F-1

<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Industrial Rubber Products, Inc.
Hibbing, Minnesota

We have audited the accompanying balance sheets of Industrial Rubber
Products, Inc. (formerly Industrial Rubber Applicators, Inc.) as of December 31,
1996 and 1997, and the related statements of income, stockholder's equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Industrial Rubber Products,
Inc. as of December 31, 1996 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.

McGLADREY & PULLEN, LLP

Duluth, Minnesota
January 30, 1998

F-2

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

BALANCE SHEETS
DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
1997
-------------------------
PRO FORMA
1996 ACTUAL (NOTE 6)
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS (NOTE 4)
Current Assets
Cash .................................................... $ 39,261 $ 132,344 $ 132,344
Trade receivables ....................................... 1,220,933 2,282,637 2,282,637
Due to related parties (Note 9) ......................... 32,500 -- --
Inventories (Note 3) .................................... 605,133 840,363 840,363
Prepaid expenses ........................................ 45,920 53,367 53,367
---------- ---------- ----------
TOTAL CURRENT ASSETS ................................... 1,943,747 3,308,711 3,308,711
---------- ---------- ----------
Cash Value of Life Insurance ............................. 120,131 122,780 122,780
---------- ---------- ----------
Property and Equipment, at cost ..........................
Land .................................................... 10,000 10,000 10,000
Buildings ............................................... 223,282 518,741 518,741
Automotive equipment .................................... 233,931 339,481 339,481
Machinery and equipment ................................. 1,492,870 1,709,134 1,709,134
---------- ---------- ----------
1,960,083 2,577,356 2,577,356
Less accumulated depreciation ........................... 684,712 1,059,263 1,059,263
---------- ---------- ----------
1,275,371 1,518,093 1,518,093
---------- ---------- ----------
$3,339,249 $4,949,584 $4,949,584
========== ========== ==========

LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Bank note payable (Note 4) .............................. $ 890,000 $1,135,000 $1,935,000
Current maturities of long-term debt (Note 5) ........... 954,634 218,861 218,861
Due to related party (Note 9) ........................... -- 106,825 106,825
Accounts payable ........................................ 668,957 674,144 674,144
Accrued expenses ........................................ 228,350 399,850 399,850
---------- ---------- ----------
TOTAL CURRENT LIABILITIES .............................. 2,741,941 2,534,680 3,334,680
---------- ---------- ----------
Long-term Debt, less current maturities (Note 5) ......... 240,613 171,095 171,095
---------- ---------- ----------
Commitments and Contingencies (Notes 6, 7 and 11)

Stockholder's Equity (Note 6)
Common stock, $.001 par value; authorized
25,000,000 shares; issued 2,934,000 shares ............. 38,604 2,934 2,934
Additional paid-in capital .............................. 108,146 143,816 143,816
Retained earnings ....................................... 209,945 2,097,059 1,297,059
---------- ---------- ----------
356,695 2,243,809 1,443,809
---------- ---------- ----------
$3,339,249 $4,949,584 $4,949,584
========== ========== ==========
</TABLE>

See Notes to Financial Statements.

F-3

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Net Sales (Note 2) .................................... $6,309,775 $14,421,359
Cost of Sales ......................................... 4,776,634 9,947,870
---------- -----------
GROSS PROFIT ........................................ 1,533,141 4,473,489

Selling, general and administrative expenses .......... 1,122,968 1,664,611
---------- -----------
OPERATING INCOME .................................... 410,173 2,808,878
---------- -----------

Nonoperating Income (Expense) .........................
Interest income ...................................... 166 3,620
Interest expense ..................................... (90,554) (110,731)
---------- -----------
(90,338) (107,111)
---------- -----------
NET INCOME .......................................... $ 319,785 $ 2,701,767
========== ===========

Pro Forma Information (Note 7)
Income before income taxes ........................... $ 319,785 $ 2,701,767
Provision for income taxes ........................... 145,300 1,038,000
---------- -----------
NET INCOME .......................................... $ 174,485 $ 1,663,767
========== ===========
Basic earnings per share ............................. $ 0.06 $ 0.57
========== ===========
Weighted average shares outstanding .................. 2,934,000 2,934,000

</TABLE>

See Notes to Financial Statements.

F-4

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ..... 36,880 $ 38,604 $108,146 $ 377,355 $ 524,105

Net income .................... -- -- -- 319,785 319,785

Dividends on common stock...... -- -- -- (487,195) (487,195)
--------- --------- -------- ---------- ----------

Balance, December 31, 1996 ..... 36,880 38,604 108,146 209,945 356,695

Issuance of additional shares
and transfer to adjust common
stock to authorized par value
as a result of stock split
(Note 6) ..................... 2,897,120 (35,670) 35,670 -- --

Net income .................... -- -- -- 2,701,767 2,701,767

Dividends on common stock...... -- -- -- (814,653) (814,653)
--------- --------- -------- ---------- ----------

Balance, December 31, 1997 ..... 2,934,000 $ 2,934 $143,816 $2,097,059 $2,243,809
========= ========= ======== ========== ==========
</TABLE>

See Notes to Financial Statements.

F-5

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................................... $ 319,785 $ 2,701,767
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation ................................................... 248,238 374,551
Changes in working capital components: .........................
Increase in receivables ....................................... (750,577) (1,164,704)
Increase in inventories ....................................... (443,638) (235,230)
(Increase) decrease in prepaid expenses ....................... 9,903 (7,447)
Increase in accounts payable and accrued expenses ............. 598,363 176,687
------------ ------------
Net cash provided by (used in) operating activities ......... (17,926) 1,845,624
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ............................... (1,125,634) (617,273)
Repayment of advance to stockholder .............................. 103,400 --
Receipts from (advances to) related party ........................ (32,500) 32,500
Increase in cash value of life insurance ......................... (7,123) (2,649)
------------ ------------
Net cash used in investing activities ....................... (1,061,857) (587,422)
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds on short-term borrowings ............................ 465,000 245,000
Proceeds from long-term borrowings ............................... 1,250,000 20,000
Principal payments on long-term borrowings ....................... (186,599) (825,291)
Dividends paid on common stock ................................... (487,195) (711,653)
Advances from related party ...................................... -- 106,825
Other ............................................................ (3,644) --
------------ ------------
Net cash provided by (used in) financing activities ......... 1,037,562 (1,165,119)
------------ ------------
Net increase (decrease) in cash ............................. (42,221) 93,083
Cash:
Beginning ........................................................ 81,482 39,261
------------ ------------
Ending ........................................................... $ 39,261 $ 132,344
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest ....................................... $ 102,210 $ 111,430
============ ============
</TABLE>

See Notes to Financial Statements.

F-6

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

The Company's operations consist primarily of vulcanizing rubber and
applying urethane (for corrosion and abrasion resistant purposes) to pipes,
pumps, launders, etc. that are used in the mining industry in Northern Minnesota
and Utah. The Company extends credit to its customers, all on an unsecured
basis, on terms that it establishes for individual customers. The Company's Utah
operations commenced in August 1996. Approximately 22 percent and 70 percent of
net sales resulted from the Utah operations for the years ended December 31,
1996 and 1997, respectively.

During 1998 the Company changed its name to Industrial Rubber Products,
Inc., from Industrial Rubber Applicators, Inc.

A summary of the Company's significant accounting policies follows:

CASH

The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts.

TRADE RECEIVABLES

The Company charges bad debts to expense in the year they are deemed
uncollectible. It is the opinion of management that, based on prior bad debt
experience and the status of current receivables, an allowance for doubtful
accounts is not necessary.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation is computed as
follows:

YEARS METHOD
----- -------------
Buildings ........................ 19-39 Straight-line
Automotive equipment ............. 3-5 Accelerated
Machinery and equipment .......... 5-7 Accelerated

INCOME TAXES

The Company, with the consent of its stockholder, has elected to be taxed
under sections of the federal and state income tax laws, which provide that, in
lieu of corporation income taxes, the stockholder separately accounts for the
Company's items of income, deductions, losses and credits. Therefore, these
statements do not include any provision for federal and state income taxes. The
State of Utah requires the Company to deposit on behalf of the stockholder
income taxes for which the stockholder receives a credit on his personal income
tax return. Total state income taxes paid or payable on behalf of the
stockholder amounted to $8,000 and $103,000 for the years ended December 31,
1996 and 1997, respectively. (See Note 7.)

The Company pays dividends annually to enable the stockholder to pay his
individual income taxes on the Company's taxable income.

ADVERTISING COSTS

The Company follows the policy of charging the costs of advertising to
expense as incurred. For the years ended December 31, 1996 and 1997, advertising
expense totaled $16,699 and $22,450, respectively.

REVENUE RECOGNITION

The Company recognizes revenue upon shipment of product. Returns and
allowances are recorded in the period the need for such is identified.

F-7

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of current assets and liabilities approximates fair
value because of the short maturity of those instruments. The carrying amount of
long-term debt approximates fair value since interest rates fluctuate with the
prime rate.

EARNINGS PER SHARE

Earnings per share are computed based upon the weighted average number of
shares outstanding during the period. All references to share and per share
information have been adjusted to reflect the stock split as described in Note
6. The Company will be required to present dilutive earnings per share in the
future as a result of the option plan discussed in Note 6.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers and the major countries in which
the entity holds assets and reports revenue.

NOTE 2. MAJOR CUSTOMERS

Net sales for the years ended December 31, 1996 and 1997 include sales to
several major customers, each of which accounted for 10 percent or more of net
sales:

AMOUNT OF NET SALES
YEAR ENDED DECEMBER 31,
-------------------------
CUSTOMER 1996 1997
- -------- ---------- ----------
Customer A .................................. $1,417,656 $8,094,517
Customer B .................................. 1,043,089 *
Customer C .................................. 680,228 *
---------- ----------

- ------------------
*The net sales to these customers was under 10 percent of net sales for the year
ended December 31, 1997.

Trade receivable balance due from Customer A as of December 31, 1997
amounted to approximately $420,000.

The Company has a trade receivable from a customer amounting to
approximately $1,168,000 as of December 31, 1997, of which $594,000 is due from
sales to the customer and $574,000 is due for the purchase of steel pipe.

F-8

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 3. INVENTORIES

Inventories consist of the following as of December 31, 1996 and 1997:

1996 1997
-------- --------
Raw materials ........................................ $542,410 $538,330
Work in process ...................................... 48,443 255,937
-------- --------
590,853 794,267
Raw materials purchased on behalf of customers ....... 14,280 46,096
-------- --------
$605,133 $840,363
======== ========

The Company incurs costs on behalf of its customers for the purchase of
pipes, pumps, launders, etc. and is reimbursed for these costs by the customers.
The Company does not receive a commission or recognize gross profit upon sale of
these components, and therefore, net sales and cost of sales in the statements
of income do not include amounts for sales and purchases of components.

NOTE 4. NOTE PAYABLE

The Company has a $1,500,000 bank line of credit for working capital
financing which is due on demand. Advances under the line of credit are subject
to a borrowing base of eligible trade receivables and inventories, as defined in
the agreement. The line of credit is collateralized by trade receivables,
inventories, equipment, assignment of a life insurance policy, and is personally
guaranteed by the stockholder. Interest is payable monthly at the bank's prime
rate (9.5% at December 31, 1997).

Among other things, the agreement requires the Company to:

a. Maintain a ratio of total liabilities to tangible net worth of less
than 3 to 1.

b. Maintain a current ratio of at least 1.2 to 1.

c. Maintain a ratio of traditional cash flow to current maturities of
long-term debt of at least 1.5 to 1.

d. Refrain from declaring or paying dividends in excess of 50% of after
tax net income.

The Company has received a waiver from the bank of certain of the above
requirements in conjunction with the proposed initial public offering discussed
in Note 6.

F-9

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 5. LONG-TERM DEBT

A summary of long-term debt as of December 31, 1996 and 1997 is as follows:

<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Note payable bank, due in monthly installments of $20,090 including
interest at the bank's prime rate (9.5% at December 31, 1997) to
August l999, at which time the remaining balance is due. The note is
subject to the same collateral and covenants as described in Note 4. $ 946,350 $370,594
Note payable bank, due in monthly installments of $2,580 including
interest at the bank's prime rate to August 2001. The note was
repaid in full during 1997. ........................................ 248,897 --
Other note payable due in November 2002 ............................. -- 19,362
--------- --------
1,195,247 389,956

Less current maturities ............................................. 954,634 218,861
--------- --------
$ 240,613 $171,095
========= ========
</TABLE>

Aggregate maturities required on long-term debt as of December 31, 1997 are
as follows:

DECEMBER 31, AMOUNT
------------ --------
1998 ................................... $218,861
1999 ................................... 159,414
2000 ................................... 4,016
2001 ................................... 4,139
2002 ................................... 3,526
--------
$389,956
========

NOTE 6. STOCKHOLDER'S EQUITY

In January 1998, the Company amended its Articles of Incorporation to
increase the number of authorized shares of stock to 25,000,000 and declared a
stock split so that 2,934,000 shares of common stock are outstanding. The stock
split has been retroactively reflected in the accompanying financial statements.

During 1997 the Company commenced activity to accomplish an initial public
offering (IPO) of its common stock. The Company intends to sell approximately
1,400,000 shares of common stock (excluding the underwriters' over allotment
option to purchase an additional 210,000 shares of common stock) at a proposed
offering price of approximately $5.00 per share. Under the terms of the
agreement the Company has agreed to sell to the underwriters a warrant to
purchase a number of shares equal to 10% of the shares sold by the Company in
the offering. The warrants may not be exercised during the first year after the
effective date of the offering and are exercisable during a period of four years
thereafter at a price equal to 120% of the public offering price.

On January 30, 1998, the Company adopted the 1998 Stock Option Plan to
provide for the granting of stock options to employees, directors and officers
of the Company. The number of shares issued pursuant to the options granted
shall not exceed 400,000 shares, of which 113,600 were granted to employees
concurrent with the adoption of the plan. Options are exercisable at the fair
market value at the date of grant and expire five years after grant. As
permitted under generally accepted accounting principles, management anticipates
that grants under the plan will be accounted for following the provisions of APB
Opinion No. 25 and its related interpretations.

F-10

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 6. STOCKHOLDER'S EQUITY (CONTINUED)

The Company intends to make distributions totaling approximately $800,000
subsequent to year end, of which $125,000 was paid in January 1998, to enable
the stockholder to pay income taxes on the related 1997 income of the Company.
The accompanying pro forma balance sheet reflects an anticipated distribution of
$800,000, which is assumed to be funded with additional debt. Additional
distributions to the stockholder may be necessary in an amount sufficient to
discharge the stockholder's actual tax liability on the 1998 income of the
Company through the termination of the S corporation election. (See Note 7.)

NOTE 7. INCOME TAXES

The Company has been taxed as an S corporation since January 1989. As an S
corporation, the Company generally is not responsible for income taxes; instead,
the stockholder is taxed on the Company's taxable income.

As described in Note 6, the Company has a pending public offering for the
sale of common stock. Upon closing of the offering, the Company's status as an S
corporation will be terminated and, accordingly, the Company will be subject to
federal and state income taxes from the date of termination of the S election.
In addition, the Company may be required to recognize deferred taxes for
cumulative temporary difference between financial reporting and income tax
reporting. Such deferred tax will be based on the cumulative temporary
difference at the date of the termination of the S corporation election. If the
termination of the S corporation status occurred at December 31, 1997, a
deferred tax asset of approximately $14,700 would result.

Pro forma income taxes represent the estimated income taxes that would have
been reported had the Company filed federal and state income tax returns under
the asset and liability method of accounting.

The following summarizes the pro forma provision for income taxes:

YEAR ENDED DECEMBER 31, 1996 1997
----------------------- -------- ----------
Federal:
Current ............................. $122,300 $ 873,300
Deferred ............................ (3,900) (2,150)
-------- ----------
118,400 871,150
State:
Current ............................. 28,100 167,400
Deferred ............................ (1,200) (550)
-------- ----------
26,900 166,850
-------- ----------
Total .............................. $145,300 $1,038,000
======== ==========

F-11

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 7. INCOME TAXES (CONTINUED)

The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to pretax income due to the
following:

YEAR ENDED DECEMBER 31, 1996 1997
----------------------- -------- ----------
Computed "expected" tax expense ..................... $111,900 $ 945,600
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit .... 17,800 110,100
Other nondeductible expenses ...................... 18,800 9,300
Benefit of income taxed at lower rates ............ (3,200) (27,000)
-------- ----------
Total ............................................ $145,300 $1,038,000
======== ==========

Temporary differences that give rise to deferred tax assets relate to
capitalized inventory costs and accrued liabilities not currently deductible and
amounted to $14,700 as of December 31, 1997.

NOTE 8. RETIREMENT PLAN

The Company has a Salary Savings Plan and Trust (401(k)) which covers
substantially all employees of the Company. The plan provides for contributions
in such amounts as the Board of Directors may annually determine. Company
contributions for 1996 and 1997 were $27,838 and $49,165, respectively.

NOTE 9. RELATED COMPANY TRANSACTIONS

The Company has a receivable of $32,500 as of December 31, 1996 from Nelson
Roofing, Inc., a company owned by the stockholder of the Company. The Company
has a payable of $106,825 to Nelson Roofing, Inc. as of December 31, 1997. The
Company provides management and administrative services for Nelson Roofing, Inc.
and receives a management fee for such services. Management fees received from
Nelson Roofing, Inc. amounted to approximately $73,000 in 1996 and $102,000 in
1997. On January 30, 1998, the Company entered into a formal agreement with
Nelson Roofing, Inc. to provide management and administrative services through
December 31, 1998. Management fees are based upon actual employee cost plus
overhead. The Company paid $9,243 in 1997 to Nelson Roofing, Inc. for
construction services.

During 1997 the Company rented a house in Utah owned by the stockholder on
a month to month basis. Total rent paid to the stockholder amounted to $61,100
in 1997.

The Company rents warehouse space from a company owned by the stockholder
which amounted to $12,600 in 1996 and $6,700 in 1997.

On January 30, 1998, the Company entered into a two-year employment
agreement with its president. Under the agreement, the president will receive a
base salary of $255,216 and a bonus as determined by the Board of Directors. The
agreement contains certain noncompetition provisions.

NOTE 10. OPERATING LEASES

The Company leases its Utah production facility under the terms of an
operating lease expiring July 30, 1998. Lease payments amount to $13,000 per
month at December 31, 1997. The Company has renewal options for another
six-month period and three successive one-year periods. The lease provides that
the Company pay all utilities, and property taxes and insurance over certain
amounts. The Company also leases equipment on a short-term basis.

Total rent expense, including rent paid to related parties, amounted to
approximately $106,000 in 1996 and $282,000 in 1997.

F-12

<PAGE>

INDUSTRIAL RUBBER PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 11. ENVIRONMENTAL CLEANUP OBLIGATION

During 1997, the Company was notified by the Minnesota Pollution Control
Agency that it will be required to complete an initial investigation of
suspected contamination of hazardous material at its Hibbing, Minnesota site.
The suspected contamination related to storage drums maintained by the previous
owner. The Company has not yet completed the investigation to determine if a
release of hazardous material has occurred, and thus has not been able to assess
if any cleanup on the site is necessary, or the estimated total cost of
remediation. Management estimated the minimum cost of remedial investigation of
$10,000, which has been accrued by a charge to operating income.

F-13

<PAGE>

[PHOTOS TO COME]

<PAGE>

<TABLE>
<CAPTION>
======================================================= =======================================================
<S> <C>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE 1,400,000 SHARES
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY OF THESE SECURITIES IN ANY STATE TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION
IN SUCH STATE. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. INDUSTRIAL RUBBER
PRODUCTS, INC.
------------------

TABLE OF CONTENTS

PAGE
----
Prospectus Summary ............................. 3 COMMON STOCK
Summary Financial Data ......................... 4
Risk Factors ................................... 5
Use of Proceeds ................................ 9
Dividend Policy and S Corporation Status ....... 11
Dilution ....................................... 12
Capitalization ................................. 13
Selected Financial Data ........................ 14 ----------
Management's Discussion and Analysis of PROSPECTUS
Financial Condition and Results of ----------
Operations ................................... 15
Business ....................................... 19
Management ..................................... 29
Certain Transactions ........................... 31
Principal Shareholders ......................... 32
Description of Securities ...................... 32
Shares Eligible for Future Sale ................ 34
Underwriting ................................... 35
Legal Matters .................................. 36
Experts ........................................ 36 [LOGO] R J STEICHEN & CO
Available Information .......................... 36
Index to Financial Statements .................. F-1

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

Until __________, 1998 (25 days after the date of this
Prospectus), all dealers effecting transactions in the
Common Stock offered hereby, whether or not
participating in this distribution, may be required to _________, 1998
deliver a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold
allotments or subscriptions.

======================================================= =======================================================

</TABLE>

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article VI of the Bylaws of the Company provides that the Company will
indemnify any person against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement if the person was or is a party, or is
threatened to be made a party, to any threatened, pending, or completed action,
suit, or proceeding by reason of the fact that the person was a director,
officer, or agent of the Company, as fully as may be permitted from time to time
by the statutes and decision of law of the State of Minnesota or by any other
provision of law. Under the provisions of the Minnesota Business Corporation Act
(the "MBCA"), present and former officers and directors are indemnified against
such liabilities and expenses if the person (i) acted in good faith; (ii)
received no improper personal benefits; (iii) had, in the case of a criminal
proceeding, no reasonable cause to believe the conduct was unlawful; and (iv)
reasonably believed the conduct was in the best interest of the corporation, or,
in certain circumstances, reasonably believed that the conduct was not opposed
to the best interest of the corporation. The MBCA also provides that a
corporation may purchase and maintain insurance on behalf of any indemnified
party against any liability asserted against such person, whether or not the
corporation would have been required to indemnify the person against liability
under provisions of the MBCA. Article VI of the Bylaws contains certain other
provisions regarding indemnification.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

NASD Fee .......................................... $ 1,305
*NASDAQ SmallCap Market Fee ........................ 9,500
Registration Fee .................................. 2,375
*Printing Expenses ................................. 20,000
*Legal Fees and Expenses ........................... 95,000
*Accounting Fees and Expenses ...................... 35,000
*Blue Sky Fees and Expenses ........................ 15,000
*Transfer Agent Fees and Expenses .................. 7,500
*Underwriter's Nonaccountable Expense Allowance .... 140,000
*Miscellaneous ..................................... 14,320
--------
Total ............................................. $340,000
========

- ------------------
*Estimated

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

None.

ITEM 27. EXHIBITS

EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------
1.1 Form of Underwriting Agreement
3.1 Restated Articles of Incorporation of the Registrant
3.2 Restated Bylaws of the Registrant
4.1 Specimen Stock Certificate
5.1 Opinion and Consent of Johnson, Killen, Thibodeau & Seiler, P.A.
10.1 Employment Agreement between the Company and Daniel O. Burkes.
10.2 Management Contract between the Company and Nelson Roofing, Inc.
10.3 Real Estate Lease between the Company and Freeport Center
Associates, as amended.
10.4 Labor Agreement between the Company and United Steelworkers of
America.
10.5 Stock Option Plan, including specimen Stock Option Agreement
23.1 Consent of Johnson, Killen, Thibodeau & Seiler, P.A. (included
in Exhibit 5.1)

II-1

<PAGE>

EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------
23.2 Consent of Lommen, Nelson, Cole & Stageberg, P.A.
23.3 Consent of McGladrey & Pullen, LLP
27.1 Financial Data Schedule

ITEM 28. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.

(2) That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.

(4) To provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.

II-2

<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Hibbing
and State of Minnesota on February 20, 1998.

INDUSTRIAL RUBBER PRODUCTS, INC.

By: /s/ DANIEL O. BURKES
-------------------------------------
Daniel O. Burkes
President/Principal Executive Officer

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ DANIEL O. BURKES President, Treasurer and Director February 20, 1998
- ---------------------- (Principal Executive Officer)
Daniel O. Burkes (Principal Financial Officer)

/s/ NANCY J. BURKES Vice President, Secretary and February 20, 1998
- ---------------------- Director
Nancy J. Burkes

II-3

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
INDUSTRIAL RUBBER PRODUCTS, INC.
EXHIBIT INDEX TO FORM SB-2

EXHIBIT
NO. EXHIBITS
- ------- --------

1.1 Form of Underwriting Agreement

3.1 Restated Articles of Incorporation of the Registrant

3.2 Restated Bylaws of the Registrant

4.1 Specimen Stock Certificate

5.1 Opinion and Consent of Johnson, Killen, Thibodeau & Seiler, P.A.

10.1 Employment Agreement between the Company and Daniel O. Burkes

10.2 Management Contract between the Company and Nelson Roofing, Inc.

10.3 Real Estate Lease between the Company and Freeport Center Associates,
as amended

10.4 Labor Agreement between the Company and United Steelworkers of
America

10.5 Stock Option Plan, including specimen Stock Option Agreement

23.1 Consent of Johnson, Killen, Thibodeau & Seiler, P.A. (included in
Exhibit 5.1)

23.2 Consent of Lommen, Nelson, Cole & Stageberg, P.A.

23.3 Consent of McGladrey & Pullen, LLP

27.1 Financial Data Schedule

EXHIBIT 1.1

1,400,000 SHARES COMMON STOCK

INDUSTRIAL RUBBER PRODUCTS, INC.

UNDERWRITING AGREEMENT

______________________, 1998

R. J. Steichen & Company
As Representative of the Several Underwriters
One Financial Plaza, Suite 100
Minneapolis, MN 55402-2543

Dear Ladies and Gentlemen:

Industrial Rubber Products, Inc., a Minnesota corporation (the
"Company"), hereby confirms its agreement to issue and sell to the underwriters
named in Schedule I hereto (the "Underwriters"), for which R. J. Steichen &
Company is acting as the representative (in such capacity, the
"Representative"), an aggregate of 1,400,000 shares of authorized but unissued
common stock, par value $.001 per share, of the Company (the "Common Stock").
Such 1,400,000 shares of Common Stock are collectively referred to in this
Agreement as the "Firm Shares." The Company also hereby confirms its agreement
to issue and sell to the Underwriters an aggregate of up to 210,000 additional
shares of Common Stock upon the request of the Representative solely for the
purpose of covering overallotments. Such additional shares are referred to in
this Agreement as the "Option Shares." The Firm Shares and the Option Shares are
collectively referred to herein as the "Shares." Further, the Company hereby
confirms its agreement to issue to the Representative warrants for the purchase
of a total of 140,000 shares as described in Section 5 hereof (the
"Representative's Warrants"), assuming purchase by the Underwriters of the Firm
Shares. The shares issuable upon exercise of the Representative's Warrants are
referred to as the "Warrant Shares."

The Company hereby confirms the arrangements with respect to the
purchase, severally and not jointly, by each of the Underwriters the number of
the Firm Shares set forth opposite their respective names in Schedule I, plus
their pro rata portion of the Option Shares purchased if the overallotment
option is exercised in whole or in part. The Company has been advised and hereby
acknowledges that R. J. Steichen & Company has been duly authorized to act as
the representative of the Underwriters. As used in this Agreement, the term
"Underwriter" refers to any individual member of the underwriting syndicate and
includes any party substituted for an Underwriter under Section 9 hereof.

<PAGE>

1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the several Underwriters as
follows:

(a) A registration statement on Form SB-2 with respect to the
Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "1933 Act")
and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "SEC") thereunder and has been
filed with the SEC under the 1933 Act. The Company has filed such
amendments to the registration statement and such amended preliminary
prospectuses as may have been required to be filed to the date hereof.
If the Company has elected not to rely upon Rule 430A, the Company has
prepared and will promptly file an amendment to the registration
statement and an amended prospectus (provided the Representative has
consented to such filing). If the Company has elected to rely upon Rule
430A, it will prepare and timely file a prospectus pursuant to Rule
424(b) that discloses the information previously omitted from the
prospectus in reliance upon Rule 430A. Copies of such registration
statement and each pre-effective amendment thereto, and each related
preliminary prospectus have been delivered by the Company to the
Representative. Such registration statement, as amended or
supplemented, including all prospectuses included as a part thereof,
financial schedules, exhibits, the information (if any) deemed to be
part thereof pursuant to Rules 430A and 434 under the 1933 Act and any
registration statement filed pursuant to Rule 462 under the 1933 Act,
is herein referred to as the "Registration Statement." The term
"Prospectus" as used herein shall mean the final prospectus, as amended
or supplemented, included as a part of the Registration Statement on
file with the SEC when it becomes effective; provided, however, that if
a prospectus is filed by the Company pursuant to Rules 424(b) and 430A
or a term sheet is filed by the Company pursuant to Rule 434 under the
1933 Act, the term "Prospectus" as used herein shall mean the
prospectus so filed pursuant to Rules 424(b) and 430A) and the term
sheet so filed pursuant to Rule 434. The term "Preliminary Prospectus"
as used herein means any prospectus, as amended or supplemented, used
prior to the Effective Date (as defined in Section 4(a) hereof) and
included as a part of the Registration Statement, including any
prospectus filed with the SEC pursuant to Rule 424(a).

(b) Neither the SEC nor any state securities division has
issued any order preventing or suspending the use of any Preliminary
Prospectus, or issued a stop order with respect to the offering of the
Shares or requiring the recirculation of a Preliminary Prospectus and,
to the best knowledge of the Company, no proceeding for any such
purpose has been initiated or threatened. Each part of the Registration
Statement, when such part became or becomes effective, each Preliminary
Prospectus, on the date of filing with the SEC, and the Prospectus and
any amendment or supplement thereto, on the date of filing thereof with
the SEC and on any Closing Date (as defined in Section 3 hereof), as
the case may be, conformed or will conform in all material respects
with the requirements of the 1933 Act and the Rules and Regulations and
the securities laws ("Blue Sky Laws") of the states where the Shares
are to be sold (the "States") and contained or will contain all
statements that are required to be stated therein in accordance with
the 1933 Act, the Rules

<PAGE>

and Regulations and the Blue Sky Laws of the States. When the
Registration Statement became or becomes effective and when any
post-effective amendments thereto shall become effective, the
Registration Statement did not and will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Neither any Preliminary Prospectus, on the date of filing thereof with
the SEC, nor the Prospectus or any amendment or supplement thereto, on
the date of filing thereof with the SEC and on the First and Second
Closing Dates, contained or will contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that none of the
representations and warranties in this Subsection 1(b) shall apply to
statements in, or omissions from, the Registration Statement,
Preliminary Prospectus or the Prospectus, or any amendment thereof or
supplement thereto, which are based upon and conform to written
information furnished to the Company by the Underwriters specifically
for use in the preparation of the Registration Statement, Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto.
There is no contract or other document of the Company of a character
required by the 1933 Act or the Rules and Regulations to be described
in the Registration Statement or Prospectus, or to be filed as an
exhibit to the Registration Statement, that has not been described or
filed as required. The descriptions of all such contracts and documents
or references thereto are correct and include the information required
under the 1933 Act and the Rules and Regulations.

(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Minnesota, with full corporate power and authority, to own, lease
and operate its properties and conduct its business as described in the
Registration Statement and Prospectus. The Company is duly qualified to
do business as a foreign corporation in good standing in each
jurisdiction in which the ownership or lease of its properties, or the
conduct of its business, requires such qualification and in which the
failure to be qualified or in good standing would have a material
adverse effect on the business of the Company. The Company has all
necessary and material authorizations, approvals and orders of and from
all governmental regulatory officials and bodies to own its properties
and to conduct its business as described in the Registration Statement
and Prospectus, and is conducting its business in substantial
compliance with all applicable material laws, rules and regulations of
the jurisdictions in which it is conducting business. The Company holds
all licenses, certificates, permits, authorizations, approvals and
orders of and from all state, federal and other governmental regulatory
officials and bodies necessary to own its properties and to conduct its
business as described in the Registration Statement and Prospectus, or
has obtained waivers from any such applicable requirements from the
appropriate state, federal or other regulatory authorities. All such
licenses, permits, approvals, certificates, consents, orders and other
authorizations are in full force and effect, and the Company has not
received notice of any proceeding or action relating to the revocation
or modification of any such license, permit, approval, certificate,
consent, order or other authorization which, individually or in the

<PAGE>

aggregate, if the subject of an unfavorable decision, ruling or
finding, might materially and adversely affect the conduct of the
business or the condition, financial or otherwise, or the earnings,
affairs or business prospects of the Company.

(d) The Company has no subsidiaries and is not affiliated with
any other Company or business entity, except as disclosed in the
Prospectus.

(e) The Company is not in violation of its Articles of
Incorporation, as amended, or Bylaws or in default in the performance
or observance of any obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement,
joint venture or other agreement or instrument to which the Company is
a party or by which the Company or its properties are bound, and there
does not exist any state of facts which constitutes an event of default
on the part of the Company or which, with notice or lapse of time or
both, would constitute such an event of default. The Company is not, to
the best of its knowledge after due inquiry, in violation of any law,
order, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign, which
violation is material to the business of the Company.

(f) The Company has full requisite power and authority to
enter into this Agreement. This Agreement has been duly authorized,
executed and delivered by the Company and will be a valid and binding
agreement on the part of the Company, enforceable in accordance with
its terms, if and when this Agreement shall have become effective in
accordance with Section 8, except as enforceability may be limited by
the application of bankruptcy, insolvency, moratorium or similar laws
affecting the rights of creditors generally and by judicial limitations
on the right of specific performance and except as the enforceability
of the indemnification or contribution provisions hereof may be
affected by applicable federal or state securities laws. The
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, (i) any indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note,
agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company is a party or by which the
property or assets of the Company is bound, (ii) the Company's Articles
of Incorporation, as amended, or Bylaws or (iii) any statute or any
order, rule or regulation of any court, governmental agency or body
having jurisdiction over the Company. No consent, approval,
authorization or order of any court, governmental agency or body is
required for the consummation by the Company of the transactions on its
part herein contemplated, except such as may be required under the 1933
Act, the Rules and Regulations, the Blue Sky Laws, the rules and
regulations of the National Association of Securities Dealers, Inc.
("NASD") and the rules and regulations of Nasdaq.

<PAGE>

(g) Except as is otherwise expressly stated in the
Registration Statement or Prospectus, there are no actions, suits or
proceedings pending before any court or governmental agency, authority
or body to which the Company is a party or of which the business or
property of the Company is the subject which might result in any
material adverse change in the condition (financial or otherwise),
business or prospects of the Company, materially and adversely affect
its properties or assets or prevent consummation of the transactions
contemplated by this Agreement; and, to the best of the Company's
knowledge, no such actions, suits or proceedings are threatened except
as is otherwise expressly stated in the Registration Statement or
Prospectus. The Company is not aware of any facts which would form the
basis for the assertion of any material claim or liability which are
not disclosed in the Registration Statement or the Prospectus or
adequately reserved for in the financial statements which are a part
thereof, except for such claims or liabilities which are not currently
expected to have a material adverse effect on the condition (financial
or otherwise) or the earnings, affairs or business prospects of the
Company. All pending legal or governmental proceedings to which the
Company is a party or to which any of its property is subject which are
not described in the Registration Statement and the Prospectus,
including ordinary routine litigation incidental to the business, are,
considered in the aggregate, not material to the Company.

(h) The authorized, issued and outstanding capital stock of
the Company is as set forth under the caption "Capitalization" in the
Prospectus. The outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and nonassessable. The
Shares conform in substance to all statements relating thereto
contained in the Registration Statement and Prospectus. The Shares to
be sold by the Company hereunder have been duly authorized and, when
issued and delivered pursuant to this Agreement, will be validly
issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus. No preemptive rights
or similar rights of any security holders of the Company exist with
respect to the issuance and sale of the Shares by the Company or
exercise of the Representative's Warrants. Except as disclosed in the
Prospectus, the Company has received waivers from each security holder
that has the right to require the Company to register under the 1933
Act any securities of any nature owned or held by such person either in
connection with the transactions contemplated by this Agreement or
after a demand for registration by such holder. Upon payment for and
delivery of the Shares pursuant to this Agreement, the Underwriters
will acquire the Shares, free and clear of all liens, encumbrances or
claims. The certificates evidencing the Shares will comply as to form
with all applicable provisions of the laws of the State of Minnesota.
Except as set forth in any part of the Registration Statement, the
Company does not have outstanding any options to purchase, or any
rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell, any
Common Stock or other securities of the Company, or any such warrants,
convertible securities or obligations.

(i) The Representative's Warrants and the Warrant Shares have
been duly authorized. The Representative's Warrants, when issued and
delivered to the Representa-

<PAGE>

tive, will constitute valid and binding obligations of the Company in
accordance with their terms, except as enforceability may be limited by
the application of bankruptcy, insolvency, moratorium or similar laws
affecting the rights of creditors generally and by judicial limitations
on the right of specific performance. The Warrant Shares when issued in
accordance with the terms of this Agreement and pursuant to the
Representative's Warrants, will be validly issued, fully paid and
nonassessable and subject to no preemptive rights or similar rights on
the part of any person or entity. A sufficient number of shares of
Common Stock of the Company have been reserved for issuance by the
Company upon exercise of the Representative's Warrants.

(j) McGladrey & Pullen, LLP, whose reports appear in the
Registration Statement and Prospectus, are independent accountants
within the meaning of the 1933 Act and the Rules and Regulations. The
financial statements of the Company, together with the related notes,
forming part of the Registration Statement and Prospectus (the
"Financial Statements"), fairly present the financial position and the
results of operations of the Company at the respective dates and for
the respective periods to which they apply. The Financial Statements
are accurate, complete and correct and have been prepared in accordance
with the 1933 Act, the Rules and Regulations and generally accepted
accounting principles ("GAAP"), consistently applied throughout the
periods involved, except as may be otherwise stated therein. The
summaries of the Financial Statements and the other financial,
statistical and related notes set forth in the Registration Statement
and the Prospectus are (i) accurate and correct and fairly present the
information purported to be shown thereby as of the dates and for the
periods indicated on a basis consistent with the audited financial
statements of the Company and (ii) in compliance in all material
respects with the requirements of the 1933 Act and the Rules and
Regulations.

(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and at any
Closing Date, except as is otherwise disclosed in the Registration
Statement or Prospectus, there has not been:

(i) any change in the capital stock or long-term debt
(including any capitalized lease obligation), or increase in
the short-term debt of the Company;

(ii) any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock of
the Company;

(iii) any adverse change, or any development
involving a material adverse change, in or affecting the
business, business prospects, properties, assets, patents or
patent applications (including those of the Company and those
relating to devices or technologies licensed to the Company),
management, financial position, stockholders' equity, results
of operations or general condition of the Company;

(iv) any material transaction entered into by the
Company;

<PAGE>

(v) any material obligation, direct or contingent,
incurred by the Company, except obligations incurred in the
ordinary course of business that, in the aggregate, are not
material; or

(vi) any dividend or distribution of any kind
declared, paid or made on the Company's capital stock.

(l) Except as is otherwise disclosed in the Registration
Statement or Prospectus, the Company has good and marketable title to
all of the property, real and personal, described in the Registration
Statement or Prospectus as being owned by the Company, free and clear
of all liens, encumbrances, equities, charges or claims, except as do
not materially interfere with the uses made and to be made by the
Company of such property or as disclosed in the Financial Statements.
Except as is otherwise disclosed in the Registration Statement or
Prospectus, the Company has valid and binding leases to the real and
personal property described in the Registration Statement or Prospectus
as being under lease to the Company, except as to those leases which
are not material to the Company or the lack of enforceability of which
would not materially interfere with the use made and to be made by the
Company of such leased property.

(m) There has been no unlawful storage, treatment or disposal
of waste by the Company at any of the facilities owned or leased
thereby, except for such violations which would not have a material
adverse effect on the condition, (financial or otherwise) or the
shareholders' equity, results of operation, business, properties or
prospects of the Company. There has been no material spill, discharge,
leak, emission, ejection, escape, dumping or release of any kind onto
the properties owned or leased by the Company, or into the environment
surrounding those properties, of any toxic or hazardous substances, as
defined under any federal, state or local regulations, laws or
statutes, except for those releases either permissible under such
regulations, laws or statutes or otherwise allowable under applicable
permits or which would not have a material adverse effect on the
condition (financial or otherwise) or the shareholders' equity, results
of operation, business, properties or prospects of the Company.

(n) The Company has filed all necessary federal and state
income and franchise tax returns and paid all taxes shown as due
thereon. The Company is not in default in the payment of any taxes and
has no knowledge of any tax deficiency which might be asserted against
it which would materially and adversely affect the Company's business
or properties.

(o) No labor disturbance by the employees of the Company
exists or, to the best of the Company's knowledge, is imminent which
could reasonably be expected to have a material adverse effect on the
conduct of the business, operations, financial condition or income of
the Company.

<PAGE>

(p) Except as disclosed in the Prospectus:

(i) The Company owns or possesses the unrestricted
rights to use all patents, copyrights, trademarks, trade
secrets and proprietary rights or information necessary for
the development, manufacture, operation and sale of all
products and services sold or proposed to be sold by the
Company and for the conduct of its present or intended
business as described in the Prospectus. There are no pending
legal, governmental or administrative proceedings relating to
patents, copyrights, trademarks or proprietary rights or
information to which the Company is a party or to which any
property of the Company is subject and no such proceedings
are, to the best of the Company's knowledge, threatened or
contemplated against the Company by any governmental agency or
authority or others. The Company has not received any notice
of conflict with asserted rights of others. The Company is not
using any confidential information or trade secrets of any
third party without such party's consent.

(ii) The Company does not infringe upon the right or
claimed rights of any person under or with respect to any of
the intangible rights listed in the preceding subsection. The
Company is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to
any owner of, licensor of, or other claimant to, any patent,
trademark, trade name, copyright or other intangible asset,
with respect to the use thereof or in connection with the
conduct of its business or otherwise.

(q) The Company intends to apply the proceeds from the sale of
the Shares by it to the purposes and substantially in the manner set
forth in the Prospectus.

(r) The Company has no defined benefit pension plan or other
pension benefit plan, which is intended to comply with the provisions
of the Employee Retirement Income Security Act of 1974 as amended from
time to time, except as disclosed in the Registration Statement.

(s) To the best of the Company's knowledge, no person is
entitled, directly or indirectly, to compensation from the Company or
the Underwriters for services as a finder in connection with the
transactions contemplated by this Agreement.

(t) The conditions for use of a Registration Statement on Form
SB-2 for the distribution of the Shares have been satisfied with
respect to the Company.

(u) The Company has not taken and will not take, directly or
indirectly, any action (and does not know of any action by its
directors, officers, stockholders, or others) which has constituted or
is designed to, or which might reasonably be expected to, cause or

<PAGE>

result in stabilization or manipulation, as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act") or otherwise, of the
price of any security of the Company to facilitate the sale or resale
of the Shares.

(v) The Company has not sold any securities in violation of
Section 5 of the 1933 Act.

(w) The Company maintains insurance, which is in full force
and effect, of the types and in the amounts adequate for its business
and in line with the insurance maintained by similar companies and
businesses.

(x) The Company hereby represents that, as of the date hereof,
it has complied with all provisions of Section 517.075, Florida
Statutes and Rule 3E-900-001 of the Rules of the Florida Department of
Banking and Finance, Division of Securities, copies of which are
attached hereto.

(y) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations and (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP.

(z) All material transactions between the Company and its
stockholders who beneficially own more than 5% of any class of the
Company's voting securities have been accurately disclosed in the
Prospectus, and the terms of each such transaction are fair to the
Company and no less favorable to the Company than the terms that could
have been obtained from unrelated parties.

(aa) The Company has obtained a written agreement, enforceable
by the Representative from each of the officers and directors and the
sole existing stockholder of the Company, that for one year following
the Effective Date, such person will not, without the Representative's
prior written consent, sell, transfer or otherwise dispose of, or agree
to sell, transfer or otherwise dispose of, other than by gift to donees
who agree to be bound by the same restriction or by will or the laws of
descent, any of his or her Common Stock, or any options, warrants or
rights to purchase Common Stock or any shares of Common Stock received
upon exercise of any options, warrants or rights to purchase Common
Stock, all of which are beneficially held by such persons during the
180-day period.

(bb) The Common Stock of the Company has been approved by
Nasdaq for trading on its Small Cap Market following effectiveness of
the Registration Statement.

(cc) The Company has not distributed and will not distribute
any prospectus or other offering material in connection with the
offering and sale of the Shares other than Preliminary Prospectus or
the Prospectus or other materials permitted by the Act to be
distributed by the Company.

<PAGE>

(dd) To the Company's knowledge, none of the Company's
officers, directors or security holders has any affiliations with the
NASD, except as set forth in the Registration Statement or as otherwise
disclosed in writing to the Representative.

(ee) The Company is not, and upon completion of the sale of
the Shares contemplated hereby will not be required to, register as an
"investment company" under the Investment Company Act of 1940, as
amended.

(ff) Any certificate signed by any officer of the Company and
delivered to the Representative or counsel to the Underwriters shall be
deemed to be a representation and warranty of the Company to each
Underwriter as to the matters covered thereby.

2. Purchase, Sale, Delivery and Payment.

(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions
herein set forth, the Company agrees to issue and sell to each of the
Underwriters, and the Underwriters agree, severally and not jointly, to
purchase from the Company, at $5.00 per Share (net of underwriting
discounts and commissions of $.3750 per Share) the respective amount of
Firm Shares set forth opposite such Underwriter's name in Schedule I
hereto. The Underwriters will collectively purchase all of the Firm
Shares if any are purchased.

(b) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth,
the Company hereby grants an option to the Underwriters to purchase an
aggregate of the Option Shares at the same purchase price as the Firm
Shares for use solely in covering any overallotments made by the
Underwriters in the sale and distribution of the Firm Shares. The
option granted hereunder may be exercised at any time (but not more
than once) within 45 days after the Effective Date (as defined in
Section 4(a) hereof) upon notice (confirmed in writing) by the
Representative to the Company setting forth the aggregate number of
Option Shares as to which the Underwriters are exercising the option
and the date on which certificates for such Option Shares are to be
delivered. Option Shares shall be purchased severally for the account
of each Underwriter in proportion to the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto. The
option granted hereby may be canceled by the Representative as to the
Option Shares for which the option is unexercised at any time prior to
the expiration of the 45-day period upon notice to the Company.

(c) The Company will deliver the Firm Shares to the
Representative at the offices of Fredrikson & Byron, P.A., unless some
other place is agreed upon, at 10:00 A.M., Minneapolis time, against
payment of the purchase price at the same place, on the third full
business day after trading the Shares has commenced (but not more than
ten full business days after the date the Registration Statement is
declared effective), or such earlier time as

<PAGE>

may be agreed upon between the Representative and the Company. Such
time and place is herein referred to as the "First Closing Date."

(d) The Company will deliver the Option Shares being purchased
by the Underwriters to the Representative at the offices of Fredrikson
& Byron, P.A. set forth in Section 2(c) above, unless some other place
is agreed upon, at 10:00 a.m., Minneapolis time, against payment of the
purchase price at the same place, on the date determined by the
Representative and of which the Company has received notice as provided
in Section 2(b), which shall not be earlier than one nor later than
three full business days after the exercise of the option as set forth
in Section 2(b), or at such other time not later than ten full business
days thereafter as may be agreed upon by the Representative and the
Company, such time and date being herein referred to as the "Second
Closing Date." The First and Second Closing Dates are collectively
referred to herein as the "Closing Date."

(e) Certificates for the Shares to be delivered will be
registered in such names and issued in such denominations as the
Underwriters shall request of the Company at least two full business
days prior to the First Closing Date or the Second Closing Date, as the
case may be. The certificates will be made available to the
Underwriters in definitive form for the purpose of inspection and
packaging at least 24 hours prior to each respective Closing Date.

(f) Payment for the Shares shall be made, against delivery to
the Representative or its designated agent, of certificates for the
Shares by wire transfer to a designated account of the Company.

(g) The Underwriters will make a public offering of the Shares
directly to the public (which may include selected dealers who are
members in good standing with the NASD or foreign dealers not eligible
for membership in the NASD but who have agreed to abide by the
interpretation of the NASD's Board of Governor's with respect to
free-riding and withholding) as soon as the Underwriters deem
practicable after the Registration Statement becomes effective at the
Price to Public set forth in Section 2(a) above, subject to the terms
and conditions of this Agreement and in accordance with the Prospectus.
Such concessions from the public offering price may be allowed selected
dealers of the NASD as the Underwriters determine, and the Underwriters
will furnish the Company with such information about the distribution
arrangements as may be necessary for inclusion in the Registration
Statement. It is understood that the public offering price and
concessions may vary after the initial public offering. The
Underwriters shall offer and sell the Shares only in jurisdictions in
which the offering of Shares has been duly registered or qualified, or
is exempt from registration or qualification, and shall take reasonable
measures to effect compliance with applicable state and local
securities laws.

(h) On the First Closing Date, the Company shall issue and
deliver to the Representative the Representative's Warrants.

<PAGE>

(i) It is understood that the Representative, individually and
not as the Representative, may (but shall not be obligated to) make
payment on behalf of any Underwriter or Underwriters for the Shares to
be purchased by such Underwriter or Underwriters. No such payment by
the Representative shall relieve such Underwriter or Underwriters from
any of its or their other obligations hereunder.

3. Further Agreements of the Company. The Company hereby covenants and
agrees with each of the Underwriters as follows:

(a) If the Registration Statement has not become effective
prior to the date hereof, the Company will use its best efforts to
cause the Registration Statement and any subsequent amendments thereto
to become effective as promptly as possible. The Company will notify
the Representative promptly, after the Company shall receive notice
thereof, of the time when the Registration Statement, or any subsequent
amendment thereto, has become effective or any supplement to the
Prospectus has been filed. Following the execution and delivery of this
Agreement, the Company will prepare, and timely file or transmit for
filing with the SEC in accordance with Rules 430A, 424(b) and 434, as
applicable, copies of the Prospectus, or, if necessary, a
post-effective amendment to the Registration Statement (including the
Prospectus), in which event, the Company will take all necessary action
to have such post-effective amendment declared effective as soon as
possible. The Company will notify the Representative promptly upon the
Company's obtaining knowledge of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceedings for that purpose and will
use its best efforts to prevent the issuance of any stop order and, if
a stop order is issued, to obtain as soon as possible the withdrawal or
lifting thereof. The Company will promptly prepare and file at its own
expense with the SEC any amendments of, or supplements to, the
Registration Statement or the Prospectus which may be necessary in
connection with the distribution of the Shares by the Underwriters.
During the period when a Prospectus relating to the Shares is required
to be delivered under the 1933 Act, the Company will promptly file any
amendments of, or supplements to, the Registration Statement or the
Prospectus which may be necessary to correct any untrue statement of a
material fact or any omission to state any material fact necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company will notify the
Representative promptly of the receipt of any comments from the SEC
regarding the Registration Statement or Prospectus or request by the
SEC for any amendment thereof or supplement thereto or for any
additional information. The Company will not file any amendment of, or
supplement to, the Registration Statement or Prospectus, whether prior
to or after the Effective Date, which shall not previously have been
submitted to the Representative and its counsel a reasonable time prior
to the proposed filing or to which the Representative shall have
reasonably objected.

(b) The Company has used and will continue to use its best
efforts to register or qualify the Shares for sale under the securities
laws of such jurisdictions as the Representative may designate and the
Company will file such consents to service of process

<PAGE>

or other documents necessary or appropriate in order to effect such
registration or qualification. In each jurisdiction in which the Shares
shall have been registered or qualified as above provided, the Company
will continue such registrations or qualifications in effect for so
long as may be required for purposes of the distribution of the Shares;
provided, however, that in no event shall the Company be obligated to
qualify to do business as a foreign corporation in any jurisdiction in
which it is not now so qualified or to take any action which would
subject it to the service of process in suits, other than those arising
out of the offering or sale of the Shares, in any jurisdiction where it
is not now so subject. In each jurisdiction where any of the Shares
shall have been so qualified, the Company will file such statements and
reports as are or may be reasonably required by the laws of such
jurisdiction to continue such qualification in effect. The Company will
notify the Representative immediately of, and confirm in writing, the
suspension of qualification of the Shares or the threat of such action
in any jurisdiction. The Company will use its best efforts to qualify
or register its Common Stock for sale in nonissuer transactions under
(or obtain exemptions from the application of) the securities laws of
such states designated by the Representative (and thereby permit
market-making transactions and secondary trading in its Common Stock in
such states), and will comply with such securities laws and will
continue such qualifications, registrations and exemptions in effect
for a period of five years after the date hereof.

(c) The Company will furnish to the Representative, as soon as
available, copies of the Registration Statement (one of which will be
signed and which shall include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such
documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the 1933 Act, all in such quantities as the
Representative may from time to time reasonably request prior to the
printing of each such document. The Company specifically authorizes the
Underwriters and all dealers to whom any of the Shares may be sold by
the Underwriters to use and distribute copies of such Preliminary
Prospectuses and Prospectuses in connection with the sale of the Shares
as and to the extent permitted by the federal and applicable state and
local securities laws.

(d) For as long as the Company has more than 100 beneficial
owners, but in no event more than five years after the Effective Date,
the Company will mail as soon as practicable to the holders of its
Common Stock substantially the following documents, which documents
shall be in compliance with this Section if they are in the form
prescribed by the 1934 Act:

(i) within forty-five days after the end of the first three
quarters of each fiscal year, copies of the quarterly
unaudited statement of profit and loss and quarterly unaudited
balance sheets of the Company and any material subsidiaries;
and

(ii) within ninety days after the close of each fiscal year,
appropriate financial statements as of the close of such
fiscal year for the Company and any material subsidiary which
shall be certified to by a nationally recognized firm of
independent

<PAGE>

certified public accountants in such form as to disclose the
Company's financial condition and the results of its
operations for such fiscal year.

(e) For as long as the Company has more than 100 beneficial
owners, but in no event more than five years after the Effective Date,
the Company will furnish to the Representative (i) concurrently with
furnishing such reports to its stockholders, the reports described in
Section 3(d) hereof; (ii) as soon as they are available, copies of all
other reports (financial or otherwise) mailed to security holders; and
(iii) as soon as they are available, copies of all reports and
financial statements furnished to, or filed with, the SEC, the NASD,
any securities exchange or any state securities commission by the
Company. During such period, the foregoing financial statements shall
be on a consolidated basis to the extent that the accounts of the
Company and any subsidiary or subsidiaries are consolidated and shall
be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.

(f) The Company will not, without the prior written consent of
the Representative, which consent shall not be unreasonably withheld,
sell or otherwise dispose of any capital stock or securities
convertible or exercisable into capital stock of the Company (other
than pursuant to currently outstanding options and warrants) during the
twelve month period following the Effective Date. Prior to the Closing
Date, the Company will not repurchase or otherwise acquire any of its
capital stock or declare or pay any dividend or make any distribution
on any class of its capital stock.

(g) Subject to the proviso set forth below, the Company shall
be responsible for and pay all costs and expenses incident to the
performance of its obligations under this Agreement including, without
limiting the generality of the foregoing, (i) all costs and expenses in
connection with the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments thereof
or supplements to any of the foregoing; (ii) the issuance and delivery
of the Shares, including taxes, if any; (iii) the cost of all
certificates representing the Shares; (iv) the fees and expenses of the
Transfer Agent for the Shares; (v) the fees and disbursements of
counsel for the Company; (vi) all fees and other charges of the
independent public accountants of the Company; (vii) the cost of
furnishing and delivering to the Underwriters and dealers participating
in the offering copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectuses, the Prospectus and any
amendments of, or supplements to, any of the foregoing; (viii) the NASD
filing and quotation fees; (ix) the fees and disbursements, including
filing fees and all accountable fees and expenses of counsel for the
Representative incurred in registering or qualifying the Shares for
sale under the laws of such jurisdictions upon which the Representative
and the Company may agree; and (x) a nonaccountable expense allowance
to the Representative equal to 2% of the gross proceeds from the
offering and sale of the Shares (the "Offering"). The Representative
hereby acknowledge receipt of a $10,000 advance against the
Representative's non-accountable expense allowance referred to in the
preceding sentence. In the event this Agreement is terminated pursuant
to Section 8 below,

<PAGE>

the Company shall remain obligated to pay the Representative its
accountable expenses, including but not limited to travel expenses and
expenses of its legal counsel, not to exceed $30,000. Further, if upon
termination of this Agreement pursuant to Section 8 below, the
Representative's actual accountable out-of-pocket expenses do not
exceed the $10,000 advance against the Representative's accountable
expense allowance, the portion of the advance not used will be
reimbursed to the Company by the Representative.

(h) The Company will not take, and will use its best efforts
to cause each of its officers and directors not to take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Shares.

(i) The Company will use its best efforts to maintain the
listing of its Common Stock on the Nasdaq Small Cap Market.

(j) For a period of at least three years after the Effective
Date, the Company will file with the SEC all reports and other
documents as may be required by the 1933 Act, the Rules and Regulations
and the 1934 Act.

(k) The Company will apply the proceeds from the sale of the
Shares substantially in the manner set forth in the Prospectus.

(l) Prior to or as of the First Closing Date, the Company
shall have performed each condition to the Underwriters' obligations
required to be performed by it pursuant to Section 4 hereof.

(m) Other than as permitted by the 1933 Act and the Rules and
Regulations, the Company will not distribute any prospectus or other
offering material in connection with the Offering.

(n) The Company will apply the net proceeds from the sale of
the Shares substantially in the manner set forth in the Prospectus.

(o) During the period ending 270 days from the Effective Date,
the Company agrees that it will issue press releases, make public
statements and respond to inquiries of the press and securities
analysts only after conferring with its counsel and with the
Representative.

(p) On First Closing Date, the Company shall grant to the
Representative the Representative's Warrants, in substantially the form
attached as Appendix A hereto.

(q) Prior to or as of either Closing Date, the Company shall
have performed each condition to closing required to be performed by
the Company pursuant to Section 4 hereof.

<PAGE>

4. Conditions of the Underwriters' Obligations. The respective
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein shall be subject to the accuracy of the representations and
warranties of the Company, in the case of the Firm Shares as of the date hereof
and the First Closing Date (as if made on and as of the First Closing Date) and
in the case of the Option Shares, as of the date hereof and the Second Closing
Date (as if made on and as of the Second Closing Date), to the performance by
the Company of its obligations hereunder, and to the satisfaction of the
following additional conditions on or before the First Closing Date in the case
of the Firm Shares and on or before the Second Closing Date in the case of the
Option Shares:

(a) The Registration Statement shall have become effective not
later than 5:00 P.M. Minneapolis time, on the first full business day
following the date of this Agreement, or such later date as shall be
consented to in writing by the Representative (the "Effective Date").
If the Company has elected to rely upon Rule 430A, the information
concerning the price of the Shares and price-related information
previously omitted from the effective Registration Statement pursuant
to Rule 430A shall have been transmitted to the SEC for filing pursuant
to Rule 424(b) within the prescribed time period, and prior to the
Closing Date the Company shall have provided evidence satisfactory to
the Representative of such timely filing (or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the 1933 Act and the Rules and
Regulations). No stop order suspending the effectiveness thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or, to the knowledge of the Company or the Representative,
threatened by the SEC or any state securities commission or similar
regulatory body. Any request of the SEC for additional information (to
be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Underwriters and their legal counsel. The NASD, upon review of the
terms of the Offering, shall not have objected to the terms of the
Underwriters' participation in the Offering.

(b) The Representative shall not have advised the Company that
the Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a fact which is
material or omits to state a fact which is material and is required to
be stated therein or is necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this Section 4(b) shall not apply
to statements in, or omissions from, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, which are
based upon and conform to written information furnished to the Company
by any of the Underwriters specifically for use in the preparation of
the Registration Statement or the Prospectus, or any such amendment or
supplement.

(c) Subsequent to the date as of which information is given
the Registration Statement and Prospectus, there shall not have
occurred any change, or any development involving a prospective change,
which materially and adversely affects the business or

<PAGE>

properties of the Company and which, in the reasonable opinion of the
Representative, materially and adversely affects the market for the
Shares.

(d) The Representative shall have received the opinion of
Johnson, Killen, Thibodeau & Seiler, P.A. and the opinion of Lommen,
Nelson, Cole & Stageberg, P.A., counsel for the Company, dated as of
such respective Closing Date, addressed to the Underwriters and
satisfactory in form and substance to the Representative and its
counsel, to the effect that:

(i) The Company has been duly incorporated and is
validly existing in good standing under the laws of the State
of Minnesota with the requisite corporate power to own, lease
and operate its properties and conduct its business as
described in the Prospectus; and is duly qualified to do
business as a foreign corporation in good standing in all
jurisdictions where the ownership or leasing of its properties
or the conduct of its business requires such qualification and
in which the failure to be so qualified or in good standing
would have a material adverse effect on its business. The
activities of the Company are permitted under the 1933 Act,
the Rules and Regulations and other applicable laws.

(ii) The number of authorized, issued and outstanding
shares of capital stock of the Company are as set forth under
the caption "Capitalization" in the Prospectus. The
outstanding shares of capital stock of the Company have been
duly authorized and validly issued, and are fully paid and
nonassessable. Upon delivery of and payment for the Shares
hereunder, the Underwriters will acquire the Shares free and
clear of all liens, encumbrances or claims. To the best of
such counsel's knowledge, no preemptive rights, contractual or
otherwise, of securities holders of the Company exist with
respect to the issuance or sale of the Shares by the Company
pursuant to this Agreement or the issuance of the Warrant
Shares upon exercise of the Representative's Warrants. To the
best of such counsel's knowledge, no rights to require
registration of shares of Common Stock or other securities of
the Company exist which may be exercised in connection with
the filing of the Registration Statement. The Shares,
Representative's Warrants and Warrant Shares conform as to
matters of law in all material respects to the description of
such securities made in the Prospectus and such description
accurately sets forth the material legal provisions thereof
required to be set forth in the Prospectus.

(iii) The Shares have been duly authorized and, upon
delivery to the Underwriters against payment therefor, will be
validly issued, fully paid and nonassessable.

(iv) The certificates evidencing the Shares comply as
to form with the applicable provisions of the laws of the
State of Minnesota.

<PAGE>

(v) The Representative's Warrants have been duly
authorized, executed and delivered by the Company and are the
valid and binding obligations of the Company, enforceable in
accordance with their terms, except as enforceability may be
limited by the application of bankruptcy, insolvency,
moratorium, or other laws of general application affecting the
rights of creditors generally and by judicial limitations on
the right of specific performance and other equitable
remedies. The Warrant Shares when issued in accordance with
the terms of this Agreement and pursuant to the
Representative's Warrants will be validly issued, fully paid
and nonassessable. A sufficient number of shares of Common
Stock has been reserved for issuance upon exercise of the
Representative's Warrants.

(vi) The Registration Statement has become and is
effective under the 1933 Act, the Prospectus has been filed as
required by Rule 424(b), if necessary and, to the best
knowledge of such counsel, no stop orders suspending the
effectiveness of the Registration Statement have been issued
and no proceedings for that purpose have been instituted or
are pending or contemplated under the 1933 Act.

(vii) To the best of such counsel's knowledge, there
are no material legal or governmental proceedings of a
character required by the 1933 Act and the Rules and
Regulations to be described or referred to in the Registration
Statement or Prospectus that are not described or referred to
therein. All pending legal or governmental proceedings, if
any, to which the Company is a party or to which any of its
property is subject which are not described in the
Registration Statement and the Prospectus, including ordinary
routine litigation incidental to the business, are, considered
in the aggregate, not material to the Company.

(viii) No authorization, approval or consent of any
governmental authority or agency is necessary in connection
with the issuance and sale of the Shares as contemplated under
this Agreement, except such as may be required and obtained
under the 1933 Act or under state or other securities laws in
connection with the purchase and distribution of the Shares by
the Underwriters.

(ix) The Registration Statement, when it became
effective, the Prospectus and any amendments thereof or
supplements thereto, (other than the financial statements and
supporting financial and statistical data included or
incorporated therein, as to which such counsel need express no
opinion) on the date of filing or the date thereof, complied
as to form in all material respects with the requirements of
the 1933 Act and the Rules and Regulations, and the conditions
for use of a registration statement on Form SB-2 for the
distribution of shares have been satisfied with respect to the
Company.

(x) This Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of the
Company, enforceable in accordance

<PAGE>

with its terms, except as enforceability may be limited by the
application of bankruptcy, insolvency, moratorium or similar
laws affecting the rights of creditors generally and judicial
limitations on the right of specific performance and except as
the enforceability of indemnification or contribution
provisions hereof may be limited by federal or state
securities laws.

(xi) Such counsel does not know of any contracts,
agreements, documents or instruments required to be filed as
exhibits to the Registration Statement or described in the
Registration Statement or the Prospectus which are not so
filed or described as required, and does not know of any
amendment to the Registration Statement required to be filed
that has not been filed; and insofar as any statements in the
Registration Statement or the Prospectus constitute summaries
of any contract, agreement, document or instrument to which
the Company is a party, such statements are accurate summaries
and fairly present the information called for with respect to
such matters.

(xii) To the best of such counsel's knowledge, there
are no defects in title or leasehold interests, or any liens,
encumbrances, equities, charges or claims, not disclosed in
the Registration Statement or Prospectus which would
materially affect the present occupancy or use of any of the
real or personal property owned or leased by the Company.

(xiii) To the best of such counsel's knowledge,
except as described in the Prospectus, there are no United
States patents of third parties which are infringed by the
manufacture, use or sale of the products or processes
currently made, used or sold by the Company.

(xiv) To the best of such counsel's knowledge there
are no legal, governmental or administrative proceedings
pending or threatened against the Company that relate to
patents, trademarks or other intellectual property, except for
pending or proposed United States and foreign patent
applications.

(xv) To the best of such counsel's knowledge, except
as described in the Prospectus, after due inquiry, the Company
has not received any notice of conflict with the asserted
rights of others in respect of any trademarks, service marks,
trade names, trademark registrations, service mark
registrations, copyrights, licenses, inventions, trade
secrets, patents, patent applications, know-how, or similar
rights, nor of any threatened actions with respect thereto,
which, if determined adversely to the Company, would
individually or in the aggregate have a material adverse
effect on the general affairs, financial position, net worth
or results of operations of the Company.

(xvi) To the best of such counsel's knowledge, after
due inquiry, the Company owns, possesses or is licensed under
all such material trademarks,

<PAGE>

trademark applications, trademark registrations, service
marks, service mark registrations, copyrights, patents, patent
applications and licenses as are described in the Prospectus
and which are necessary for the Company's present or planned
future business as described in the Prospectus.

(xvi) The performance of this Agreement and the
consummation of the transactions described herein will not
result in a violation or default under, the Company's Articles
of Incorporation, as amended, Bylaws or other governing
documents. To the best of such counsel's knowledge, (a) the
Company is not in violation of, or in default under, its
Articles of Incorporation, as amended, Bylaws or other
governing documents; and (b) the execution, delivery and
performance of this Agreement and the consummation of the
transactions described herein will not result in a material
violation of, or a material default under, the terms or
provisions of (A) any bond, debenture, note, or other evidence
of indebtedness or any contract, license, indenture, mortgage,
loan agreement, joint venture or partnership agreement, lease,
agreement or instrument to which the Company is a party or by
which the Company or any of its properties is bound, or (B)
any law, order, rule, regulation, writ, injunction, or decree
known to such counsel of any government, governmental agency
or court having jurisdiction over the Company or any of its
properties.

(xvii) To the best of such counsel's knowledge, sales
of unregistered securities by the Company prior to the
Effective Date were exempt from registration requirements of
the Act and are not required to be integrated under Rule
502(a) of the Regulation D of the Act with the public offering
contemplated hereby.

(xviii) The Company is not, and immediately upon
completion of the sale of the Shares contemplated hereby will
not be required to register as an "investment company" under
the Investment Company Act of 1940, as amended.

(xix) To the best of such counsel's knowledge, the
Company has not consummated any form of business combination
which is required to be described or referenced in the
Registration Statement that is not so described or referenced.

In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper, upon
certificates of public officials and of the officers of the Company, provided
that copies of such officers' certificates are attached to the opinion.

In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel cannot guarantee
the accuracy, completeness or fairness of any of the statements contained in the
Registration Statement, Prospectus, or any amendment thereof or supplement
thereto in connection with such counsel's representation, investigation and due
inquiry

<PAGE>

of the Company in the preparation of the Registration Statement, Prospectus and
any amendment thereof or supplement thereto, nothing has come to the attention
of such counsel which causes them to believe that the Registration Statement,
Prospectus, or any amendment thereof or supplement thereto (other than the
financial statements and supporting financial and statistical data included or
incorporated therein, as to which such counsel need express no opinion) contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading; provided,
however, that such opinion of counsel does not require any statement concerning
statements in, or omissions from, the Registration Statement, Prospectus, or any
amendment thereof or supplement thereto, which are based upon and conform to
written information furnished to the Company by any of the Underwriters
specifically for use in the preparation of the Registration Statement,
Prospectus, or any such amendment or supplement.

(e) The Representative shall have received from Fredrikson &
Byron, P.A., its counsel, such opinion or opinions as the
Representative may reasonably require, dated as of each Closing Date
and satisfactory in form and substance to the Representative, with
respect to the sufficiency of corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated
hereby, and the Company shall have furnished to said counsel such
documents as they may have requested for the purpose of enabling them
to pass upon such matters. In connection with such opinion, as to
matters of fact relevant to conclusions of law, such counsel may rely,
to the extent that they deem proper, upon representations or
certificates of public officials and of responsible officers of the
Company.

(f) The Underwriter and the Company shall have received
letters, dated the date hereof and as of each Closing Date, from
McGladery & Pullen, LLP independent public accountants, containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial and statistical information
contained in the Registration Statement and the Prospectus, all in form
and substance satisfactory to the Representative and its counsel.

(g) The Representative shall have received from the Company a
certificate, dated as of such Closing Date, of the principal executive
officer and the principal financial or accounting officer of the
Company to the effect that:

(i) The representations and warranties of the Company
in this Agreement are true and correct as if made on and as of
such Closing Date. The Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at, or prior to, such date.

(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceeding
for that purpose has been instituted or is pending or to the
best knowledge of such officers contemplated under the 1933
Act.

<PAGE>

(iii) Neither the Registration Statement nor the
Prospectus nor any amendment thereof or supplement thereto
included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, and,
since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amended
or supplemented prospectus which has not been so set forth;
provided, however, that such certificate does not require any
representation concerning statements in, or omissions from,
the Registration Statement or Prospectus, or any amendment
thereof or supplement thereto, which are based upon and
conform to written information furnished to the Company by any
of the Underwriters specifically for use in the preparation of
the Registration Statement or the Prospectus, or any such
amendment or supplement.

(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as contemplated or referred to in the
Prospectus, no event has occurred that should have been set
forth in an amendment or supplement to Registration Statement
or the Prospectus which has not been so set forth and the
Company has not incurred any direct or contingent liabilities
or obligations material to the Company, or entered into any
material transactions, except liabilities, obligations or
transactions in the ordinary course of business, and there has
not been any change in the capital stock or long-term debt of
the Company, (including any capitalized lease obligations),
any material increase in the short-term debt of the Company,
any material adverse change in the financial position, net
worth or results of operations of the Company or declaration
or payment of any dividend.

(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, the Company has not sustained any material loss
of, or damage to, its properties, whether or not insured.

(vi) Except as is otherwise expressly stated in the
Registration Statement and Prospectus, there are no material
actions, suits or proceedings pending before any court or
governmental agency, authority or body, or, to the best of
their knowledge, threatened, to which the Company is a party
or of which the business or property of the Company is the
subject.

(h) The Representative shall have received, dated as of each
Closing Date, from the Secretary of the Company a certificate of
incumbency certifying the names, titles and signatures of the officers
authorized to carry out the resolutions of the Board of Directors of
the Company authorizing and approving the execution, delivery and
performance of this Agreement, a copy of such resolutions to be
attached to such certificate, certifying that such

<PAGE>

resolutions and the Articles of Incorporation, as amended of the
Company and the Bylaws of the Company have been validly adopted and
have not been amended or modified.

(i) The Representative shall have received an original written
agreement from each of the officers, directors and stockholders of the
Company, that for twelve months following the Effective Date, such
person will not, without the Representative's prior written consent,
sell, transfer or otherwise dispose of, or agree to sell, transfer or
otherwise dispose of, other than by gift to donees who agree to be
bound by the same restriction or by will or the laws of descent, any of
his or her Common Stock, or any options, warrants or rights to purchase
Common Stock or any shares of Common Stock received upon exercise of
any options, warrants or rights to purchase Common Stock, all of which
are beneficially held by such persons during the twelve month period.

(j) The Company shall not have failed to have performed any of
its agreements herein contained and required to be performed by it at
or prior to the First Closing Date or the Second Closing Date, as the
case may be. The Representative may waive in writing the performance of
any one or more of the conditions specified in this Section 4 or extend
the time for their performance.

(k) The Shares shall have been registered or qualified for
sale or exempt from such registration or qualification under the
securities laws of such jurisdictions as designated by the
Representative such qualifications or exemptions shall continue in
effect to and including the First Closing Date or the Second Closing
Date, as the case may be.

(l) The Company shall have furnished to the Representative,
dated as of the date of each Closing Date, such further certificates
and documents as the Representative or its counsel shall have
reasonably required.

(m) All such opinions, certificates, letters and documents
will be in compliance with the provisions hereof only if they are
reasonably satisfactory to the Representative and its legal counsel.
All statements contained in any certificate, letter, or other document
delivered pursuant hereto by, or on behalf of, the Company shall be
deemed to constitute representations and warranties of the Company.

(n) The Representative may waive in writing the performance of
any one or more of the conditions specified in this Section 4 or extend
the time for their performance.

(o) If any of the conditions specified in this Section 4 shall
not have been fulfilled when and as required by this Agreement to be
fulfilled, this Agreement and all obligations of the Underwriters
hereunder may be canceled at, or at any time prior to, each Closing
Date by the Representative. Any such cancellation shall be without
liability of the Underwriters to the Company and shall not relieve the
Company of its obligations under Section 3(g) hereof. Notice of such
cancellation shall be given to the Company at the

<PAGE>

address specified in Section 11 hereof in writing, or by telegraph or
telephone confirmed in writing.

5. Representative's Warrants. On the First Closing Date, the Company
shall sell to the Representative for $50 the Representative's Warrants, which
warrants shall first become exercisable one year after the Effective Date and
shall remain exercisable for a period of four years thereafter. The
Representative's Warrants shall be subject to certain transfer restrictions and
shall be in substantially the form filed as an exhibit to the Registration
Statement and attached as Appendix A hereto.

6. Indemnification.

(a) The Company hereby agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the 1933 Act against any losses,
claims, damages or liabilities, joint or several, to which such
Underwriter or each such controlling person may become subject, under
the 1933 Act, the 1934 Act, the common law or otherwise, insofar as
such losses, claims, damages or liabilities (or judicial or
governmental actions or proceedings in respect thereof) arise out of,
or are based upon, (i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any
amendment thereof, or the omission or alleged omission to state in the
Registration Statement or any amendment thereof a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; (ii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus if used prior to
the Effective Date of the Registration Statement or in the Prospectus
(as amended or as supplemented, if the Company shall have filed with
the SEC any amendment thereof or supplement thereto), or the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading;
or (iii) any untrue statement or alleged untrue statement of a material
fact contained in any application or other statement executed by the
Company or based upon written information furnished by the Company
filed in any jurisdiction in order to qualify the Shares under, or
exempt the Shares or the sale thereof from qualification under, the
securities laws of such jurisdiction, or the omission or alleged
omission to state in such application or statement a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and the Company will reimburse each Underwriter and each
such controlling person for any legal or other expenses reasonably
incurred by such Underwriter or controlling person (subject to the
limitation set forth in Section 6(c) hereof) in connection with
investigating or defending against any such loss, claim, damage,
liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage
or liability arises out of, or is based upon, an untrue statement, or
alleged untrue statement, omission or alleged omission, made in
reliance upon and in conformity with written information furnished to
the Company by, or on behalf of, any

<PAGE>

Underwriter specifically for use in the preparation of the Registration
Statement or any such post effective amendment thereof, any such
Preliminary Prospectus or the Prospectus or any such amendment thereof
or supplement thereto, or in any application or other statement
executed by the Company or any Underwriter filed in any jurisdiction in
order to qualify the Shares under, or exempt the Shares or the sale
thereof from qualification under, the securities laws of such
jurisdiction; and provided further that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to
any untrue statement, alleged untrue statement, omission or alleged
omission made in any Preliminary Prospectus but eliminated or remedied
in the Prospectus, such indemnity agreement shall not inure to the
benefit of any Underwriter if the person asserting any loss, claim,
damage or liability purchased the Shares from such Underwriter which
are the subject thereof (or to the benefit of any person who controls
such Underwriter), if a copy of the Prospectus was not sent or given to
such person with, or prior to, the written confirmation of the sale of
such Shares to such person. This indemnity agreement is in addition to
any liability which the Company may otherwise have.

(b) Each Underwriter severally, but not jointly, agrees to
indemnify and hold harmless the Company, each of the Company's
directors, each of the Company's officers who has signed the
Registration Statement and each person who controls the Company within
the meaning of Section 15 of the 1933 Act against any losses, claims,
damages or liabilities to which the Company or any such director,
officer, or controlling person may become subject, under the 1933 Act,
the 1934 Act, the common law, or otherwise, insofar as such losses,
claims, damages, or liabilities (or judicial or governmental actions or
proceedings in respect thereof) arise out of, or are based upon, (i)
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, or
the omission or alleged omission to state in the Registration Statement
or any amendment thereof, a material fact required to be stated therein
or necessary to make the statements therein not misleading; (ii) any
untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus if used prior to the Effective
Date of the Registration Statement or in the Prospectus (as amended or
as supplemented, if the Company shall have filed with the SEC any
amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact
contained in any application or other statement executed by the Company
or by any Underwriter and filed in any jurisdiction in order to qualify
the Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction, or the
omission or alleged omission to state in such application or statement
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; in each case to the extent, but only the extent,
that such untrue statement, alleged untrue statement, omission or
alleged omission, was made in reliance upon and in conformity with
written information furnished to the Company by, or on behalf of, any
Underwriter specifically for use in the preparation of the Registration
Statement or any such

<PAGE>

post effective amendment thereof, any such Preliminary Prospectus or
the Prospectus or any such amendment thereof or supplement thereto, or
in any application or other statement executed by the Company or by any
Underwriter and filed in any jurisdiction; and each Underwriter will
reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in
connection with investigating or defending against any such loss,
claim, damage, liability or action. This indemnity agreement is in
addition to any liability which the Underwriters may otherwise have.

(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 6, notify in writing the
indemnifying party of the commencement thereof. The omission so to
notify the indemnifying party will not relieve the indemnifying party
from any liability under this Section 6 as to the particular item for
which indemnification is then being sought, unless such omission so to
notify prejudices the indemnifying party's ability to defend such
action. In case any such action is brought against any indemnified
party and the indemnified party notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel who shall be reasonably satisfactory to such
indemnified party; and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under
this Section 6 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, that if, in
the reasonable judgment of the indemnified party, it is advisable for
such parties and controlling persons to be represented by separate
counsel, any indemnified party shall have the right to employ separate
counsel to represent it and all other parties and their controlling
persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Underwriters against
the Company or by the Company against the Underwriters hereunder, in
which event the fees and expenses of such separate counsel shall be
borne by the indemnifying party and paid as incurred. Any such
indemnifying party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the
prior written consent of such indemnifying party.

7. Contribution.

(a) If the indemnification provided for in Section 6 is
unavailable under applicable law to any indemnified party in respect of
any losses, claims, damages or liabilities referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Underwriters

<PAGE>

from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to
in clause (i) above but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The Company and the
Underwriters agree that contribution determined by per capita
allocation (even if the Underwriters were considered a single person)
would not be equitable. The respective relative benefits received by
the Company on the one hand, and the Underwriters, on the other hand,
shall be deemed to be in the same proportion (A) in the case of the
Company, as the total price paid to the Company for the Shares by the
Underwriters (net of underwriting discount received but before
deducting expenses) bears to the aggregate public offering price of the
Shares and (B) in the case of the Underwriters, as the aggregate
underwriting discount received by them bears to the aggregate public
offering price of the Shares, in each case as reflected in the
Prospectus. The relative fault of the Company and the Underwriters
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages and
liabilities referred to above shall be deemed to include any legal or
other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. Notwithstanding
the provisions of this Section 7, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price
at which the Shares underwritten by it were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto. The Underwriters' obligation to contribute
pursuant to this section are several and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this
Section 7, each person who controls an Underwriter within the meaning
of the 1933 Act or the 1934 Act shall have the same rights to
contribution as such Underwriter, each person who controls the Company
within the meaning of the 1933 Act or the 1934 Act shall have the same
rights to contribution as the Company and each officer of the Company
who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company.

(b) Promptly after receipt by a party to this Agreement of
notice of the commencement of any action, suit or proceeding, such
person will, if a claim for contribution in respect thereof is to be
made against another party (the "Contributing Party"), notify the
Contributing Party of the commencement thereof, but the omission so to
notify the Contributing Party will not relieve the Contributing Party
from any liability which it may have to any party other than under this
Section 7, unless such omission so to

<PAGE>

notify prejudices the Contributing Party's ability to defend such
action. Any notice given pursuant to Section 6 hereof shall be deemed
to be like notice under this Section 7. In case any such action, suit
or proceeding is brought against any party, and such person notifies a
Contributing Party of the commencement thereof, the Contributing Party
will be entitled to participate therein with the notifying party and
any other Contributing Party similarly notified.

8. Effective Date of This Agreement and Termination.

(a) This Agreement shall become effective at 8:00 a.m.,
Minneapolis time, on the day on which the Underwriters release the
initial public offering of the Firm Shares for sale to the public. The
Representative shall notify the Company immediately after any action
has been taken which causes this Agreement to become effective. Until
this Agreement is effective, it may be terminated by the Company or the
Representative by giving notice as hereinafter provided, except that
the provisions of Sections 3(g), 6, 7 and 8 shall at all times be
effective. For purposes of this Agreement, the release of the initial
public offering of the Firm Shares for sale to the public shall be
deemed to have been made when the Underwriters release, by telegram or
otherwise, firm offers of the Firm Shares to securities dealers or
release for publication a newspaper advertisement relating to the Firm
Shares, whichever occurs first. This Agreement, shall nevertheless,
become effective at such time earlier than the time specified above as
the Representative may determine, by notice to the Company.

(b) Until the First Closing Date, this Agreement may be
terminated by the Representative, at its option, by giving notice to
the Company, if (i) the Company shall have sustained a loss by fire,
flood, accident or other calamity which is material with respect to the
business of the Company; the Company shall have become a party to
material litigation, not disclosed in the Registration Statement or the
Prospectus; or the business or financial condition of the Company shall
have become the subject of any material litigation, not disclosed in
the Registration Statement or the Prospectus; or there shall have been,
since the respective dates as of which information is given in the
Registration Statement or the Prospectus, any material adverse change
in the general affairs, business, key personnel, capitalization,
financial position or net worth of the Company, whether or not arising
in the ordinary course of business, which loss or change, in the
reasonable judgment of the Representative, shall render it inadvisable
to proceed with the delivery of the Shares, whether or not such loss
shall have been insured; (ii) trading in securities generally on the
New York Stock Exchange, American Stock Exchange, Nasdaq National
Market, Nasdaq Small Cap Market or the over-the-counter market shall
have been suspended or minimum prices shall have been established on
such exchange by the SEC or by such exchanges or markets; (iii) a
general banking moratorium shall have been declared by federal, New
York or Minnesota authorities; (iv) there shall have been such a
material adverse change in general economic, monetary, political or
financial conditions, or the effect of international conditions on the
financial markets in the United States shall be such that, in the
judgment of the Representative, makes it inadvisable to proceed with
the delivery of the Shares; (v)

<PAGE>

the enactment, publication, decree or other promulgation of any federal
or state statute, regulation, rule or order of either of any court or
other governmental authority which, in the judgment of the
Representative, materially and adversely affects or will materially and
adversely affect the business or operations of the Company; (vi) there
shall be a material outbreak of hostilities or material escalation and
deterioration in the political and military situation between the
United States and any foreign power, or a formal declaration of war by
the United States of America shall have occurred; or (vii) the Company
shall have failed to comply with any of the provisions of this
Agreement on its part to be performed on or prior to such date or if
any of the conditions, agreements, representations or warranties of the
Company shall not have been fulfilled within the respective times
provided for in this Agreement. Any such termination shall be without
liability of any party to any other party, except as provided in
Sections 6 and 7 hereof; provided, however, that the Company shall
remain obligated to pay costs and expenses to the extent provided in
Section 3(g) hereof.

(c) If the Representative elects to prevent this Agreement
from becoming effective or to terminate this Agreement as provided in
this Section 8, it shall notify the Company promptly by telegram or
telephone, confirmed by letter sent to the address specified in Section
11 hereof. If the Company shall elect to prevent this Agreement from
becoming effective, it shall notify the Representative promptly by
telegram or telephone, confirmed by letter sent to the address
specified in Section 11 hereof.

9. Default of Underwriter. If any Underwriter or Underwriters default
in their obligation to purchase the Firm Shares hereunder and the aggregate
amount of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to purchase does not exceed 10% of the total amount of Firm Shares,
the other Underwriters shall be obligated, severally, in proportion to their
respective commitments hereunder, to purchase the Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed to purchase. If any
Underwriter or Underwriters so defaults and the aggregate amount of Firm Shares
with respect to which such default or defaults occur is more than 10% of the
total number of Firm Shares and arrangements satisfactory to the Representative
and the Company for purchase of such Firm Shares by other persons (who may
include one or more of the nondefaulting Underwriters, including the
Representative) are not made within 48 hours after such default, this Agreement
will terminate without liability on the part of any nondefaulting Underwriter or
the Company except for the provisions of Sections 6 and 7 hereof. In any such
case, either the Representative or the Company shall have the right to postpone
the Closing Date, but in no event for more than seven days, in order that any
required changes, not including a reduction in the number of Firm Shares, to the
Registration Statement and the Prospectus of any other documents or arrangements
may be effected. As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 9. Nothing herein shall
relieve a defaulting Underwriter from liability for its default.

10. Survival of Indemnities, Contribution Agreements, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriters contained in Sections 6 and 7, respectively, the
representations and warranties of the Company set forth in Section 1 hereof and
the covenants of the Company set forth in Section 3 hereof shall

<PAGE>

remain operative and in full force and effect, regardless of any investigation
made by, or on behalf of, the Underwriters, the Company, any of its officers and
directors, or any controlling person referred to in Sections 6 and 7, and shall
survive the delivery of and payment for the Shares. The aforesaid indemnity and
contribution agreements shall also survive any termination or cancellation of
this Agreement. Any successor of any party or of any such controlling person, or
any legal representative of such controlling person, as the case may be, shall
be entitled to the benefit of the respective indemnity and contribution
agreements.

11. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to
Representative or any of the Underwriters, shall be mailed, delivered or
telegraphed and confirmed, to R.J. Steichen & Company, One Financial Plaza,
Suite 100, Minneapolis, Minnesota 55402-2543, Attention: Patrick M. Sidders,
with a copy to Melodie R. Rose, Esq., Fredrikson & Byron, P.A., 1100
International Centre, 900 Second Avenue South, Minneapolis, Minnesota 55402; or,
if sent to the Company, shall be mailed, delivered or telegraphed and confirmed,
to Industrial Rubber Products, Inc., 3804 East Beltline, Hibbing, Minnesota
55746, Attention: Daniel O. Burkes, with a copy to John N. Nys, Johnson, Killen,
Thibodeau & Seiler, P.A., 811 Norwest Center, Duluth, Minnesota 55802.

12. Information Furnished by the Underwriter. The statements relating
to the stabilization activities of the Underwriters and the statements under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitute the written information furnished by, or on behalf of, the
Underwriters specifically for use with reference to the Underwriters referred to
in Section 1(b) and Section 6 hereof.

13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company, their respective
successors and assigns, and the officers, directors and controlling persons
referred to in Sections 6 and 7. Nothing expressed in this Agreement is intended
or shall be construed to give any person or corporation, other than the parties
hereto, their respective successors and assigns, and the controlling persons,
officers and directors referred to in Sections 6 and 7 any legal or equitable
right, remedy, or claim under, or in respect of, this Agreement or any provision
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors, assigns and
such controlling persons, officers and directors, and for the benefit of no
other person or corporation. No purchaser of any Shares from the Underwriters
shall be construed a successor or assign merely by reason of such purchase.

14. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota, without regard to the
conflict of law provisions thereof.

<PAGE>

If the foregoing is in accordance with the Representative's
understanding of this agreement, kindly sign and return to the Company the
enclosed counterpart of this Agreement, whereupon it will become a binding
agreement between the Company and each of the several Underwriters in accordance
with its terms.

Very truly yours,

INDUSTRIAL RUBBER PRODUCTS, INC.

By__________________________________

Its_________________________________

ACCEPTANCE

The foregoing Underwriting Agreement is hereby confirmed and accepted by the
undersigned for itself and as Representative of the several Underwriters
referred to in the foregoing Agreement as of the date first above written.

R. J. STEICHEN & COMPANY

By________________________________

Its_______________________________

<PAGE>

SCHEDULE I

Name of Underwriter Number of Firm Shares

1. R. J. Steichen and Company

2. [NAME]

3. [NAME]

4. [NAME]

5. [NAME]

6. [NAME]

7. [NAME]

8. [NAME]

9. [NAME]

10. [NAME]

TOTAL

<PAGE>

APPENDIX A

WARRANT

TO PURCHASE 140,000 SHARES OF COMMON STOCK
OF
INDUSTRIAL RUBBER PRODUCTS, INC.

___________________, 1998
(issuance date)

THIS CERTIFIES THAT, for good and valuable consideration, R. J.
Steichen & Company (the "Representative"), or its registered assigns, is
entitled to subscribe for and purchase from, Industrial Rubber Products, Inc., a
Minnesota corporation (the "Company"), at any time after the one-year
anniversary of the issuance date of this Warrant, to and including the five-year
anniversary of the issuance date of this Warrant, 140,000 fully paid and
nonassessable shares of the Common Stock of the Company at the price of $6.00
per share (the "Warrant Exercise Price"), subject to the antidilution provisions
of this Warrant. Reference is made to this Warrant in the Underwriting Agreement
dated ______________, 1998, by and between the Company and the Representative.
The shares which may be acquired upon exercise of this Warrant are referred to
herein as the "Warrant Shares." As used herein, the term "Holder" means the
Representative, any party who acquires all or a part of this Warrant as a
registered transferee of the Representative, or any record holder or holders of
the Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant. As used herein, the term "Common Stock" means and includes the
Company's presently authorized common stock, $.001 par value, and shall also
include any capital stock of any class of the Company hereafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of
the Holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution, or winding up of the
Company.

This Warrant is subject to the following provisions, terms and
conditions:

1. Exercise; Transferability.

(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), by written notice of exercise (in the form attached hereto) delivered to
the Company at the principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of this Warrant along
with a check in payment of the Warrant Exercise Price for such shares.

(b) This Warrant may not be sold, assigned, hypothecated, or otherwise
transferred until the one year anniversary of the issuance date of this Warrant.
Thereafter, this Warrant may not be sold, assigned, hypothecated, or otherwise
transferred other than by will or pursuant to the operation of law, except to a
person who is an officer of the Representative. Further, this Warrant may not be

<PAGE>

sold, transferred, assigned, hypothecated or divided into two or more Warrants
of smaller denominations, nor may any Warrant shares issued pursuant to exercise
of this Warrant be transferred, except as provided in Section 7 hereof.

2. Exchange and Replacement. Subject to Sections l and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Representative shall be such Holder, an agreement
of indemnity by such Holder shall be sufficient for all purposes of this Section
2. This Warrant shall be promptly canceled by the Company upon the surrender
hereof in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.

3. Issuance of the Warrant Shares.

(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the
subsection (b) below, certificates for the Warrant Shares so purchased shall be
delivered to the Holder within a reasonable time, not exceeding fifteen (15)
days after the rights represented by this Warrant shall have been so exercised,
and, unless this Warrant has expired, a new Warrant representing the right to
purchase the number of Warrant Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the Holder
within such time.

(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9 hereof.
If registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and the
Warrant shall then remain exercisable for a period of at least 30 calendar days
from the date the Company delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to execute
such documents and make such representations, warranties, and agreements as may
be required solely to comply with the exemptions relied upon by the Company, or
the registrations made, for the issuance of the Warrant Shares.

<PAGE>

4. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
upon exercise of the subscription rights evidenced by this Warrant a sufficient
number of shares of Common Stock to provide for the exercise of the rights
represented by this Warrant.

5. Antidilution Adjustments. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.

(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:

(i) pay any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common Stock;

(ii) subdivide its then outstanding shares of Common Stock
into a greater number of shares; or

(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;

then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between or
among shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this Subsection shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be. In the
event that at any time as a result of an adjustment made pursuant to this
Subsection, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive any shares of the Company other than shares of Common
Stock, thereafter the Warrant Exercise Price of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on

<PAGE>

terms as nearly equivalent as practicable to the provisions with respect to
Common Stock contained in this Section 5.

(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.

(c) In case of any consolidation or merger to which the Company is a
party, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under Subsection (a)
of this Section above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the Warrant, to
the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.

(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock or other securities purchasable at such price upon the exercise of
this Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.

6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.

<PAGE>

7. Notice of Transfer of Warrant or Resale of the Warrant Shares.

(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel to the Company and
satisfactory to the Company to prevent further transfers which would be in
violation of Section 5 of the Securities Act of 1933, as amended (the "1933
Act") and applicable state securities laws; and provided further that the
prospective transferee or purchaser shall execute such documents and make such
representations, warranties, and agreements as may be required solely to comply
with the exemptions relied upon by the Company for the transfer or disposition
of the Warrant or Warrant Shares.

(b) If in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such Warrant
Shares described in the written notice given pursuant to this Section 7 may not
be effected without registration or qualification of this Warrant or such
Warrant Shares the Company shall promptly give written notice thereof to the
Holder, and the Holder will limit its activities in respect to such as, in the
opinion of both such counsel, are permitted by law.

8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section 8, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the closing sale price reported by Nasdaq National Market or any national
securities exchange or, if none, the average of the last reported closing bid
and asked prices on any national securities exchange or quoted in Nasdaq
SmallCap, or if not listed on a national securities exchange or quoted in Nasdaq
SmallCap Market, the average of the last reported closing bid and asked prices
as reported by Metro Data Company, Inc. from quotations by market makers in such
Common Stock on the Minneapolis-St. Paul local over-the-counter market.

<PAGE>

9. Registration Rights.

(a) If at any time after the one-year anniversary of the issuance date
of this Warrant and prior to the end of the two-year period following complete
exercise of this Warrant or the close of business on the seven-year anniversary
of the issuance of this Warrant, whichever occurs earlier, the Company proposes
to register under the 1933 Act (except by a Form S-4 or Form S-8 Registration
Statement or any successor forms thereto) or qualify for a public distribution
under Section 3(b) of the 1933 Act, any of its securities, it will give written
notice to all Holders of this Warrant, any Warrants issued pursuant to Section 2
and/or Section 3(a) hereof, and any Warrant Shares of its intention to do so
and, on the written request of any such Holder given within thirty (30) days
after the receipt of any such notice (which request shall specify the interest
in this Warrant or the Warrant Shares intended to be sold or disposed of by such
Holder and describe the nature of any proposed sale or other disposition
thereof), the Company will use its best efforts to cause all such Warrant
Shares, the Holders of which shall have requested the registration or
qualification thereof, to be included in such registration statement proposed to
be filed by the Company; provided, however, that if a greater number of Warrant
Shares is offered for participation in the proposed offering than in the
reasonable opinion of the managing underwriter of the proposed offering can be
accommodated without adversely affecting the proposed offering, then the amount
of Warrant Shares proposed to be offered by such Holders for registration, as
well as the number of securities of any other selling shareholders participating
in the registration, shall be proportionately reduced to a number deemed
satisfactory by the managing underwriter.

(b) Further, on a one-time basis during the four-year period commencing
on the one-year anniversary of the issuance date of this Warrant, upon request
by the Holder or Holders of a majority in interest of this Warrant, of any
Warrants issued pursuant to Section 2 and/or Section 3(a) hereof, and of any
Warrant Shares, the Company will promptly take all necessary steps to register
or qualify, on Form S-3 (or successor form) under the 1933 Act and the
securities laws of such states as the Holders may reasonably request, such
number of Warrant Shares issued and to be issued upon conversion of the Warrants
requested by such Holders in their request to the Company. The Company shall
keep effective and maintain any registration, qualification, notification, or
approval specified in this Paragraph (b), and from time to time shall amend or
supplement the prospectus used in connection therewith to the extent necessary
in order to comply with applicable law, for such period, as may be reasonably
necessary for such Holders or Holders of such Warrant Shares to dispose of such
Warrant Shares.

(c) With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, the Company shall bear the following fees,
costs, and expenses: all registration, filing and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company is required to bear such fees and disbursements), all internal
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified. Fees
and disbursements of special counsel and accountants for the selling Holders,
underwriting discounts and commissions, and transfer taxes for selling Holders
and any other expenses relating to the sale

<PAGE>

of securities by the selling Holders not expressly included above shall be borne
by the selling Holders.

(d) The Company hereby indemnifies each of the Holders of this Warrant
and of any Warrant Shares, and the officers and directors, if any, who control
such Holders, within the meaning of Section 15 of the 1933 Act, against all
losses, claims, damages, and liabilities caused by (1) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any Preliminary
Prospectus or any state securities law filings; (2) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as such losses, claims,
damages, or liabilities are caused by any untrue statement or omission or
alleged untrue statement or omission contained in information furnished in
writing to the Company by such Holder expressly for use therein; and each such
Holder by its acceptance hereof severally agrees that it will indemnify and hold
harmless the Company, each of its directors, each of its officers who signs such
Registration Statement, and each person, if any, who controls the Company,
within the meaning of Section 15 of the 1933 Act, with respect to losses,
claims, damages, or liabilities which are caused by any untrue statement or
alleged untrue statement, omission or alleged omission contained in information
furnished in writing to the Company by such Holder expressly for use therein.

10. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
holder of this Warrant and the Company. This Warrant shall be construed and
enforced in accordance with and governed by the laws of the State of Minnesota
without regard to its choice of law provisions.

IN WITNESS WHEREOF, Industrial Rubber Products, Inc. has caused this
Warrant to be signed by its duly authorized officer as of the date first above
written.

INDUSTRIAL RUBBER PRODUCTS, INC.

By______________________________

Its_____________________________

<PAGE>

TO: INDUSTRIAL RUBBER PRODUCTS, INC.

NOTICE OF EXERCISE OF WARRANT To Be Executed by the Registered Holder in
Order to Exercise the Warrant

The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of

-----------------------------
(Print Name)

Please insert social security
or other identifying number
of registered Holder of
certificate (______________) Address:

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

Date:
------------------------ ------------------------------
Signature*

*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.

<PAGE>

ASSIGNMENT FORM

To be signed only upon authorized transfer of Warrants.

FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto _____________________________ the right to purchase the
securities of Industrial Rubber Products, Inc., Incorporated to which the within
Warrant relates and appoints _____________, attorney, to transfer said right on
the books of Industrial Rubber Products, Inc., Incorporated with full power of
substitution in the premises.

Dated:
--------------------- ------------------------------
(Signature)

Address:

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

Social Security or Tax I.D. Number
of Assignee:

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

EXHIBIT 3.1

RESTATED
ARTICLES OF INCORPORATION

ARTICLE I

The name of the corporation shall be Industrial Rubber Products, Inc.

ARTICLE II

The location and post office address of the corporation's registered
office in the State of Minnesota shall be 3804 East Beltline, Hibbing, Minnesota
55746.

ARTICLE III

The total authorized number of shares of the corporation shall be
Twenty Five Million (25,000,000), having a par value of $.001 per share. The
directors shall have the authority to establish more than one class or series of
shares.

ARTICLE IV

The number of directors of the corporation shall not be greater than
eleven (11), and each director shall hold office until his or her successor is
elected and has qualified, or until his or her earlier death, resignation,
removal or disqualification.

ARTICLE V

The shareholders of the corporation shall not have the preemptive right
to subscribe for and to purchase any or all of the shares or other securities or
rights to purchase shares or other securities of the corporation, now or
hereafter authorized. The shareholders of the corporation shall not have the
right of cumulative voting.

ARTICLE VI

An action required or permitted to be taken at a meeting of the
directors may be taken by written action signed by all of the directors, and in
the case of an action which need not be approved by the shareholders, such
action may be taken by written action signed by the number of directors that
would be required to take such action at a meeting of the directors at which all
directors were present.

<PAGE>

ARTICLE VII

A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (b) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (c) under Section 302A.559 of the Minnesota Business
Corporation Act or Section 80A.23 of the Minnesota Securities Act, or (d) for
any transaction from which the director derived an improper personal benefit. If
the Minnesota Business Corporation Act is hereafter amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Minnesota Business
Corporation Act, as so amended. Any repeal or modification of the foregoing
paragraph by the shareholders of the corporation shall not adversely affect any
right or protection of a director of the corporation existing at the time of
such repeal or modification.

EXHIBIT 3.2

RESTATED BYLAWS

INDUSTRIAL RUBBER PRODUCTS, INC.

<PAGE>

INDEX

Page
----

ARTICLE I Offices.................................................. 1

ARTICLE II Shareholders............................................. 1

Section 2.01. Regular Meetings.................................. 1
Section 2.02. Special Meetings.................................. 1
Section 2.03. Demand by Shareholders............................ 1
Section 2.04. Electronic Conferences............................ 2
Section 2.05. Notice............................................ 2
Section 2.06. Quorum............................................ 2
Section 2.07. Voting Rights..................................... 3
Section 2.08. Share Register.................................... 3
Section 2.09. Voting of Shares by Organizations and Legal
Representatives................................. 3
Section 2.10. Proxies........................................... 4

ARTICLE III Board of Directors....................................... 5

Section 3.01. Board to Manage................................... 5
Section 3.02. Number, Qualifications and Terms.................. 5
Section 3.03. Meetings.......................................... 5
Section 3.04. Electronic Conferences............................ 5
Section 3.05. Notice............................................ 5
Section 3.06. Quorum............................................ 6
Section 3.07. Manner of Acting.................................. 6
Section 3.08. Presumption of Assent............................. 6
Section 3.09. Absent Directors.................................. 6
Section 3.10. Action Without a Meeting.......................... 6
Section 3.11. Resignation....................................... 7
Section 3.12. Removal........................................... 7
Section 3.13. Vacancies......................................... 7
Section 3.14. Compensation...................................... 7

ARTICLE IV Committees............................................... 8

Section 4.01. Generally......................................... 8
Section 4.02. Membership........................................ 8
Section 4.03. Procedure......................................... 8
Section 4.04. Minutes........................................... 8

<PAGE>

ARTICLE V Officers................................................. 8

Section 5.01. Number............................................ 8
Section 5.02. Election and Term of Office....................... 8
Section 5.03. Resignation....................................... 8
Section 5.04. Removal........................................... 9
Section 5.05. Vacancy........................................... 9
Section 5.06. President......................................... 9
Section 5.07. Vice President.................................... 9
Section 5.08. Secretary......................................... 9
Section 5.09. Treasurer......................................... 10
Section 5.10. Assistant Secretaries and Assistant Treasurers.... 10
Section 5.11. Chairman of the Board............................. 11
Section 5.12. Compensation...................................... 11

ARTICLE VI Indemnification.......................................... 11

ARTICLE VII Certificates for Shares and Their Transfer............... 11

Section 7.01. Certificates for Shares........................... 11
Section 7.02. Transfer of Shares................................ 11

ARTICLE VIII Distributions............................................ 12

ARTICLE IX Fiscal Year.............................................. 12

ARTICLE X Seal..................................................... 12

ARTICLE XI Amendment................................................ 12

ARTICLE XII Governing Law............................................ 13

<PAGE>

RESTATED BYLAWS

INDUSTRIAL RUBBER PRODUCTS, INC.

ARTICLE I

OFFICES

The principal office of the corporation shall be located in Minnesota.
The corporation may have such other offices, either within or without Minnesota,
as the Board of Directors may designate or as the business of the corporation
may require from time to time.

The registered office of the corporation required by Chapter 302A,
Minnesota Statutes, to be maintained in Minnesota may be, but need not be,
identical with the principal office in Minnesota, and the address of the
registered office may be changed from time to time by the Board of Directors.

ARTICLE II

SHAREHOLDERS

SECTION 2.01. REGULAR MEETINGS. The Board of Directors may cause
regular meetings of the shareholders to be held on an annual or less frequent
periodic basis for the purpose of electing directors and for the transaction of
such other business as may come before the meeting. Such regular meetings shall
be held on the date and at the time and at a place, within or without the State
of Minnesota, fixed by the Board of Directors.

SECTION 2.02. SPECIAL MEETINGS. Special meetings of the shareholders
may be called for any purpose or purposes at any time, by the President, the
Treasurer, two or more directors or a shareholder or shareholders holding ten
percent or more of the voting shares.

Special meetings shall be held on the date and at the time and at a
place, within or without the State of Minnesota, fixed by the President or the
Board of Directors, except that a special meeting called by or at the demand of
a shareholder or shareholders pursuant to Section 2.03 of these Bylaws shall be
held in the county where the principal executive office is located.

The business transacted at a special meeting shall be limited to the
purposes stated in the notice of the meeting.

SECTION 2.03. DEMAND BY SHAREHOLDERS. If a regular meeting of
shareholders has not been held during the immediately preceding fifteen months,
a shareholder or shareholders holding three percent or more of all voting shares
may demand a regular meeting of

<PAGE>

shareholders. A shareholder or shareholders holding ten percent or more of the
voting shares may demand a special meeting of shareholders. The demand for a
regular or a special meeting shall be given in writing to the President or the
Treasurer of the corporation. Within 30 days after receipt of the demand by one
of those officers, the Board of Directors shall cause a meeting of shareholders
to be called and held on notice no later than 90 days after receipt of the
demand, all at the expense of the corporation. If the Board of Directors fails
to cause a meeting to be called and held as required by this section, the
shareholder or shareholders making the demand may call the meeting by giving
notice as required by Section 2.05 of these Bylaws, all at the expense of the
corporation.

SECTION 2.04. ELECTRONIC CONFERENCES. A conference among shareholders
by any means of communication through which the shareholders may simultaneously
hear each other during the conference shall constitute a regular or special
meeting of shareholders, if the same notice is given of the conference as would
be required by Section 2.05 of these Bylaws for a meeting, and if the number of
shares held by the shareholders participating in the conference would be
sufficient to constitute a quorum at a meeting. Participation in a meeting by
such means shall constitute presence in person or by proxy at the meeting.

SECTION 2.05. NOTICE. Notice of all meetings of shareholders shall be
given to every holder of voting shares, except where the meeting is an adjourned
meeting and the date, time and place of the meeting were announced at the time
of adjournment. The notice shall be given at least five days before the date of
the meeting, and not more than 60 days before the date of the meeting. The
notice shall contain the date, time and place of the meeting, and any other
information required by this Article II. In the case of a special meeting, the
notice shall contain a statement of the purposes of the meeting. The notice may
also contain any other information deemed necessary or desirable by the Board of
Directors or by any other person or persons calling the meeting.

A shareholder may waive notice of a meeting of shareholders. A waiver
of notice by a shareholder entitled to notice shall be effective whether given
before, at or after the meeting, and whether given in writing, orally or by
attendance. Attendance by a shareholder at a meeting or participation in a
meeting by means of communication described in Section 2.04 shall be a waiver of
notice of that meeting, except where the shareholder objects at the beginning of
the meeting to the transaction of business because the meeting is not lawfully
called or convened, or objects before a vote on an item of business because the
item may not lawfully be considered at that meeting and does not participate in
the consideration of the item at that meeting.

SECTION 2.06. QUORUM. The holders of a majority of the voting power of
the shares entitled to vote at a meeting present in person or by proxy at the
meeting shall constitute a quorum for the transaction of business. If a quorum
is present when a duly called or held meeting is convened, the shareholders
present may continue to transact business until adjournment, even though the
withdrawal of a number of shareholders originally present leaves less than the
proportion or number otherwise required for a quorum.

<PAGE>

SECTION 2.07. VOTING RIGHTS. The Board of Directors may fix a date not
more than 60 days before the date of a meeting of shareholders as the date for
the determination of the holders of voting shares entitled to notice of and to
vote at the meeting. When a date is so fixed, only shareholders on that date are
entitled to notice of and permitted to vote at that meeting of shareholders. If
no record date is fixed for the determination of shareholders entitled to notice
of or to vote at a meeting of shareholders, the date on which notice of the
meeting is mailed shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.

SECTION 2.08. SHARE REGISTER. The officer or agent having charge of the
share register of the corporation shall maintain a share register, not more than
one year old, containing a complete list of the shareholders with the address of
and the number, class and issuance dates of shares held by each. The share
register shall be kept on file at the principal executive office of the
corporation, or at another place or places within the United States determined
by the Board of Directors, and shall be subject to inspection by any
shareholder, as provided in Chapter 302A, Minnesota Statutes.

A resolution approved by the affirmative vote of a majority of the
directors present may establish a procedure whereby a shareholder may certify in
writing to the corporation that all or a portion of the shares registered in the
name of the shareholder are held for the account of one or more beneficial
owners. Upon receipt by the corporation of the writing, the persons specified as
beneficial owners, rather than the actual shareholder, shall be deemed the
shareholders for the purposes specified in the writing.

A shareholder shall have one vote for each voting share held. Shares
owned by two or more shareholders may be voted by any one of them unless the
corporation receives written notice from any one of them denying the authority
of that person to vote those shares. Except as provided in the preceding
sentence, a holder of voting shares may vote any portion of the shares in any
way the shareholder chooses. If a shareholder votes without designating the
proportion or number of shares voted in a particular way, the shareholder shall
be deemed to have voted all of the shares in that way.

SECTION 2.09. VOTING OF SHARES BY ORGANIZATIONS AND LEGAL
REPRESENTATIVES. Shares of the corporation registered in the name of another
domestic or foreign corporation may be voted by the President or another legal
representative of that corporation. Except as provided in the following
sentence, shares of the corporation registered in the name of a subsidiary shall
not be entitled to vote on any matter. Shares of the corporation in the name of
or under the control of the corporation or a subsidiary in a fiduciary capacity
shall not be entitled to vote on any matter, except to the extent that the
settlor or beneficial owner possesses and exercises a right to vote or gives the
corporation binding instructions on how to vote the shares.

<PAGE>

Shares under the control of a person in a capacity as a personal
representative, administrator, executor, guardian, conservator or
attorney-in-fact may be voted by the person, either in person or by proxy,
without registration of those shares in the name of the person. Shares
registered in the name of a trustee of a trust or in the name of a custodian may
be voted by the person, either in person or by proxy, but a trustee of a trust
or a custodian shall not vote shares held by the person unless they are
registered in the name of the person.

Shares registered in the name of a trustee in bankruptcy or a receiver
may be voted by the trustee or receiver either in person or by proxy. Shares
under the control of a trustee in bankruptcy or a receiver may be voted by the
trustee or receiver without registering the shares in the name of the trustee or
receiver, if authority to do so is contained in an appropriate order of the
court by which the trustee or receiver was appointed.

Shares registered in the name of any organization not described herein
may be voted either in person or by proxy by the legal representative of that
organization.

A shareholder whose shares are pledged may vote those shares until the
shares are registered in the name of the pledgee.

SECTION 2.10. PROXIES. A shareholder may cast or authorize the casting
of a vote by filing a written appointment of a proxy with an officer of the
corporation at or before the meeting at which the appointment is to be
effective. An appointment of a proxy for shares held jointly by two or more
shareholders shall be valid if signed by any one of them, unless the corporation
receives from any one of those shareholders written notice either denying the
authority of that person to appoint a proxy or appointing a different proxy. The
appointment of a proxy is valid for eleven months unless a longer period is
expressly provided in the appointment. No appointment is irrevocable unless the
appointment is coupled with an interest in the shares or in the corporation.

An appointment may be terminated at will, unless the appointment is
coupled with an interest, in which case it shall not be terminated except in
accordance with the terms of an agreement, if any, between the parties to the
appointment. Termination may be made by filing written notice of the termination
of the appointment with an officer of the corporation, or by filing a new
written appointment of a proxy with an officer of the corporation. Termination
in either manner revokes all prior proxy appointments and is effective when
filed with an officer of the corporation.

<PAGE>

ARTICLE III

BOARD OF DIRECTORS

SECTION 3.01. BOARD TO MANAGE. The business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors, subject to the rights of the shareholders of the corporation as
provided in these Bylaws or pursuant to Chapter 302A, Minnesota Statutes.

SECTION 3.02. NUMBER, QUALIFICATIONS AND TERMS. The number of directors
of the corporation shall be set from time to time by the shareholders, but shall
not be greater than eleven or less than one. The Board of Directors may, at any
time, increase the number of directors up to a maximum of eleven or decrease the
number of directors except that any such decrease shall not result in the
removal of a director except a director named by the Board of Directors to fill
a vacancy. Directors shall be natural persons. Each director shall hold office
until his or her successor is elected and has qualified, or until his or her
earlier death, resignation, removal or disqualification. Directors need not be
residents of Minnesota or shareholders of the corporation.

SECTION 3.03. MEETINGS. Meetings of the Board of Directors may be
called from time to time by or at the request of the President or any director.
The person calling a meeting of the Board of Directors may fix the date and time
of the meeting. The place of all meetings of the Board of Directors shall be the
principal executive office of the corporation unless the Board of Directors
selects another place.

SECTION 3.04. ELECTRONIC CONFERENCES. A conference among directors by
any means of communication through which the directors may simultaneously hear
each other during the conference shall constitute a meeting of the Board of
Directors, if the same notice is given of the conference as would be required by
Section 3.05 of these Bylaws for a meeting, and if the number of directors
participating in the conference would be sufficient to constitute a quorum at a
meeting. Participation in a meeting by such means shall constitute presence in
person at the meeting.

SECTION 3.05. NOTICE. Notice of any meeting shall be given at least
five days previously thereto by written notice mailed to each director at his or
her business address or at least 24 hours prior thereto delivered personally, by
telegram or by facsimile transmission. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice is given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company. If notice
is given by facsimile transmission, such notice shall be deemed to be delivered
when the facsimile is sent. A director may waive notice of a meeting of the
Board of Directors. A waiver of notice by a director entitled to notice shall be
effective whether given before, at or after the meeting, and whether given in
writing, orally or by attendance. Attendance by a director at a meeting shall be
a waiver of notice of that meeting, except where the director

<PAGE>

objects at the beginning of the meeting to the transaction of business because
the meeting is not lawfully called or convened and does not participate
thereafter in the meeting.

SECTION 3.06. QUORUM. A majority of the directors currently holding
office present at a meeting shall constitute a quorum for the transaction of
business. In the absence of a quorum, a majority of the directors present may
adjourn a meeting from time to time until a quorum is present. If a quorum is
present when a duly called or held meeting is convened, the directors present
may continue to transact business until adjournment, even though the withdrawal
of a number of directors originally present leaves less than the number
otherwise required for a quorum.

SECTION 3.07. MANNER OF ACTING. Except as otherwise provided in
Minnesota Statutes, Chapter 302A, the Board of Directors shall take action by
the affirmative vote of a majority of directors present at a duly held meeting.

SECTION 3.08. PRESUMPTION OF ASSENT. A director who is present at a
meeting of the Board of Directors when an action is approved by the affirmative
vote of a majority of the directors present is presumed to have assented to the
action approved, unless the director objects at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting, or votes against
the action at the meeting or is prohibited from voting on the action due to a
conflict of interest.

SECTION 3.09. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a Board of Directors
meeting. If the director is not present at the meeting, consent or opposition to
a proposal shall not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.

SECTION 3.10. ACTION WITHOUT A MEETING. An action required or permitted
to be taken at a meeting of the Board of Directors may be taken by written
action signed by all of the directors, and in the case of an action which need
not be approved by the shareholders, such action may be taken by written action
signed by the number of directors that would be required to take such action at
a meeting of the Board of Directors at which all directors were present.

The written action shall be effective when signed by the required
number of directors, unless a different effective time is provided in the
written action.

<PAGE>

When written action is permitted to be taken by less than all
directors, all directors shall be notified immediately of its text and effective
date. Failure to provide the notice shall not invalidate the written action. A
director who does not sign or consent to the written action shall have no
liability for the action or actions taken thereby.

SECTION 3.11. RESIGNATION. A director may resign at any time by giving
written notice to the corporation. The resignation shall be effective without
acceptance when the notice is given to the corporation, unless a later effective
time is specified in the notice.

SECTION 3.12. REMOVAL. Any one or all of the directors may be removed
at any time, with or without cause, by the affirmative vote of the holders of a
majority of the common voting shares. A director may be removed at any time,
with or without cause, by the affirmative vote of a majority of the remaining
directors present if the director was named by the Board of Directors to fill a
vacancy, and the shareholders have not elected directors in the interval between
the time of appointment to fill the vacancy and the time of removal. Removal of
a director, whether by shareholders or directors, shall be subject to the
provisions of any shareholder control agreement.

SECTION 3.13. VACANCIES. Any vacancy occurring on the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors, even though less than a quorum. Vacancies on the Board of Directors
resulting from newly created directorships may be filled by the affirmative vote
of a majority of the directors serving at the time of the increase. A director
elected to fill a vacancy shall hold office until a qualified successor is
elected by the shareholders at the next regular or special meeting of the
shareholders, or until his or her earlier death, resignation, removal or
disqualification.

SECTION 3.14. COMPENSATION. By resolution of the Board of Directors,
the directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.

ARTICLE IV

COMMITTEES

SECTION 4.01. GENERALLY. A resolution approved by the affirmative vote
of a majority of the directors currently holding office may establish committees
having the authority of the Board of Directors in the management of the business
of the corporation to the extent provided in the resolution. Committees shall be
subject at all times to the direction and control of the Board of Directors.

<PAGE>

SECTION 4.02. MEMBERSHIP. A committee shall consist of one or more
natural persons, who need not be directors, appointed by affirmative vote of a
majority of the directors present.

SECTION 4.03. PROCEDURE. The provisions of Sections 3.03, 3.04, 3.05,
3.06, 3.08, 3.09 and 3.10 of these Bylaws shall apply to committees and members
of committees to the same extent as those sections apply to the Board of
Directors and directors.

SECTION 4.04. MINUTES. Minutes, if any, of committee meetings shall be
made available upon request to members of the committee and to any director.

ARTICLE V

OFFICERS

SECTION 5.01. NUMBER. The officers of the corporation shall be a
President, a Secretary and a Treasurer, each of whom shall be natural persons
and elected by the Board of Directors. A Chairman of the Board of Directors, one
or more Vice Presidents (the number thereof to be determined by the Board of
Directors) and such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two or more
offices may be held by the same person.

SECTION 5.02. ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected by the Board of Directors. In the absence of an
election or appointment of officers by the Board of Directors, the person or
persons exercising the principal functions of the President or the Treasurer
shall be deemed to have been elected to those offices. Each officer shall hold
office until his or her successor is elected and has qualified, or until his or
her earlier death, resignation, removal or disqualification. The election or
appointment of a person as an officer or agent shall not, of itself, create
contract rights.

SECTION 5.03. RESIGNATION. An officer may resign at any time by giving
written notice to the corporation. The resignation shall be effective without
acceptance when the notice is given to the corporation, unless a later effective
date is specified in the notice.

SECTION 5.04. REMOVAL. An officer may be removed at any time, with or
without cause, by a resolution approved by the affirmative vote of a majority of
the directors present, subject to the provisions of any shareholder control
agreements.

SECTION 5.05. VACANCY. A vacancy in any office because of death,
resignation, removal, disqualification or other cause may, or in the case of
vacancy in the office of President or Treasurer shall, be filled by the Board of
Directors for the unexpired portion of the term.

<PAGE>

SECTION 5.06. PRESIDENT. The President shall be the chief executive
officer of the corporation and shall:

(a) Have general active management of the business of the
corporation;

(b) When present, preside at all meetings of the Board of
Directors and of the shareholders;

(d) Sign and deliver in the name of the corporation any deeds,
mortgages, bonds, contracts, certificates for shares or other
instruments pertaining to the business of the corporation, except in
cases in which the authority to sign and deliver is required by law to
be exercised by another person or is expressly delegated by the
Articles or these Bylaws or by the Board of Directors to some other
officer or agent of the corporation; and

(e) Perform other duties prescribed by the Board of Directors.

SECTION 5.07. VICE PRESIDENT. In the absence of the President or in the
event of his or her death, inability or refusal to act, the Vice President, if
any, (or in the event there be more than one Vice President, the Vice Presidents
in the order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. Any Vice President may sign, with
the Secretary or an Assistant Secretary, certificates for shares of the
corporation, and shall perform other duties prescribed by the Board of Directors
or by the President.

SECTION 5.08. SECRETARY. The Secretary shall:

(a) Maintain records of and, whenever necessary, certify all
proceedings of the Board of Directors and the shareholders;

(b) See that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law;

(d) See that a share register of the corporation is maintained
in accordance with Section 2.08 of these Bylaws;

(e) Sign with the President, or a Vice President, certificates
for shares of the corporation; and

<PAGE>

(f) Perform other duties prescribed by the Board of Directors
or by the President.

SECTION 5.09. TREASURER. The Treasurer shall be the chief financial
officer of the corporation and shall:

(a) Keep accurate financial records for the corporation;

(b) Deposit all moneys, drafts and checks in the name of and
to the credit of the corporation in the banks and depositories
designated by the Board of Directors;

(c) Endorse for deposit all notes, checks and drafts received
by the corporation as ordered by the Board of Directors, making proper
vouchers therefor;

(d) Disburse corporate funds and issue checks and drafts in
the name of the corporation, as ordered by the Board of Directors;

(e) Render to the Board of Directors and the President,
whenever requested, an account of all transactions by the Treasurer and
of the financial condition of the corporation;

(f) Perform other duties prescribed by the Board of Directors
or by the President; and

(g) If required by the Board of Directors, give a bond for the
faithful discharge of his or her duties in such sum and with such
surety or sureties as the Board of Directors shall determine.

SECTION 5.10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretaries may sign with the President or a Vice President
certificates for shares of the corporation. The Assistant Treasurers shall, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors shall
determine. The Assistant Secretaries and Assistant Treasurers shall perform such
duties as shall be prescribed by the Secretary or the Treasurer, respectively,
or by the Board of Directors or by the President.

SECTION 5.11. CHAIRMAN OF THE BOARD. A Chairman of the Board of
Directors may be elected by the Board of Directors. He or she shall perform such
duties as shall be prescribed by the Board of Directors.

SECTION 5.12. COMPENSATION. The compensation of the officers shall be
fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such compensation by reason of the fact that he or she
is also a director of the corporation.

<PAGE>

ARTICLE VI

INDEMNIFICATION

The corporation shall indemnify a person made or threatened to be made
a party to a proceeding by reason of the former or present official capacity of
the person with the corporation in accordance with, and to the fullest extent
provided by, the provisions of Chapter 302A, Minnesota Statutes.

ARTICLE VII

CERTIFICATES FOR SHARES AND THEIR TRANSFER

SECTION 7.01. CERTIFICATES FOR SHARES. The shares of the corporation
shall be either certificated shares or uncertificated shares. Each holder of
certificated shares shall be entitled to a certificate of shares.

A certificate representing shares of the corporation shall contain on
its face the name of the corporation, a statement that the corporation is
incorporated under the laws of Minnesota, the name of the person to whom it is
issued, the number and class of shares, and the designation of the series, if
any, of shares represented by the certificate. A new share certificate may be
issued pursuant to Section 336.8-405, Minnesota Statutes, in place of one that
is alleged to have been lost, stolen or destroyed. All certificates surrendered
to the corporation for transfer shall be cancelled and no new certificate shall
be issued until the former certificate for like number of shares shall have been
surrendered and cancelled, except that in case of a certificate that is alleged
to have been lost, stolen or destroyed a new one may be issued therefor upon
such terms and indemnity to the corporation as the Board of Directors may
prescribe.

SECTION 7.02. TRANSFER OF SHARES. Transfer of shares of the corporation
shall be made only on the share register of the corporation by the record holder
thereof or by his or her legal representative, who shall furnish proper evidence
of authority to transfer, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the corporation,
and on surrender for cancellation of the certificate for such shares, or by
evidence of transfer. The person in whose name shares stand on the share
register of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes unless a different beneficial owner shall have been
designated as provided in Section 2.07 of these Bylaws.

<PAGE>

ARTICLE VIII

DISTRIBUTIONS

The Board of Directors may authorize, and the corporation may make, a
distribution only if the corporation will be able to pay its debts in the
ordinary course of business after making the distribution. For purposes of this
section, "distribution" means a direct or indirect transfer of money or other
property, other than shares of the corporation, with or without consideration,
or an incurrence or issuance of indebtedness by the corporation to or for the
benefit of its shareholders in respect of its shares. A distribution may be in
the form of a dividend or a distribution in liquidation, or as consideration for
the purchase, redemption or other acquisition of the corporation's shares, or
otherwise.

ARTICLE IX

FISCAL YEAR

The fiscal year of the corporation shall begin on the first day of
January and end on the thirty-first day of December, next succeeding.

ARTICLE X

SEAL

The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the state of incorporation and
the words "Corporate Seal."

ARTICLE XI

AMENDMENT

These Bylaws may be amended or repealed and new Bylaws may be adopted
by the Board of Directors, or by the shareholders, as provided in Chapter 302A,
Minnesota Statutes.

ARTICLE XII

GOVERNING LAW

The corporation has been formed under and pursuant to the provisions of
Chapter 302A, Minnesota Statutes. All references in these Bylaws to Chapter
302A, Minnesota Statutes, shall mean and include such chapter as currently
enacted or hereafter amended.

EXHIBIT 4.1

[NUMBER] [SHARES]

INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA

INDUSTRIAL RUBBER PRODUCTS, INC.

SEE REVERSE SIDE
FOR CERTAIN DEFINITIONS

CUSIP ___________

THIS CERTIFIES THAT

SAMPLE

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE
$.001 PER SHARE, OF

INDUSTRIAL RUBBER PRODUCTS, INC.

TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR
BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER
AGENT AND REGISTRAR.

IN WITNESS WHEREOF THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED
BY THE FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.

DATED:

Nancy J. Burkes Daniel O. Burkes

SECRETARY PRESIDENT

Countersigned and Registered:
NORWEST BANK MINNESOTA, N.A.
Transfer Agent and Registrar

By
Authorized Signature

<PAGE>

- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common UTMA - _________Custodian _________
(Cust) (Minor)
TEN ENT - as tenants by entireties under Uniform Transfer to Minors
Act ____________________________
(State)
JT TEN - as joint tenants with right of survivorship
and not as tenants in common

Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------

FOR VALUE RECEIVED ______ HEREBY SELL, ASSIGN AND TRANSFER UNTO

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________

________________________________________________________________________________

________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE

________________________________________________________________________________

_________________________________________________________________________ SHARES

OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY

IRREVOCABLY CONSTITUTE AND APPOINT _____________________________________________

_______________________________________________________________________ ATTORNEY

TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH

FULL POWER OF SUBSTITUTION IN THE PREMISES.

DATED ____________________________________________

____________________________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.

SIGNATURE GUARANTEED

EXHIBIT 5.1

[LAW FIRM STATIONERY]

Industrial Rubber Products, Inc.
3804 East 15th Avenue
Hibbing, MN 55746

Gentlemen:

We have examined (a) the Registration Statement on Form SB-2 (No.
_________), including the Prospectus constituting a part thereof, filed by you
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, relating to the sale by you of 1,400,000 shares of your Common Stock,
par value $.001 per share (the "Common Stock"), in the manner set forth in said
Registration Statement and Prospectus, (b) your Restated Articles of
Incorporation and your Restated Bylaws as certified by your Secretary, both as
amended to date, and (c) your corporate proceedings relative to your
organization and to the issuance of the Common Stock.

In addition to the foregoing, we have reviewed such other proceedings,
documents and records and have ascertained or verified such additional facts as
we deem necessary or appropriate for the purposes of this opinion.

Based upon the foregoing, we are of the opinion that:

1. Industrial Rubber Products, Inc., has been legally incorporated and
is validly existing under the laws of the State of Minnesota.

2. The Common Stock will be, when sold by you as contemplated in said
Registration Statement, legally issued, fully paid and nonassessable.

We hereby consent to the use of this opinion as an exhibit to said
Registration Statement and to the references to our firm under the caption
"Legal Matters" in the Prospectus. In giving this consent, we hereby disclaim
that we are "experts" within the meaning of Section 11 of the Securities Act of
1933, as amended, or within the category of persons whose consent is required by
Section 7 of said Act.

Yours very truly,

JOHNSON, KILLEN, THIBODEAU & SEILER, P.A.

/s/ John Nys
John Nys

EXHIBIT 1O.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT made effective the 30th day of January, 1998, is by and
between Industrial Rubber Products, Inc. a Minnesota corporation (the
"Company"), and Daniel O. Burkes, a resident of the State of Minnesota (the
"Executive").

WHEREAS, the Company is selling 1,400,000 shares of its stock pursuant
to an underwriting agreement with R. J. Steichen Co. which sale of stock will
result in an immediate and substantial increase in the book value of the common
stock in the Company over two-thirds of which is held by the Executive.

WHEREAS, the parties wish to provide for the employment of the
Executive by the Company; and

WHEREAS, the Company desires reasonable protection of its confidential
business and technical information, which has been and will be acquired, and
which has been and is being developed by the Company, at substantial expense;

NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Company and the Executive, each intending to be legally bound, agree
as follows:

1. EMPLOYMENT. Subject to all of the terms and conditions of this
Agreement, the Company agrees to employ the Executive on a full-time basis as
its President and Chief Executive Officer and the Executive accepts this
employment.

2. DUTIES. The Executive will make the best use of his energy,
knowledge and training in advancing the Company's interests. He will diligently
and conscientiously perform the duties of President and Chief Executive Officer
of the Company, as such duties may be defined by the Company's Board of
Directors and such other tasks as may from time to time be reasonably required
to further the growth of the Company.

3. TERM. The term of this contract shall be until January 30, 2000 (the
"Term"). Notwithstanding the foregoing, the Executive is employed on an at-will
basis. The Executive may terminate the employment relationship created by this
Agreement upon sixty (60) days notice to the Company, and with no notice is such
termination is for cause (as defined below). The Company may terminate the
employment relationship created by this Agreement upon sixty (60) days notice to
the Executive, if such termination is without Cause (as defined below), and with
no notice if such termination is for Cause.

As used in this Agreement, the term "Cause" as applied to the Company's
ability to terminate without notice means (i) the Executive's breach of any of
his material duties or obligations under this Agreement, which breach is not
corrected within thirty (30) days of receipt of written notice thereof by the
Executive; (ii) embezzlement or other misappropriation of property of the
Company; (iii) conviction of a felony offense; or (iv) the Executive's
persistent refusal to follow the directions or instructions of the Company's
Board of Directors. The term "Cause" as applied to the Executive's ability to
terminate without notice means any failure to pay or decrease in the Executive's
salary not consented to by the Executive. No termination

<PAGE>

of the employment relationship created by this Agreement shall relieve the
Executive of his duties under Sections 5, 6 and 7 hereof.

4. COMPENSATION.

a. SALARY. The Executive will be entitled to a salary of
$22,916.67 per month payable bimonthly beginning February 1, 1998 and
effective retroactively to January 1, 1998. The Company's Board of
Directors may increase Executive's salary provided that if it has been
raised, the Company may at any time reduce the salary back to
$22,916.67 per month.

b. BENEFITS. The Executive shall be entitled to participate in
benefit plans and other fringe benefits which may be established by the
Company's Board of Directors' for similar executive level executives.

c. EXPENSES. The Company shall reimburse the Executive for all
ordinary and necessary business expenses the Executive incurs while
performing his duties under this Agreement, provided that the Executive
accounts properly for such expenses to the Company in accordance with
the general corporate policy of the Company as determined by the
Company's Board of Directors and in accordance with the requirements of
Internal Revenue Service regulations relating to substantiation of
expenses.

d. BONUSES. The Board of Directors may, but is not required
to, provide for a bonus or other incentive compensation plan.

5. INVENTIONS.

a. "INVENTIONS", as used in this Section 5, means any
discoveries, designs, improvements or software (whether or not they are
in writing or reduced to practice) or works of authorship (whether or
not they can be patented or copyrighted) that the Executive makes,
authors, or conceives (either alone or with others) and that:

i. concern directly the Company's products, research
or development;

ii. result from any work the Executive performs for
the Company; or

iii. use the Company's equipment, facilities, or
trade secret information.

b. The Executive agrees that all Inventions he makes during
his employment with the Company will be the sole and exclusive property
of the Company. The Executive will, with respect to any such Invention:

i. keep current, accurate, and complete records,
which will belong to the Company and be kept and stored on the
Company's premises while the Executive is employed by the
Company;

<PAGE>

ii. promptly and fully disclose the existence and
describe the nature of the Invention to the Company in writing
(and without request);

iii. assign (and the Executive does hereby assign) to
the Company all of his rights to the Invention, any
applications he makes for patents or copyrights in any
country, and any patents or copyrights granted to him in any
country; and

iv. acknowledge and deliver promptly to the Company
any written instruments, and perform any other reasonable acts
necessary in the Company's opinion and at its expense to
preserve property rights in the Invention against forfeiture,
abandonment, or loss and to obtain and maintain letters patent
and/or copyrights on the Invention and to vest the entire
right and title to the Invention in the Company, provided
that, the Executive makes no warranty or representation to the
Company as to rights against third parties hereunder.

Executive acknowledges that since April 15, 1986, the
Executive has been developing technology for the Company all of which
he hereby transfers to the Company for the considerations stated.
Executive agrees that the existing technology, and all derivations,
expansions, improvements, and similar additions or modifications to the
technology whenever developed by him are and shall be the property of
the Company.

The Executive shall disclose to the Company from time to time all
inventions that Executive develops or conceives. The Company shall have
thereafter a reasonable period of time of not less than 90 days in
which to consider and evaluate the inventions and determine whether the
Company will develop the same. Except as disclosed to the Company in
writing on Exhibit A attached hereto, the Executive does not have and
will not assert any claims to or rights under any inventions as having
been made, conceived, authored, or acquired by the Executive prior to
this Agreement.

c. NOTICE: Minnesota law exempts from this Agreement "AN
INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET
INFORMATION OF THE EMPLOYER WAS USED AND WHICH WAS DEVELOPED ENTIRELY
ON THE EMPLOYEE'S TIME, AND (1) WHICH DOES NOT RELATE (A) DIRECTLY TO
THE BUSINESS OF THE EMPLOYER OR (B) TO THE EMPLOYER'S ACTUAL OR
DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (2) WHICH DOES NOT
RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER."

d. Upon termination of this Agreement, Executive agrees to
return to the Company all property of the Company which Executive has
custody and to deliver to the Company all notebooks and other data
relating to research, experiments or management studies conducted by
the Executive or any inventions made by the Executive.

<PAGE>

6. CONFIDENTIAL INFORMATION.

a. "CONFIDENTIAL INFORMATION", as used in this Section 6,
means information that is not generally known and that is proprietary
to the Company or that the Company is obligated to treat as
proprietary. This information includes, without limitation:

i. trade secret information about the Company and its
products or services;

ii. "Inventions," as defined in subsection 5(a)
above;

iii. information concerning the Company's business,
as the Company has conducted it or as it may conduct it in the
future; and

iv. information concerning any of the Company's past,
current, or possible future products, including (without
limitation) information about the Company's research,
development, engineering, purchasing, manufacturing,
servicing, finances, marketing or selling.

v. information concerning any of the Company's past,
current or possible future customers, including (without
limitation) customer lists, information about the Company's
planned advertising campaigns, purchasing plans, methods of
operation, servicing, finances, marketing or sales efforts.

Any information that reasonably can be expected to be treated
as Confidential Information will be presumed to be Confidential
Information (whether the Executive or others originated it and
regardless of how he obtained it).

b. Except as required in his duties to the Company, the
Executive will not, during his employment or after termination of his
employment with the Company, use or disclose Confidential Information
to any person not authorized by the Company to receive it, excluding
Confidential Information (i) which becomes publicly available by a
source other than the Executive; or (ii) which is received by the
Executive after termination of his employment hereunder from a source
who did not obtain the information directly or indirectly from
Executives or agents of the Company; or (iii) for which disclosure
thereof the Company has consented in writing. When the Executive's
employment with the Company ends, he will promptly turn over to the
Company all records and any compositions, articles, devices, apparatus,
and other items that disclose, describe, or embody Confidential
Information, including all copies, reproductions, and specimens of the
Confidential Information in his possession, regardless of who prepared
them.

7. COMPETITIVE ACTIVITIES. Provided that:

(1) If this Agreement is terminated by the Company without
Cause, the Company has paid to the Executive the salary provided under
paragraph 4(a) above for the Term of the Agreement,

<PAGE>

(2) If this Agreement is terminated by the Company for Cause,
or

(3) If the Executive terminates this Agreement without Cause,

the Executive agrees that during the Term of this Contract and for a
period of two years thereafter:

a. He will not alone, or in any capacity with another firm,
(i) directly or indirectly engage in the development, design,
production, marketing or sale of any product, technology or services
that is competitive with the Company's business as it exists at the
time his employment is terminated, nor will he participate in the
management or operation of, or become a significant investor in, any
venture or enterprise of whatever kind as a principal, officer,
director, Executive, representative, agent or shareholder of any entity
whose business is the design, development, production, marketing, or
servicing of any technology, product or service competitive with the
business of the Company as it exists at the time his employment with
the Company is terminated; (ii) in any way interfere or attempt to
interfere with the Company's relationships with any of their current or
potential customers; or (iii) employ or attempt to employ any of the
Company's executives on behalf of any other entity competing with the
Company. Provided that, nothing in this Section 7 shall restrict the
Executive's employment by or association with any entity, venture or
enterprise which engages in a business with a product or service that
is not competitive with any product or service of the Company, so long
as it does not, after Executive's employment, become competitive.

b. He will, prior to accepting employment with any new
employer, inform that employer of this Agreement and provide that
employer with a copy of Section 7 of this Agreement, provided that he
reasonably believes his new position is or may be contrary to this
Agreement.

8. CONFLICTING BUSINESS. The Executive agrees that he will not transact
business with the Company personally, or as agent, owner, partner, or
shareholder of any other entity, except as specifically approved by the
Company's Board of Directors. The Executive further agrees that during his
employment with the Company he will not engage in any business activity or
outside employment that may be in conflict with the Company's proprietary or
business interests.

9. NO ADEQUATE REMEDY. Both parties understand that failure to fulfill
the obligations under of this Agreement would cause damage to the other that
would be very difficult to determine. Therefore, in addition to any other rights
or remedies available to the parties at law, in equity or by statute, each party
consents to the specific enforcement of this Agreement, including specifically
Sections 5, 6, 7 or 8, through an injunction or restraining order issued by any
appropriate court.

10. MISCELLANEOUS.

a. Successors and Assigns. This Agreement may not be assigned
by the Executive. Except as provided in the next sentence, this
Agreement may not be assigned

<PAGE>

by the Company without the Executive's consent, which consent shall not
be unreasonably withheld. In any event, the Company may assign this
Agreement without the consent of the Executive in connection with a
merger, consolidation, assignment, sale or other disposition of
substantially all of its assets or business.

b. Modification. This Agreement may be modified or amended
only by a writing signed by each of the parties hereto.

c. Governing Law. The laws of the State of Minnesota shall
govern the validity, construction, and performance of this Agreement.

d. Construction. Wherever possible, each provision of this
Agreement shall be interpreted so that it is valid under applicable
law. If any provision of this Agreement is to any extent invalid under
applicable law in any jurisdiction, that provision shall still be
effective to the extent it remains valid. The remainder of this
Agreement also shall continue to be valid, and the entire Agreement
shall continue to be valid in other jurisdictions.

e. Non-Waiver. No failure or delay by any of the parties
hereto in exercising any right or remedy under this Agreement shall
waive any provision of the Agreement. Nor shall any single or partial
exercise by any of the parties hereto of any right or remedy under this
Agreement preclude any of them from otherwise or further exercising
their rights or remedies, or any other rights or remedies granted by
any law or any related document.

f. Captions. The headings in this Agreement are for
convenience only and shall not affect the interpretation of this
Agreement.

g. Notices. All notices and other communications required or
permitted under this Agreement shall be in writing and hand delivered
or sent by registered first-class mail, postage prepaid. Such notices
and other communication shall be effective upon receipt if hand
delivered and shall be effective five (5) business days after mailing
if sent by mail to the following addresses, or such other addresses as
either party shall have notified the other party:

If to the Company: Industrial Rubber Products, Inc.
3804 East 13th Avenue
Hibbing, MN 55746

If to the Executive: Daniel O. Burkes
2203 4th Avenue E
Hibbing, MN 55746

h. Representation. Executive has been represented by an
attorney and accountant with respect to Executive's entering into this
Agreement.

<PAGE>

IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.

EMPLOYER EXECUTIVE

Industrial Rubber Products, Inc.

By /s/ Christopher M. Liesmaki /s/ Daniel O. Burkes
----------------------------------- ----------------------------------
Its Vice President Daniel O. Burkes
--------------------------------

<PAGE>

EXHIBIT A

NONE

EXHIBIT 10.2

MANAGEMENT CONTRACT

THIS CONTRACT is made effective January 30, 1998 between NELSON
ROOFING, INC., a Minnesota corporation, having its principal place of business
at 510 West 25th Street, Hibbing, Minnesota 55746 ("Nelson Roofing") and
INDUSTRIAL RUBBER PRODUCTS, INC., a Minnesota corporation, having its principal
place of business at 3804 East Beltline, Hibbing, Minnesota 55746 ("Industrial
Rubber") for the following reasons:

A. Nelson Roofing desires to avail itself of the experience, sources of
information, advice, assistance, staff and facilities available to Industrial
Rubber and to have Industrial Rubber, through its staff, undertake certain
duties and responsibilities and to perform certain services on behalf of Nelson
Roofing;

B. Industrial Rubber is willing to undertake to render such services on
the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, it is agreed as follows:

1. SERVICES OF INDUSTRIAL RUBBER. Industrial Rubber, subject to its
need to direct and control its business, shall upon request, provide accounting,
management, and other miscellaneous services for Nelson Roofing. Industrial
Rubber shall, in particular, make available to Nelson Roofing the services of
(1) its Controller, (2) its accounts payable/receivable clerk and (3) its Vice
President - Engineering and Technological Services. In addition, upon request,
and subject to the requirements of Industrial Rubber, Industrial Rubber will
provide other general management and administrative services for Nelson Roofing.

2. COMPENSATION.

(a) For services rendered to Nelson Roofing by Industrial
Rubber, Industrial Rubber will be paid monthly an amount equal to the
time spent by Industrial Rubber

<PAGE>

employees on Nelson Roofing matters (calculated to the quarter hour)
multiplied by the employee's hourly rate of pay (or for salaried
employees, the employee's base gross pay for the month divided by 168)
multiplied by 130%. This payment shall be compensation to Industrial
Rubber for the services provided including all general overhead
expenses and the other ordinary and necessary expenses of Industrial
Rubber.

(b) Nelson Roofing shall reimburse Industrial Rubber for any
and all out-of-pocket expenses directly and solely attributable to
services provided for the benefit of Nelson Roofing.

(c) Nelson Roofing shall pay to Industrial Rubber the amount
payable pursuant to any statement not later than 10 days following the
statement, and Industrial Rubber shall render its statement not later
than 20 days after the end of each month.

3. TERM OF CONTRACT. This contract shall be in force for a period
ending December 31, 1998, and may be renewed only by the action of both parties;

4. NONASSIGNABILITY. This contract shall not be assignable by either
party without the consent of the other.

5. TERMINATION. This contract may be terminated immediately upon
written notice of termination if any of the following events shall happen:

(a) Either party breaches any provision of this contract, and
after such notice of such violation, the breaching party shall not cure
such default within 30 days; or

(b) Either party shall be adjudged bankrupt or insolvent by a
court of competent jurisdiction; an order shall be made by a court of
competent jurisdiction

<PAGE>

for the appointment of a receiver, liquidator, or trustee or of all or
substantially all of a party's property; or any petition is filed by or
against a party for its reorganization, and such petition shall not be
dismissed within 30 days.

6. EFFECT OF TERMINATION. From and after the effective date of
termination of this contract, pursuant to paragraphs 3, 4, or 5 hereof,
Industrial Rubber shall not be entitled to compensation for further services
hereunder. Upon termination, each party shall deliver to the other party all
property and documents of the other party then in the custody of the party.

7. NOTICES. Any notice, report, or other communication required or
permitted to be given hereunder shall be in writing and shall, unless some other
method of giving such notice, report, or other communication is accepted by the
party to whom it is given, be given by being mailed certified mail to the
following addresses of the parties thereto:

To Nelson Roofing: Nelson Roofing, Inc.
510 West 25th St.
Hibbing, Minnesota 55746

To Industrial Rubber: Industrial Rubber Products, Inc.
3804 E. 13th Ave.
Hibbing, Minnesota 55746

Any party may at any time give notice to the other party that it wishes to
change its address for the purpose of this paragraph.

8. MODIFICATION. This contract shall not be changed, modified,
terminated, or discharged in whole or in part, except by an instrument in
writing signed by both parties hereto, or their respective successors or
assigns.

9. BINDING EFFECT. This contract shall bind any successors of the
parties hereto and any assigns of Nelson Roofing.

10. APPLICABLE LAW. The provisions of this contract shall be construed
and interpreted in accordance with the laws of the State of Minnesota as at the
time in effect.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this contract to be
executed by their officers thereunto duly authorized as of the day and year
first above written.

NELSON ROOFING, INC. INDUSTRIAL RUBBER PRODUCTS, INC.

By /s/ Daniel O. Burkes By /s/ Christopher M. Liesmaki
--------------------------------- ---------------------------------
Daniel O. Burkes Christopher M. Liesmaki
Its President Its Vice President

EXHIBIT 10.3

----------------------------------
Building: H-5
Section: South
Square Feet: 60,000
Term: 08/01/96 - 07/31/97
----------------------------------

F R E E P O R T C E N T E R A S S O C I A T E S

CLEARFIELD, UTAH

L E A S E

This Lease made and entered into this 11th day of June 1996,
by and between FREEPORT CENTER ASSOCIATES, hereinafter called "Landlord", and
INDUSTRIAL RUBBER APPLICATORS, INC., A MINNESOTA CORPORATION hereinafter called
"Tenant."

W I T N E S S E T H:

In consideration of the covenants and agreements of the
respective parties herein contained, the parties hereto do hereby agree as
follows:

DEMISED PREMISES

Landlord hereby leases to Tenant, and Tenant hires from
Landlord the premises described on Exhibit "A" annexed hereto as part hereof,
together with the improvements thereon (hereinafter referred to as the "demised
premises" or "premises") for the term and upon the rental and the covenants and
agreements of the respective parties herein set forth. Said premises are located
in the City of Clearfield, County of Davis, State of Utah.

TERM

<PAGE>

The term of this Lease shall be One Year beginning on the 1st
day of August 1996, and ending on the 31st day of July 1997, both dates
inclusive, unless sooner terminated as herein provided.

TERMS AND CONDITIONS OF LEASE

This Lease is made on the following terms and conditions which
are expressly covenanted and agreed to by Landlord and Tenant:

1. RENT: Tenant agrees to pay as rental to Landlord at the
office of Landlord, Clearfield, Utah, or at such other place as Landlord may
from time to time designate in writing, without any offset or deduction
whatsoever, the total sum of -----One Hundred Fifty One Thousand Two Hundred and
No/100 Dollars ($151,200.00) over the term of this Lease in lawful money of the
United States in monthly installments of -----Twelve Thousand Six Hundred
Hundred (sic) and No/100 Dollars ($12,600.00) due and payable on the first day
of each month (the "Rent"). Any other amounts or expenses payable by Tenant to
Landlord under this Lease, including amounts payable under Paragraphs 13 and 24,
shall be payable upon the rendition of the Landlord's Statement therefor. If
Tenant shall fail to pay the Rent within five (5) days after the first day of
the month, or shall fail to pay any other amounts payable by Tenant pursuant to
the provisions of this Lease within ten (10) days after the rendition of the
Landlord's Statement, Tenant shall pay Landlord interest thereon at the rate of
18% per annum, which interest shall run from either (a) the day when the Rent
was due, (b) the date Landlord's Statement for certain increases under Paragraph
13 is sent to Tenant, or (c) for any other amounts or expenses payable by
Tenant, the date of Landlord's expenditures. Notwithstanding the foregoing,
Landlord shall have all legal remedies available for the enforcement of the
payment of Rent and other expenses of Tenant hereunder, including the power to
evict for nonpayment of Rent or other expenses of tenant as provided in
Paragraph 24.

2. AUTHORIZED USE: Tenant shall use the premises for the
following purpose and for no other purpose whatsoever, without the written
consent of the Landlord first had and obtained.

Exterior coating and or painting of pipe
Application of rubber coatings to pipe, storage, and office uses.
Fabrication of pipe and or pipe flanges

Tenant shall not cause or permit any hazardous or toxic waste
or substance, petroleum product, PCB, dioxin or asbestos (collectively a
"Hazardous Substance") to be manufactured, discharged, leaked or emitted on, in
or under the premises. Tenant shall not store or use any hazardous substance on
the premises without first disclosing such to Landlord and obtaining Landlord's
approval, which will not be unreasonably withheld. Landlord may reasonably
withhold

<PAGE>

approval if such storage or use would not be in compliance with all applicable
laws and regulations, if Landlord believes in its absolute discretion that such
use or storage will create an unreasonable risk to Landlord or other tenants, if
Landlord is not assured of Tenant's financial ability to be responsible for any
damages and clean-up in the event of a discharge, leak, emission or other mishap
involving such Hazardous Substance, or if the presence of the Hazardous
Substance will increase Landlord's insurance premiums. Tenant shall not commit
any waste on the premises nor permit any noxious odors or loud noises which
interfere with other tenants' use of their premises to emanate from the
premises.

3. INCREASING INSURANCE RISK: Tenant will not permit the
demised premises to be used for any purpose, other than those noted in Paragraph
2, which would cause an increase in insurance premium, render the insurance
thereon void or cause cancellation thereof. In the event the insurance is
cancelled because of a change in Tenant's use of the premises, Tenant will be
liable for any loss or damage to the building occurring before reinstatement or
replacement of that insurance.

4. CONDITION OF THE PREMISES: Tenant has inspected the demised
premises including all equipment which is a part thereof and accepts the
premises in the condition they are in at the time of the commencement of the
term of this Lease without any representation express or implied on the part of
Landlord or its agents as to the condition of the premises, or suitability of
the premises for Tenant's use.

5. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Tenant shall, at
Tenant's own expense, comply in its use of the premises with all present and
future laws, ordinances, regulations or orders of any federal, state, county,
municipal or other public authority affecting the Tenant's use of the premises,
including but not limited to, the Occupational Safety and Health Act (OSHA), the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Resource Conservation and Recovery Act (RCRA), the Federal Water Pollution
Contract Act, the Clean Air Act, the Hazardous Materials Transportation Act, the
Toxic Substances Control Act, the Safe Drinking Water Act, the Americans with
Disabilities Act (ADA) and any similar laws, ordinances and regulations. Tenant
shall promptly correct any non-compliance upon discovery thereof and Landlord
hereby consents to any action reasonably taken by Tenant to correct such
non-compliance.

6. CARE OF BUILDING BY TENANT: Tenant agrees to keep the
interior of the building and the improvements on the premises inside and outside
the building and the grounds in good condition and repair including proper
servicing and maintenance of all equipment. The equipment and fixtures to be
maintained include without limitation, lighting fixtures, heating and air
conditioning equipment, truck dock bumpers, overhead freight doors (including
all repairs thereto) and electrical wiring and plumbing systems. Tenant agrees
to contract with a qualified heating and air conditioning service company for
periodic maintenance and service of the HVAC equipment. Such service to be at a
minimum twice per year. Such work by Tenant also includes cleaning and painting
the interior of the premises as Tenant deems necessary in order to maintain said
premises in a clean, attractive and sanitary condition. Tenant shall keep the
vehicular parking areas, pedestrian walkways, entranceways and docks reasonably
free from icicles, ice and snow and shall keep the grounds surrounding the
demised premises clean, promptly removing therefrom all trash, rubbish, cartons
or other debris. If the Tenant fails to do any of the foregoing as herein

<PAGE>

required Landlord may elect to proceed under one or more of its remedies as set
forth in Paragraph 24 of this Lease.

7. REPAIR OF BUILDING BY LANDLORD: Landlord agrees for the
term of this Lease to maintain in good condition, subject to such conditions as
Tenant has accepted at the time of taking possession, the components of the
demised premises, unless said walls, floors, foundation, roof or other
structural components are damages as a result of Tenant's, or its employees and
agents, actions or breach of the provisions of this Lease. Landlord shall not,
however, be obligated to make any such repairs until written notice of the need
of repair shall have been given to the Landlord by the Tenant and after such
notice is so given, the Landlord shall have a reasonable time in which to make
such repairs. Landlord shall not be liable for any resulting damage to the
contents unless it fails to diligently proceed to correct such defect after
receipt of written notice.

8. INSTALLATION, ALTERATIONS AND REMOVALS: It is expressly
agreed and understood that the Tenant will make no alterations, additions or
betterments to, or installations ("alterations") upon the leased premises
without the prior written approval of the Landlord which approval shall not be
unreasonably withheld. Such alterations, if approved, shall be made at Tenant's
expense. All such alterations shall become a part of the premises and may not be
removed by Tenant at termination of this Lease unless Landlord gives written
notice to Tenant to remove all or some part of such alterations in which event
Tenant shall remove such alterations upon termination.

Tenant shall cause drawings and specifications to be prepared
for, and shall cause to be performed, the construction of the alterations or
additions in accordance with all applicable laws, ordinances and regulations of
all duly constituted authorities, including, with limitation, Title III of the
Americans with Disabilities Act of 1990, all regulations issued thereunder and
the Accessibility Guidelines for Buildings and Facilities issued pursuant
thereto, as the same are in effect on the date hereof and may be hereafter
modified, amended or supplemented ("Applicable Law"). Notwithstanding Landlord's
review of such drawings and specifications, and whether or not Landlord approves
or disapproves such drawings and specifications, Tenant and not Landlord shall
be responsible for compliance of such drawings and specifications for additions
or alterations with all applicable laws.

9. ERECTION AND REMOVAL OF SIGNS: Subject to the restrictions
of this Paragraph, Tenant may place suitable signs on the leased premises for
the purpose of indicating the nature of the business carried on by the Tenant in
said premises. Such signs shall be approved by the Landlord in writing prior to
their erection, which approval shall not be unreasonably withheld, and shall not
damage the leased premises in any manner. Tenant shall remove all signs prior to
the expiration of the term.

10. GLASS: Tenant agrees to immediately replace all glass
broken or damaged during the term of this Lease with glass of the same quality
as that broken or damaged.

11. RIGHT OF ENTRY BY LANDLORD: The Tenant at any time during
the term of this Lease shall permit inspection including environmental sampling
or testing of the demised premises during reasonable business hours by the
Landlord's agents or representatives for the purpose of ascertaining the
condition of the demised premises and compliance with governmental

<PAGE>

laws and regulations, and in order that the Landlord may make such repairs as
may be required to be made by the Landlord under the terms of this Lease. Sixty
(60) days prior to the expiration of this Lease, Landlord may post suitable
notices on the demised premises that the same are "To Let" and may show the
premises to prospective tenants at reasonable times. Landlord shall not,
however, thereby unnecessarily interfere with the use of the demised premises by
the Tenant.

12. PAYMENT OF UTILITIES: Tenant shall pay all charges for
water, sewer, natural gas, electricity, telephone and other public utilities
used on the premises.

13. PAYMENT OF CERTAIN INCREASES IN PROPERTY TAXES AND
INSURANCE:

A. Tenant shall further pay to Landlord any amount by which
the real property taxes on the premises (Building H-5 South - 60,000 Square
Feet), and any expenses incurred by Landlord to reduce property taxes allocable
to the premises, for any year during the term of this Lease commencing with the
calendar year 1996 , exceed those for 1995 (the "base year"). Taxes for the base
year on the premises (land and improvements, which is proportionately allocated
among the several premises contained within each tax parcel) are calculated as
follows:

2.64 Acres x $17,819.78 = $ 47,044.22
Demised Premises Fair Market Value = 145,297.00
-------------
192,341.22

1995 Tax Rate = .014827

Base Year Taxes Due on Demised Premises = $ 2,851.84

The same method of calculation shall be used for each
subsequent year, including adjustments for alterations and new improvements made
to the premises.

Landlord will provide Tenant each year with a complete
computation of the taxes for the demised premises and within thirty (30) days
thereafter Tenant will pay Landlord the increase in taxes over the base year
taxes.

Real property taxes include all assessments and other
governmental levies, ordinary and extraordinary, foreseen and unforeseen, which
are assessed or imposed upon the premises or become payable during the term of
this Lease.

B. Tenant shall also pay to Landlord any amount by which the
property insurance premiums allocable to the demised premises for any year
during the term of this Lease exceed the annual premium of $ 1,125.50 presently
paid by Landlord for the demised premises prior to Tenant's occupancy. In
determining whether increased premiums are allocable to the demised premises,
any schedules or rating procedures, as well as general rate increases, are
determined by the organization issuing the insurance shall be conclusive
evidence of the several items and charges which make up the insurance rates and
premiums on the demised premises. Landlord will provide Tenant with a complete
computation of any premium increase on the demised premises and within

<PAGE>

thirty (30) days thereafter Tenant will pay Landlord the insurance premium
increase as set forth in the computation.

C. If this Lease is terminated at other than the end of a
calendar year, all amounts payable by Tenant to Landlord under the provisions of
this Paragraph 13 shall be prorated on the basis of a 360-day year, 30 days
allocated to each month.

14. ASSIGNMENT AND SUBLETTING: Tenant shall not transfer or
assign this Lease or any interest therein nor sublet or otherwise make available
("transfer") to any third party any part of the demised premises without first
notifying Landlord in writing and receiving the written consent of Landlord to
such transfer. The written notice to Landlord shall describe the area to be
transferred and the rent and other consideration receivable for such transfer. A
transfer by Tenant without the written consent of Landlord first received shall
permit Landlord to terminate this Lease pursuant to Paragraph 24.

No transfer consented to by Landlord shall relieve Tenant of
it obligations hereunder, and Tenant shall continue to be liable as principal as
though no transfer has been made. It is agreed that a transfer by corporate
merger or to an affiliated corporation shall not be subject to the provisions of
this Paragraph 14 so long as the transferee has a net worth equal to or in
excess of the net worth of Tenant.

15. DAMAGE OR DESTRUCTION:

A. If the demised premises or any part thereof shall be
damaged or destroyed by fire or other casualty, Landlord shall promptly repair
all such damage and restore the demised premises without expense to Tenant,
subject to delays due to adjustment of insurance claims, strikes and other
causes beyond Landlord's control. If such damage or destruction shall render the
premises untenable in whole or in part, the rent shall be abated wholly or
proportionately as the case may be until the damage shall be repaired and the
premises restored. If the damage or destruction shall be so extensive as to
require the substantial rebuilding (i.e., expenditure of twenty-five (25%)
percent or more of replacement costs) of any one building included in the
demised premises, or if the leased premises cannot reasonably be rebuilt or
repaired within one hundred twenty (120) days from the date of such damage, or
if the damage occurs within the last twelve (12) months of the term of this
Lease, either party may elect to terminate this Lease by written notice to the
other party within thirty (30) days after the occurrence of such damage or
destruction.

B. Tenant and Landlord hereby mutually release and waive their
entire right of recovery against the other party for any and all loss or damage
to the improvements, all personal property of Tenant, and any installations,
betterments or improvements added to the building by Tenant, where such loss is
occasioned, caused or incurred by, or results from fire windstorm, hail,
explosion, riot attending strike, civil commotion, aircraft, vehicles, smoke and
vandalism and all other perils which are insurable against, whether said loss
occurred or was caused by the negligence of the Tenant or Landlord, their
agents, servants, employees, sublessees or concessionaires, or otherwise.
Landlord and Tenant each further warrant that insurance companies insuring
Landlord or Tenant shall have not rights against the other, whether by
assignment, subrogation or otherwise. Willful misconduct of a criminal nature
lawfully attributable to either party shall to the extent that said conduct
contributes to loss or damage not be excused under this Paragraph.

<PAGE>

16. AUTOMATIC SPRINKLER SYSTEM: Landlord agrees to maintain
the Automatic Sprinkler System to conform with the requirements of the Utah Fire
Rating Bureau for grading the building as an Automatic Sprinklered Building.
Tenant agrees to repair any damage to this system arising out of its occupancy,
and to hold Landlord free and harmless from damage to or destruction of any and
all property resulting from leakage of said Automatic Sprinkler System, during
the term of this Lease or any extension thereof, or any holdover occupancy.

17. OVERHEAD CRANES: Tenant acknowledges that it has examined
the overhead crane including the crane rail and supporting structures and all
other equipment relating to its use and operation (all of which is hereafter
referred to as the "crane") and accepts the crane in its "as is" condition
without any express or implied warranty by Landlord as to the condition of the
crane. Tenant agrees at all times during the term of this Lease, including any
extension or holdover thereof, to (a) use the crane within the posted limits of
its capacity; (b) employ competent personnel by service contract or otherwise to
maintain the crane in the same state of repair as received, normal wear and tear
excepted, and (c) maintain records which shall be available to Landlord
establishing that proper maintenance and inspection is being carried out. Any
alterations of the crane are subject to the provisions of Paragraph 8.

18. INDEMNIFICATIONS: Tenant shall pay and shall indemnify and
hold Landlord and its principals, employees and agents harmless from and against
any liability, loss, expense (including attorney's fees and expenses) cause of
action, claim or judgment of any nature whatsoever, unless due to the negligence
or willful misconduct of Landlord or its principals, employees or agents, in
connection with any and all of the following:

(a) any injury to, or the death of, any person on the
premises or upon adjourning parking areas or grounds, or in any way
related to Tenant's use or occupancy of the premises;

(b) any theft of or damage to or destruction of
goods, wares, merchandise and all other property of Tenant or others
located on the premises or arising from Tenant's use of the premises;

(c) any negligent, careless or willful act of Tenant
or any of its agents, contractors, servants, employees, assigns or
subtenants, licensees or invitees, if any, anywhere within Freeport
Center;

(d) any violation by Tenant of any covenant,
restriction, agreement or condition of this Lease; violation by Tenant
of any contract or agreement to which Tenant is a party relating to
Tenant's use of the premises, or violation by Tenant of any
restriction, law, ordinance or regulation affecting the premises or any
part thereof including the occupancy or use thereof.

Each party agrees to indemnify the other and hold the other harmless from any
claim, damage, liability or loss arising from or relating to the presence of a
Hazardous Substance, in, on or under the premises where such Hazardous Substance
was used by the indemnifying party or arising from the acts or omissions of the
indemnifying party or its agents, employees, invitees, representatives or
contractors. Each of these indemnifications shall survive the expiration or
termination of this Lease.

<PAGE>

19. INSURANCE: Tenant agrees to carry adequate Workmen's
Compensation Insurance to comply with the legal requirements of the State of
Utah. Tenant agrees to carry adequate or appropriate Commercial General
Liability insurance insuring against all liability exposure to third parties
arising out of Tenant's operations or use of the premises, in a company or
companies authorized to issue insurance in Utah, and to furnish to the Landlord
Certificates of such insurance which include a thirty (30) day notice to the
Landlord prior to any cancellation or reduction thereof by the company or
companies.

20. SURRENDER OF PREMISES: Tenant agrees to surrender up the
demised premises at the expiration, or sooner termination of this Lease, or any
extension thereof, in the same condition, as when said premises were delivered
to the Tenant, or as altered, pursuant to the provisions of this Lease, ordinary
wear, tear and damage by the elements excepted. Tenant shall also remove all of
its personal property from the demised premises not later than the time of
termination. Tenant specifically covenants that upon termination the premises
will be free of any hazardous waste material and that Tenant will be responsible
for returning the premises to a condition meeting all requirements as may at
such time or thereafter as may be imposed by governmental agencies regulating
the handling of hazardous waste materials.

21. HOLDOVER: Should Tenant holdover the demised premises or
any part thereof after the expiration of the term of this Lease, unless
otherwise agreed in writing, such holding over shall constitute a tenancy from
month-to-month only, and Tenant shall pay a sum equal to one and one-half
(1-1/2) times the monthly rental provided herein, payable monthly in advance,
but otherwise on the same terms and conditions as herein provided, except as to
any provisions hereof relating to renewals of extensions.

22. QUIET ENJOYMENT: If and so long as the Tenant pay the
rents reserved by this Lease and performs and observes all the covenants and
provisions hereof the Landlord will, throughout the term of this Lease, warrant
and defend the Tenant in the enjoyment and peaceful possession of the demised
premises against all parties claiming a title to the premises superior to
Landlord's and against all parties claiming by through or under Landlord.

23. WAIVER OF COVENANTS: It is agreed that the waiving of any
of the covenants of this Lease by either party shall be limited to the
particular instance and shall not be deemed to waive any other breaches of such
covenant or any provision herein contained; nor shall waiver of any breach by
another tenant be deemed to waive any breach by Tenant.

24. DEFAULT PROVISIONS:

A. The following event shall be considered events of default
by Tenant:

(i) Failure to pay rent or other sums payable under
this Lease or any part thereof, within ten (10) days of the date when
due, provided that the failure to pay rent when due four times in any
twelve month period shall be an event of default; or

(ii) Tenant's failure to perform or comply with any
of the covenants, agreements, terms or provisions contained in this
Lease for which it is responsible, when such failure shall have
continued for a period of thirty (30) days after written notice thereof

<PAGE>

from Landlord to Tenant, except that in connection with a default not
susceptible of being cured with due diligence within thirty (30) days,
the time within which Tenant shall cure the same shall be extended for
such time as may be necessary to cure the same with all due diligence,
provided Tenant commences within 7 days of the date of receipt of such
notice to cure the same and proceeds diligently to affect such cure; or

(iii) Abandoning or vacating the leased premises or
if Tenant shall be dispossessed therefrom by or under any authority
other than Landlord.

B. Upon the occurrence of any such events of default, Landlord
shall have the right to pursue any one or more of the following remedies:

(i) Make performance for Tenant of any covenant or
condition which Tenant is in default of and for the purpose advance
such amounts as may be necessary. Any amounts so advance or any expense
incurred by Landlord by reason of the failure of Tenant to comply with
any covenant, agreement, obligation or provision of this Lease or in
defending any action to which Landlord may be subjected by reason of
any such failure shall be due and payable to Landlord on demand, and
interest shall accrue thereon from the date of expenditure at the rate
of 18% per annum.

(ii) Terminate this Lease and end the term hereof by
giving to Tenant written notice of such termination, in which event
Landlord shall be entitled to recover from Tenant the amount of rent
and other amounts then due in this Lease and damages and attorney's
fees; or

(iii) Without retaking possession of the premises or
terminating this Lease, to sue monthly for and recover all rents, other
required payments due under this Lease, and other sums, including
damages and legal fees, at any time and from time to time accruing
hereunder; or

(iv) Upon notice to all interested parties, re-enter
and take possession of the premises or any part thereof and repossess
the same as of Landlord's former estate and expel Tenant and those
claiming through or under Tenant and remove the effects of both or
either (forcibly, if necessary) without being deemed guilty in any
manner of trespass and without prejudice to any remedies for arrears of
rent and the rent for the balance of the term of the Lease, Landlord
may relet the premises or any part thereof for such term or terms and
at such rental or rentals and upon such other terms and conditions as
Landlord may deem advisable with the right to make alterations and
repairs to the premises. Such re-entry or taking of possession of the
premises by Landlord shall not be construed as an election on
Landlord's part to terminate this Lease unless a written notice of
termination be given to Tenant or unless the termination thereof be
decreed by a court of competent jurisdiction. In the event of
Landlord's election to proceed under this subparagraph, then such
repossession shall not relieve Tenant of its obligations and
liabilities under this Lease, all of which shall survive such
repossession, and Tenant shall pay to Landlord as current liquidated
damages, the rent and other sums hereinabove provided which would be
payable hereunder if such repossession had not occurred, less the net
proceeds (if any) of reletting of the premises after deducting all of
the Landlord's expenses in connection with such reletting, including
but

<PAGE>

without limitation all repossession costs, brokerage commissions, legal
expenses, attorneys' fees, expenses of employees, alteration costs and
expenses of preparation for such reletting. Such reletting may be in
the name of Landlord or otherwise, for such term or terms (which may be
greater or less than the period which would otherwise have constituted
the balance of the term of this Lease) and on such conditions (which
may include concessions or free rent) as Landlord, in its uncontrolled
discretion, may determine and may collect and receive the rents
therefor. Landlord shall make a reasonable effort to relet the premises
to acceptable tenants, but Landlord shall in no way be responsible or
liable for any failure to relet the demised premises or any part
thereof or for any failure to collect any rent or other charges due
upon such reletting. Tenant shall pay such current damages to Landlord
on the days on which the rent would have been payable hereunder if
possession had not been retaken and Landlord shall be entitled to
receive the same from Tenant on such day.

Use of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies provided for herein. Failure by Landlord to
enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of such default, or of
any other violation or breach of any of the terms, provisions and covenants
herein contained.

25. BANKRUPTCY OR INSOLVENCY: In the event Tenant becomes a
debtor in any case filed, under the Bankruptcy Code or similar law providing
relief to bankrupt or insolvent debtors and Tenant's trustee or Tenant shall not
elect to assume this Lease within 60 days after the filing of such petition,
this Lease shall be deemed to have been rejected. Immediately thereupon Landlord
shall be entitled to possession of the Premises without further obligation to
Tenant or Tenant's trustee and this Lease shall terminate, but Landlord's right
to be compensated for damages in any such proceeding shall survive.

No election by Tenant's trustee or the debtor-in-possession to
assume this Lease whether under Chapter 7 or Chapter 11, shall be effective
unless all defaults under the Lease have been curred and Landlord has received
adequate assurance that it will be compensated for any actual pecuniary loss
incurred by Landlord arising from the default of Tenant.

When, pursuant to the Bankruptcy Code, Tenant's trusee or the
debtor-in-possession shall be obliged to pay reasonable use and occupancy
charges for the use of the premises, such charges shall not be less than the
Rent payable to Tenant under this Lease.

Neither the whole nor any portion of Tenant's interest in this
Lease or its estate in the premises shall pass to any trustee, receiver,
assignee for the benefit of creditors, or any other person or entity, or
otherwise by operation of law unless Landlord shall have consented to such
transfer in writing. No acceptance by Landlord of rent or any other payments
from any such trustee, receiver, assignee, person or other entity shall be
deemed to constitute such consent by Landlord nor shall it be deemed a waiver of
Landlord's right to terminate this Lease for any transfer to Tenant's interest
under this Lease without such consent.

26. ATTORNEY'S FEES: In the event either party shall enforce
the terms of this Lease by suit or otherwise, the party at fault shall pay the
costs and expenses incident thereto, including reasonable attorney's fees.

<PAGE>

27. FAILURE TO PERFORM COVENANT: Except for Tenant's
obligation to pay rent and to pay other monies including maintenance of
insurance, any failure on the part of either party to perform any obligation
hereunder, and any delay in doing any act required hereby shall be excused if
such failure or delay is caused by any strike, lockout or governmental
restriction to the extent and for the period that such continues.

28. RIGHTS OF SUCCESSORS AND ASSIGNS: The covenants and
agreements contained in this Lease shall apply to, inure to the benefit of, and
be binding upon the parties hereto and upon their respective successors in
interest and legal representatives.

29. TIME: Time is of the essence of this Lease and every term,
covenant and condition herein contained.

30. LIENS: Tenant agrees not to permit any lien for monies
owing by Tenant to remain against the premises for a period of more than thirty
(30) days following discovery of the same by Tenant; provided, however, that
nothing herein contained shall prevent Tenant, in good faith and for good cause,
from contesting in the courts the claim or claims of any person, firm or
corporation growing out of Tenant's operation of the demised premises or costs
of improvement by Tenant on the said premises, and the postponement of payment
of such claim or claims, until such contest shall finally be decided by the
courts shall not be a violation of this Lease or any covenant hereof. Should any
such lien be filed and not released or discharged or action not commenced to
declare the same invalid within thirty (30) days after discovery of same by
Tenant, Landlord may at Landlord's option (but without any obligation so to do)
pay or discharge such lien and may likewise pay and discharge any taxes,
assessments or other charges against the premises which Tenant is obligated
hereunder to pay and which may or might become a lien on said premises. Tenant
agrees to repay any sums so paid by the Landlord upon demand therefor, together
with interest at the rate of eighteen (18%) percent per annum from the date any
such payment is made.

31. LIMITATION OF LANDLORD'S LIABILITY: The obligations of
Landlord under this Lease do no constitute personal obligation of the individual
partners of Landlord and Tenant shall look solely to the real estate that is the
subject of this Lease and to no other assets of the Landlord for satisfaction of
any liability in respect of this Lease and will not seek recourse against the
individual partners of Landlord or any of their personal assets for such
satisfaction.

32. EMINENT DOMAIN: In the event any power of eminent domain
shall ever be used by any government authority, federal, state, county or
municipal, or by any other party vested by law with such power, for the taking
of the premises or any substantial portion thereof, and if such taking shall
prevent the full use and enjoyment of the premises by Tenant for the purpose set
forth herein, Tenant shall have the right thereupon to terminate this Lease by
giving written notice to Landlord.

In the event of the taking of a substantial portion less than
the whole of the premises, Tenant may elect, in lieu of exercising its right of
termination, to continue in possession, under the terms of this Lease of the
portion of the premises not so taken and the rent hereunder shall be abated by
such proportion as the number of square feet of the building floor space taken
bears to the total number of square feet of building floor space included in the
premises. In such event, if any portion of any building or buildings comprising
the premises shall have been taken, Landlord shall restore

<PAGE>

such building or buildings by repairing and enclosing the same to the extent
necessary and possible to provide an integral and complete building suitable for
the purposes set forth in Paragraph 2 hereof, giving effect to the reduced size
of the premises.

Any award or compensation for damages, whether resulting by
judgement or verdict after trial or by agreement under threat of condemnation,
applying to the leasehold interest created hereby, shall be paid to Landlord,
and Tenant hereby authorizes Landlord as attorney-in-fact of Tenant to enter
into any agreement or compromise, execute any instrument of transfer to
assignment or otherwise, and do any other acts in connection with such leasehold
interest and such eminent domain proceedings as Landlord, in its discretion,
shall determine; provided, however, Landlord shall hold the proceeds of any such
compensation, award or settlement (other than severance damages which may be
awarded to Landlord by reason of the severance of the premises or a portion
thereof from other lands owned by Landlord) in trust for the benefit of
Landlord, Tenant and any mortgagee as their interests may appear.

When Tenant claims an interest in any such proceeds, Tenant's
leasehold interest for purposes of measuring Tenant's interest in such proceeds
shall be deemed limited to the remainder of the term of this Lease then in
effect, and no future right of extension or renewal at Tenant's option shall be
construed to enlarge Tenant's leasehold interest for such purposes.

33. SUBORDINATION OF LEASE TO MORTGAGES ON THE DEMISED
PREMISES: This lease shall be subject and subordinate to any mortgage (or trust
deed) now existing or hereafter placed on the demised premises given to secure a
loan made by a lender to Landlord, and to any renewals, replacements, extensions
or consolidations thereof, which shall contain a provision that, so long as
Tenant shall not be in default in the performance of its obligations under this
Lease in such manner and after such notice as would entitle Landlord to
terminate this Lease, the holder of such mortgage shall not disturb the
possession of Tenant or terminate this Lease.

34. REPRESENTATIONS: Tenant acknowledges that the Landlord has
made no agreement or promise concerning the alteration, improvement, adaption or
repair of any part of the premises which has not been set forth herein, and that
this Lease contains all the agreements made and entered into between the Tenant
and the Landlord.

35. LIGHTS ON EXTERIOR OF BUILDING: Tenant shall burn the
lights affixed to the exterior of any building it occupies from one (1) hour
after sunset to one (1) before sunrise nightly.

36. OUTSIDE STORAGE: Other than self-propelled vehicles,
nothing may be stored outside of a building without written consent of the
Landlord.

37. SECURITY DEPOSIT: Tenant has contemporaneously with the
execution of the Lease, deposited with the Landlord the sum of $12,600.00
security deposit" receipt of which is hereby acknowledged by Landlord. This sum
shall be held by Landlord as security for the faithful performance by Tenant of
all the terms, covenants and conditions of this Lease by said Tenant to be kept
performed during the term hereof. Should the entire security deposit or any
portion thereof, be appropriated and applied by Landlord for the payment of
overdue rent or other sums due and payable

<PAGE>

to Landlord by Tenant hereunder, then Tenant shall, upon the written demand of
Landlord, forthwith remit to Landlord a sufficient amount in cash to restore
said security to the original sum of the security deposit, and Tenant's failure
to do so with five (5) days after receipt of such demand shall constitute a
breach of this Lease. Should Tenant comply with all of said terms, covenants and
conditions and promptly pay all of the rental herein provided for as it falls
due, and all other sums payable by Tenant to Landlord the security deposit shall
be returned in full to Tenant at the end of the term of this Lease.

38. GARBAGE COLLECTION: Cost of garbage collection shall be
borne by Tenant. Arrangement for such service shall be made by Tenant, subject
to approval of Landlord.

39. RULES AND REGULATIONS: Landlord has found it necessary to
post vehicular traffic control signs on streets and may from time to time impose
certain traffic and parking rules and regulations at Freeport Center. Tenant
agrees to comply with, and use reasonable efforts to cause its employees and
other personnel, to comply with such posted signs and rules and regulations, and
Tenant shall be responsible for causing its employees to park in designated
areas and to operate their motor vehicles within posted speed limits and in
accordance with other traffic signs.

40. CONSTRUCTION OF LEASE: Words of any gender used in this
Lease shall be held to include any other gender, and words in the singular
number shall be held to include the plural when the sense requires.
Interpretation, construction and performance of this Lease shall be governed by
the laws of Utah. Each of the parties who execute this Lease as Tenant shall be
jointly and severally liable for all obligations of Tenant under this Lease.

41. PARAGRAPH HEADINGS: The paragraph headings as to the
contents of particular paragraphs herein are inserted only for convenience and
are in no way to be construed as part of such paragraph or as a limitation on
the scope of the particular paragraph to which they refer.

42. NOTICES: Any notice required or permitted to be given
hereunder shall be deemed sufficient if given by communication in writing by
express over-night mail, by public or private carrier, postage prepaid and
certified, and addressed as follows:

If to the Landlord, at the following address:

FREEPORT CENTER ASSOCIATES
P.O. BOX 016 466 - FREEPORT CENTER
CLEARFIELD, UTAH 84016

If the Tenant, at the following address:

INDUSTRIAL RUBBER APPLICATORS, INC.
P.O. BOX 782
HIBBING, MN 55746

43. OPTIONS: Provided that Tenant is not in default of the
terms of this Lease at the time of notification or the effective date of the
extended terms of this Lease, Tenant shall have

<PAGE>

the right to renew and extend the term of this Lease for three (3) successive
one-year periods, which right shall be exercised by Tenant delivering to
Landlord written notice of its exercise of such option to renew at least ninety
(90) days prior to the expiration of the lease. Such renew and extended terms
shall be subject to the conditions set forth in this Lease except the rent shall
be as set forth in Paragraph 43.A.

A. PAYMENT SCHEDULE

August 1, 1997 - July 31, 1998 $ 13,000/Month
August 1, 1998 - July 31, 1999 $ 13,400/Month
August 1, 1999 - July 31, 2000 $ 13,800/Month
*

IN WITNESS WHEREOF, the parties hereto have caused these
presents to be executed the day and year first above written.

TENANT: LANDLORD:

INDUSTRIAL RUBBER APPLICATORS, INC. FREEPORT CENTER ASSOCIATES

By /s/ Daniel O. Burkes By /s/ Gordon W. Old
---------------------------------- ----------------------------------
Its President Its Partner
--------------------------------- ---------------------------------

<PAGE>

-------------------------------
Building H-5 South
-------------------------------

F R E E P O R T C E N T E R A S S O C I A T E S

AMENDMENT TO LEASE

This First Amendment to Lease is made and entered into this 30th day of
April, 1997, by and between FREEPORT CENTER ASSOCIATES, hereinafter called
"Landlord," and INDUSTRIAL RUBBER APPLICATORS, INC., hereinafter called
"Tenant."

WITNESSETH:

In consideration of the covenants and agreements of the respective
parties herein contained, the parties hereto do hereby agree as follows:

BACKGROUND INFORMATION

WHEREAS, Landlord and Tenant have executed a Lease dated June 11, 1996,
affecting certain real property in the City of Clearfield, County of Davis,
State of Utah, known as Building H-5, South. Said Lease is hereinafter referred
to as the "Lease" and,

WHEREAS, Tenant desires to modify the option terms in the lease and
Landlord is willing to do so on the terms contained herein,

THEREFORE, for valuable consideration, the receipt of which is
acknowledged by both parties, the parties hereto agree that the above described
lease is amended as follows:

<PAGE>

A. Paragraph 43. OPTION is amended in its entirety to read as follows:

43. OPTION: Provided that Tenant is not in default of the terms of this
Lease at the time of notification or the effective date of the extended terms of
this Lease, Tenant shall have the right to renew and extend the term of this
Lease for two (2) successive six-month periods and three (3) successive one-year
periods, which right shall be exercised by Tenant delvering [sic] to Landlord
written notice of its exercise of such option to renew at lease ninety (90) days
prior to the expiration of the lease. Such renewed and extended terms shall be
subject to the conditions set forth in this Lease except the rent shall be as
set forth in Paragraph 43.A.

A. PAYMENT SCHEDULE

08/01/199 $ 13,000/Month

02/01/199 $ 13,200/Month

08/01/199 $ 13,400/Month

08/01/199 $ 13,800/Month

08/01/200 $ 14,200/Month

Upon execution of this Amendment, Tenant hereby exercises the first
six-month option for the period August 1, 1997 - January 31, 1998 at the monthly
rent of $13,000.

Except for the foregoing, all of the terms and conditions of the
existing lease dated June 11, 1996 shall remain in full force and effect.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed the day and year first above written.

TENANT: LANDLORD:

INDUSTRIAL RUBBER APPLICATORS, FREEPORT CENTER ASSOCIATES
INC.

By /s/ Daniel O. Burkes By /s/ Gordon W. Old
--------------------------------- ---------------------------------
Daniel O. Burkes Gordon W. Old
Its President Its Partner
-------------------------------- --------------------------------

EXHIBIT 10.4

5/23/96

INDUSTRIAL RUBBER APPLICATORS (IRA)
3804 EAST BELTLINE
HIBBING, MN 55746

A G R E E M E N T

This agreement is made and entered into this day of May 28, 1996 between
Industrial Rubber Applicators (IRA), Hibbing, Minnesota or their successors,
hereinafter called the "Company" and the United Steelworkers of America,
hereinafter called the "Union".

In consideration of the settlement of the differences between the parties hereto
as to wages, hours and working conditions and the mutual covenants and agreement
continued herein.

IT IS AGREED:

ARTICLE I
PURPOSE AND INTENT OF THE PARTIES

The purpose of the Company and the Union in entering into this labor agreements
[sic] is to set forth their agreement on rates of pay, hours of work, and other
conditions of employment, and further to the fullest extent possible, the safety
and welfare of the employees, economy of operations, elimination of waste,
quantity and quality of output, cleanliness of plant, and protection of
property.

The Company and the Union will encourage the highest possible degree of
friendly, cooperative relationship between their representatives at all levels.

ARTICLE II
RECOGNITION AND BARGAINING UNIT

The Company agrees and does hereby recognize the Union as the exclusive
bargaining agency for its' [sic] employees as classified herein for the purposes
of collective bargaining with the Company as to rates of pay, hours of work and
conditions of employment, to be observed between the parties hereto, and to
provide procedure to prompt, equitable adjustment of alleged grievances, and
there shall be no interruptions or impending [sic] of work, work stoppages,
strikes, lockouts or other interferences with productions during the life of the
Agreement, so long as both parties are complying with its terms. The term
"employee" as used in this agreement shall mean the production and maintenance
employees excluding supervisors, office employees, driver salesmen, and any
employee defined by the National Labor Relations Act, including all janitorial
and summer students.

ARTICLE III
MAINTENANCE OF MEMBERSHIP AND CHECKOFF

Each employee covered by this Agreement, as a condition of employment, shall
become and maintain membership in the Union to the extent of paying the periodic
membership dues uniformly required of all Union members, and new employees upon
completion of the probationary period, shall become members.

<PAGE>

The company will deduct dues from employee wages and the dues will be submitted
to the International Secretary-Treasurer each month.

The sole authorized representative of the Union, for purposes of certifying the
amount of any change in monthly dues or initiation fees to be deducted by the
Company shall be the International Secretary-Treasurer.

ARTICLE IV
MANAGEMENT PREROGATIVES

The operation of the business and all procedures and methods of production,
including the assignment of work to the employees, shall be the exclusive
function of the Company. The Company, in the exercise of its' [sic] rights shall
observe the provisions of the Agreement.

ARTICLE V
ADJUSTMENT OF GRIEVANCES

A. Procedure

Any employee and/or a Union Grievance Committeeperson who believes that he/she
has a justifiable request or complaint shall discuss the request or complaint
with supervision. If the complaint is not disposed of, he/she may then proceed
as follows:

Step 1. Promptly present the complaint as a grievance in writing to supervision
on a form provided by the Grievance Committee. Supervision shall answer
the grievance on the form within three (3) working days and return the
Union copies to the Grievance Committee.

Step 2. In the event no satisfactory settlement of the grievance is arrived at
in Step 1, and it appears as though the grievance cannot be settled in
Step 1, it shall be appealed within seven (7) working days to Step 2.
Management shall then arrange to hold a meeting within three (3)
working days following receipt of the Grievance Committee's request for
a Step 2 meeting. A district representative of the Union shall be
present at all Step 2 meetings. The company shall state on the
grievance form the Company's position not later than five (5) working
days following the date of the Step 2 meeting.

Step 3.

If a grievance cannot be settled by Step 2, then at the request of either party,
made within ten (10) working days from the receipt of the decision under Step 2,
a third neutral and disinterested party satisfactory to both sides shall be
selected by the parties. In the event that the Union and Company cannot agree
upon an umpire within then (10) working days after the District Representative
and the executives of the Company have disagreed, the parties shall request the
State [sic] conciliator of the State of Minnesota to appoint an "umpire".

<PAGE>

An umpire to whom any grievance shall be submitted in accordance with the
provisions of this section, shall only have the jurisdiction and authority to
interpret, apply, or determine compliance with the provisions relating to the
wages, hours of work, and other conditions of employment set forth in this
Agreement insofar as shall be necessary to the determination of such grievances,
but he shall not have the jurisdiction or authority to add to, detract from, or
to alter in any way the provisions of this Agreement. Said umpire so appointed
shall decide the dispute and the decision shall be final and binding upon the
Union, the Company, and any employees affected. The expenses and fees of the
umpire shall be paid equally by the Company and the Union. unless [sic]
otherwise agreed upon, the matter shall be heard by such neutral umpire as soon
as possible after his appointment and shall be determined by him as soon as
possible after close of the hearing.

B. Grievance Committee

The Grievance committee shall consist of not more than three (3) employees from
the plant to be selected by the Union.

ARTICLE VI
DISCHARGE AND SUSPENSION

Management agrees that a member of the Union shall not be discharged or
suspended without just cause, or without the right to appeal, with the exception
of probationary employees. Prior to a discharge or suspension, management will
have a discussion with the Grievance Committee Chairman or his designee in an
effort to resolve the matter. This employee will have the option of being
present at this meeting. Following a discharge or suspension, the employee may,
if he believes that he has been unjustly discharged or suspended, allege a
grievance in accordance with the procedure of Article V, "Adjustment of
Grievances". Final decision on all discharge or suspension cases shall be made
within the time limits specified in Article V. Should it be determined by the
Company or the umpire in accordance with Article V, that the employee has been
discharged or suspended unjustly, the Company shall reinstate the employee and
pay compensation for the time lost at the employee's regular rate of pay, in an
amount agreed upon in each case or as set by the umpire.

A warning slip or disciplinary action will not be considered in future
disciplinary actions after three (3) years from the date of the occurrence.

ARTICLE VII
SENIORITY

Seniority is defined as the principle that in the event of laying off men during
slack time or when a reduction of force is to be effected, unless impractical,
the last man hired shall be the first laid off, and in calling men back to work,
the last man laid off shall be the first man returned to work.

A. Seniority Status of Employees

Seniority shall be recognized, in the event of promotions, decreases of forces,
and rehiring after lay-off, in proportion to length of continuous service
providing the employee is qualified to perform the job.

<PAGE>

B. Probationary Employees

New employees and those hired after a break in continuity of service will be
regarded as probationary employees for ninety (90) aggregate working days.

Probationary employees may be laid off or discharged as exclusively determined
by management.

Probationary employees continued in the service of the Company subsequent to the
probationary period shall receive full continuous service credit from their date
of work.

C. Seniority Lists

On or before thirty (30) days days following the signing of this Agreement, the
Company shall furnish to the Union and post a seniority list. such [sic] list
shall be brought up to date at least once every six months in the event changes
have taken place. In the event of disagreement in individual cases, the
necessary records for the case involved may be inspected by authorized
representatives of the Union.

D. Promotions and Job Vacancies

Should differences arise between the Company and Union as to whether an
applicant to a job is qualified to perform the job, the employee shall be given
a trial on the job, not to exceed thirty (30) days. The company may elect to
shorten the 30-day period if it determines that the employee cannot quality
[sic] within the trial period. The disqualified applicant shall be returned to
his prior classification. Employees affected may then use the grievance
procedure for final determination.

2. On promotion of an employee to a non-bargaining position, his seniority shall
be frozen as of the date of the promotion, pursuant to the seniority provisions
of this Agreement.

E. Layoffs and Call-Backs

1. Any employee who is not interested in learning or working on the field crew
or lining tanks at the plant could be laid off if other work for which they are
qualified to perform is unavailable.

2. In the matter of call-back to work, the employee with the most seniority
shall be the first person called back if they are qualified to perform the work.

F. Notices in the Event of Layoff

1. In the event of layoffs, employees shall keep the Company advised of any
change of address or telephone number. the [sic] Company will phone notice to
all employees, outlining the nature of the job open. If this is impossible,
written notice shall be given by registered or certified mail to the employee's
last known mailing address. Those employees notified by mail of the availability
of work will have the obligation of determining for themselves the nature of job
openings. The Company will furnish the Union a copy of such notice.

<PAGE>

2. A recalled employee has three (3) days to notify the Company of his intent to
report back to work within five (5) calendar days. If such laid off employee
does not report within said five (5) calendar days after being recalled as above
stated, he shall be deemed to have terminated his employment and to have lost
all seniority rights, except that the right of employees to accept this offer of
recall shall be extended for those employees who are unable to return to work
immediately because of sickness or injury or other circumstances for which the
employee could not reasonably report with [sic] the 5-day period.

G. Time Off for Union Activity

The Company agrees to grant necessary time off without discrimination to any
employee designated by the Local Union to serve in any capacity in [sic] behalf
of or at the request of the Local Union, but in each case notification must be
given to the company in sufficient time to secure a replacement.

H. Termination of Seniority and Employment

An employee's seniority and employment with the Company will terminate upon the
occurrence of any one of the following events:

1. Quit or resignation;

2. Discharge for just cause;

3. Failure to report to work at expiration of an authorized leave of
absence;

4. Absence from work on three (3) consecutive scheduled work days without
notifying the Company except for good and sufficient cause;

5. Absence due to industrial accident or illness while actively employed
by the Company where the employee fails to return to work within thirty
(30) calendar days after final payment of statutory benefits or after
the end of the period used in calculating the lump sum settlement;

6. Owning or operating a business in competition with the Company or
working for a competitor while actively on the payroll;

7. Fighting or any other acts of violence, or acts of vandalism. Threats
of physical violence towards any employee.

ARTICLE VIII
SAFETY AND HEALTH

A. An employee or group of employees who believe that they are being required to
work under conditions which are unsafe or unhealthy beyond the normal hazards
inherent to the operation in question shall bring this matter to the companies
[sic] attention. The company will then notify the union safety representative
and jointly will investigate and correct, if needed, the unsafe or unhealthy
condition or hazard.

<PAGE>

B. In the event an employee is injured while on duty, he shall be furnished by
the Company with transportation to the doctor or hospital, as the case may be;
also transportation from the doctor's office or hospital to home and/or return
to plant.

ARTICLE IX
401k RETIREMENT PLAN

A. Company will match employee contributions up to a minimum of 15 cents per
hour worked. Employee may contribute more if desired. If employee decides
against 15 cent contribution, company does not match.

B. Contributions must be deposited into the established 401k Plan.

ARTICLE X
VACATIONS

The parties agree that it is their mutual objective by the terms of this Article
to afford maximum opportunity to the employees to obtain their vacation for rest
and relaxation.

A. Definition of Vacation

A one week's full vacation shall consist of forty (40) hours in a seven
consecutive day period. A two week's [sic] vacation shall consist of eighty (80)
hours, a three week's [sic] vacation shall consist of one hundred twenty (120)
hours. Employees shall be allowed to split a week of vacation into one or more
days at a time.

B. Eligibility and Length of Vacation

1. One (1) week vacation after completion of first year.

2. Two (2) weeks vacation after completion of second year.

3. Three (3) weeks vacation after completion of fifth year.

4. If a paid holiday falls during the employee's vacation, he will be paid
holiday pay, at straight time, in addition to his vacation pay.

5. You must work eight (8) months in the previous year to qualify for
vacation.

6. First vacation may be taken on or after the anniversary date.
Succeeding vacations can be taken annually, following your anniversary
date.

7. All employees who have qualified for vacation shall be paid their
vacation if they are laid-off or discharged. In case an employee dies,
his vacation allowance shall be paid to his heirs, assigns, or
administrators.

<PAGE>

8. Vacation pay shall be paid in advance to the employee on the last day
worked before going on vacation. Minimum of one week.

9. All employees that are eligible for three (3) weeks vacation have the
option of five (5) additional excused absence days without pay.

ARTICLE XI
FUNERAL LEAVE

When death occurs to an employee's legal spouse, mother, father, mother-in-law,
father-in-law, son daughter [sic], step-children, brother, or sister, an
employee will be excused and paid for up to a maximum of three scheduled shifts
(or for such fewer shifts as the employee may be absent) which fall within a
three consecutive calendar-day period; provided that one such calendar day shall
include the day of the funeral and it is established that the employee attended
the funeral. When death occurs to an employee's grandparents, aunt or uncle, an
employee will be excused and paid for one day. An employee will not receive
funeral pay when it duplicates pay received for time not worked for any other
reasons. Employee must show proof of attendance, if requested by the company.

ARTICLE XII
PAID HOLIDAYS

New Year's Day Memorial Day
Fourth of July Labor Day
Thanksgiving Day Christmas Eve Day
Day after Thanksgiving Christmas Day

Holiday pay shall be paid for at the regular classified rate of eight (8) hours
when not worked. If holidays are worked, they shall be paid for at two (2) times
the regular rate of pay. If a holiday falls on saturday [sic], holiday pay will
be paid for the previous Friday. If a holiday falls on Sunday, holiday pay will
be paid for on Monday. a [sic] paid holiday shall be counted as eight (8) hours
worked when figuring overtime for the regular work week.

ARTICLE XIII
HOURS OF WORK

A. The normal work week for all regular employees shall be forty (40)
hours.

B. All hourly employees shall be paid every two (2) weeks on Thursday.

C. Any employee assigned to work out of town shall be reimbursed for
lodging and meals ($40.00) per day) [sic]. The employee will make
arrangements for lodging.

D. Shop: time and one-half over 40 hours.

E. Field: time and one-half after eight hours. Employee must report for
following shift when returning from field job. Employee must
report in person or by telephone for following shift of work.

<PAGE>

F. Two fifteen-minute rest periods shall be provided for each regular
eight hour shift. this [sic] means one rest period after each
consecutive two hours worked. These rest periods shall be considered as
time worked when computing wages. Meal period shall be no less than
twenty minutes. Meal breaks shall not be considered as time worked in
computing pay.

G. Employee scheduled to work on Sunday's [sic] shall be paid at two (2)
times their regular rate of pay.

H. The rate of pay for any hours that extend beyond the normal hours of a
shift is that rate in effect at the beginning of the shift.

<PAGE>

ARTICLE XIV
W A G E S

Apr 16th Oct 16th Apr 16th Apr 16th Apr 16th
1996 1996 1997 1998 1999

Class 1 $ 8.00 $ 8.25 $ 8.25 $ 8.25 $ 8.50
Class 2 $ 8.50 $ 8.70 $ 8.70 $ 8.80 $ 9.35
Class 3 $ 9.00 $ 9.50 $ 9.50 $ 9.50 $10.00
Class 4 $10.00 $10.25 $10.35 $10.60 $10.85
Class 5 $11.00 $11.25 $11.50 $11.75 $12.00
Class 6 $12.00 $12.50 $13.00 $13.50 $14.00
Class 7 $13.00 $13.50 $14.00 $14.50 $15.00
Lead Man $14.00 $14.50 $15.00 $15.50 $16.00
Shop Leader $15.00 $15.50 $16.00 $16.50 $17.00

Class 1 Start
Class 2 120 days
Class 3 1 year
Class 4 2 years
Class 5 3 years
Class 6 4 years
Class 7 5 years

All raises are effective the first day of the pay period following the scheduled
pay raise increase date above.

Field Rates:
- ------------

Rubber Lining and Sand Blasting: $2.00 per hour additional for each class

Urethane Lining: 25% of base pay additional

Differentials:

Afternoon Shift - $ .35 per hour
Midnight Shift - $ .50 per hour
Boiler Operator - $ .75 per hour

<PAGE>

ARTICLE XI
MILITARY SERVICE

A. Each employee, who during the term of this Agreement, enters the Military
Service of the United States, is honorably discharged from such service, and
within ninety (90) days after he is discharged from service or within one (1)
year after discharge from hospitalization from service connected disability
applies to the Company for re-employment, shall be reinstated in accordance with
his status under Article VII "Seniority" of this agreement, to a position of
like status and pay to that which he left when he entered the Military Service,
without having his seniority record broken by reason of his absence.

B. Vacation - Each employee entering the Military Service shall have his final
pay checks computed to include whatever vacation pay he shall have earned
through the final day of work less whatever vacation allowance he shall have
received prior thereto.

C. Upon being re-employed in accordance with Paragraph A of this Section, an
employee shall begin accruing vacation benefits based on time worked after his
return and shall receive such vacation allowance.

ARTICLE XVI
HEALTH AND WELFARE

The Company agrees to furnish the following coverage to employees:

A. Health Insurance

Comprehensive Major Medical
A. Deductible per calendar year
1. $200.00 per person
2. $600.00 per family
B. Out-Of-Pocket Maximum (including deductible)
1. $600.00 per person
2. $1,200.00 per family
C. Lifetime Maximum
1. $1,000,000.00
D. Dependent Member Age Limits
1. 19 years
2. 25 years (FULLtime [sic] Student)
E. Prescription Drug Co-Pay
1. $9.00 (Formulary Drugs Only)

B. Life Insurance

A. Basic Life
1. $30,000.00
B. Accidental Death & Dismemberment
1. $30,000.0-0 [sic]

<PAGE>

C. Dependent Life
1. Spouse - $2,000.00
2. Children
a. 14 days to 6 months - $500.00
b. 6 months to 19 years - $1,000
or to age 25 if a full time student -
$1,000.00

C. Sick and Accident Benefits

The plan will provide for weekly benefits payable starting on the first
(1) day of hospitalization and after the seventh (7) day of sickness,
as follows, effective June 1, 1996 at $200.00 per week.

Benefits will be paid equal to four (4) times the amount of vacation
each employee is eligible to receive for that year for a maximum of 12
weeks.

D. Dental Plan

Benefits: Preventive Services 80%
Basic Services 50% after deductible
Major Services 50% after deductible
Orthodontia 50%

Deductible -
Individual: $50.00
Family Aggregate: $150
Annual Maximum: $1,000

Dependent: 19/23 years of age

Orthodontia -
Dependent 50% to age 19
Lifetime Max $1,500

*Deductible is not applicable for preventive services

ARTICLE XVII
MISCELLANEOUS

A. If the Employer requests employees to take a physical examination, the
Employer shall pay the cost of said physical examination.

B. The Union shall have space on a bulletin board for Union business.

<PAGE>

C. For the safety and protection of employees, certain safety devices shall be
furnished by the Company, and normally recognized safety equipment and clothing
shall be furnished by the employee. Any employee who fails to have such safety
devices or to sue [sic] normally recognized safety equipment and clothing shall
be issued a warning notice. Safety glasses, regular or prescription, will be
paid for by the Company, including cost of the examination and prescription.
One pair of glasses a year.

Replacement and repair costs resulting from normal work use of safety glasses
will be paid for by the Company for all employees, providing the employee
obtains approval from the office and is issued a duly authorized permit to go to
the doctor to get his glasses. Cost of replacing glasses lost or damaged by
causes other than work use will be the employee's responsibility. The Company
reserves the right to choose safety glasses, type and supplies. The Company will
provide cleaning materials for glasses in the plant.

D. Probationary employees are not eligible for fringe benefits provided for in
Articles IX, X, XI, XII and XVI.

E. Use of or being under the influence of drugs or alcohol on company time or
property is subject to the companies [sic] drug and alcohol program.

ARTICLE XVIII
TERMINATION

Except as otherwise provided herein, the terms and conditions of this Agreement
shall take effect on _______________ and shall continue in effect to and
including midnight of April 15, 2000. Either party may sixty (60) days prior to
April 15, 2000, give notice to the other party of the desire of the party giving
such notice to negotiate with respect to the terms and conditions of a new
agreement.

Any notice to be given under this agreement shall be given by Certified or
Registered Main [sic] and the mailing of such notice shall be considered
personal services upon the party to whom it is mailed, and if by the company, it
shall be addressed to the United Steelworkers of America, District 11, 2829
University Avenue SE, Suite 100, Minneapolis, Minnesota 55414, and if by the
union to the company, it shall be addressed, Industrial Rubber Applicators, Inc,
3804 East Beltline, P.O. Box 782, Hibbing, MN 55746. Either party may, by like
written notice, change the address to which the certified or registered notice
shall be sent.

<PAGE>

Signed this 28th day of May, 1996.

INDUSTRIAL RUBBER APPLICATORS, INC. UNITED STEELWORKERS OF AMERICA

BY /s/ Daniel O. Burkes BY /s/ George Beckerson
-------------------------------- ----------------------------------
Daniel O. Burkes George Beckerson

BY BY
-------------------------------- ----------------------------------

BY
----------------------------------

EXHIBIT 10.5

STOCK OPTION PLAN

INDUSTRIAL RUBBER PRODUCTS, INC.

1. PURPOSE. The purpose of this Stock Option Plan (the "Plan") is to
encourage personnel of Industrial Rubber Products, Inc. (the "Company") to
acquire a proprietary interest in the Company, thereby creating an additional
incentive to such personnel to promote the Company's best interests and to
continue in its employ, and further to provide an additional inducement for the
acquisition of the services of persons capable of contributing to the future
success of the Company. Options granted under this Plan may be either "incentive
stock options" within the provisions of Section 422 of the Internal Revenue Code
of 1986 and any amendments thereto, or options which do not qualify as incentive
stock options.

2. ADMINISTRATION.

A. This Plan shall be administered by the Stock Option
Committee (the "Committee") of the Board of Directors of the Company
(the "Board"). The Committee shall be comprised of the entire Board or,
if the Board so determines, of two or more "non-employee directors" as
defined in Rule 16b-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934.

B. The Committee shall have full authority and discretion to
determine, consistent with the provisions of this Plan, the employees
and others to be granted options, the times at which options shall be
granted, the option price of the shares subject to each option (subject
to Section 6), the number of shares subject to each option (subject to
Section 3), the period during which each option becomes exercisable
(subject to Section 7), and the terms to be set forth in each option
agreement. The Committee shall also have full authority and discretion
to adopt and revise such rules and procedures as it shall deem
necessary for the administration of this Plan.

C. The Committee's interpretation and construction of any
provisions of this Plan or any option granted hereunder shall be final,
conclusive and binding on the Company, the optionee and all other
persons.

3. ELIGIBILITY.

A. The Committee shall from time to time determine the
individuals who shall be granted options under this Plan. Incentive
stock options may only be granted under this Plan to any full or
part-time employee (which term includes, but is not limited to,
officers and directors who are also employees) of the Company or of its
present and future subsidiary corporations. Options which do not
qualify as incentive stock options may be granted under this Plan to
other persons designated by the Committee, including, but not limited
to, members of the Board of Directors, consultants or independent

<PAGE>

contractors providing services to the Company or its present and future
subsidiary corporations. The term "subsidiary corporation" shall, for
purposes of this Plan, be defined in the same manner as such term is
defined in Section 425(f) of the Internal Revenue Code.

B. An individual who has been granted an option may be granted
an additional option or options under this Plan if the Committee shall
so determine, with the restriction that no individual employee may
receive incentive stock options (under this Plan and all incentive
stock option plans of the Company and its subsidiary corporations)
which are exercisable for the first time during any calendar year for
shares having an aggregate Fair Market Value (determined as of the time
the option is granted) in excess of $100,000.

C. The granting of an option under this Plan shall not affect
any outstanding stock option previously granted to an optionee under
this Plan or any other plan of the Company.

D. (i) Each non-employee director of the Company shall
automatically be granted a non-qualified option under this Plan
providing for the purchase of 10,000 shares of the Company's Common
Stock at 100% of the Fair Market Value of such Common Stock on the date
of his/her first election to the Board (whether such election shall be
by the shareholders or otherwise), or on the date that an employee
director of the Company becomes a non-employee director of the Company.

(ii) Each non-employee director of the Company, serving
as of the end of each calendar year, shall automatically be granted a
non-qualified option under this Plan providing for the purchase of
2,500 shares of the Company's Common Stock at 100% of the Fair Market
Value of such Common Stock on the date of grant for his/her services to
the Company during such year. The number of shares covered by such
option shall be reduced proportionately for a non-employee director who
served as a director of the Company for less than the full year.

(iii) The Board may from time to time amend Section 3.D.(i)
and/or Section 3.D.(ii) to increase or decrease the number of shares of
Common Stock that may be purchased pursuant to the options to be
automatically granted pursuant to such Sections.

4. SHARES OF STOCK SUBJECT TO THIS PLAN. The number of shares which may
be issued pursuant to the options granted by the Committee under this Plan shall
not exceed four hundred thousand (400,000) shares of the common voting stock of
the Company (the "Common Stock"), subject to adjustment as provided in this
Plan. Such shares may be authorized by the Company and held in treasury. Any
shares subject to an option which expires for any reason or is terminated
unexercised as to such shares may again be subject to an option under this Plan.

<PAGE>

5. ISSUANCE AND TERMS OF OPTION AGREEMENTS. Each option granted under
this Plan shall be evidenced by a written Option Agreement, which shall be
subject to the provisions of this Plan and to such other terms and conditions as
the Committee may deem appropriate.

6. OPTION PRICE.

A. Each Option Agreement shall state the number of shares to
which it pertains and shall state the option price. The option price
for each share of Common Stock covered by an incentive stock option
granted under this Plan shall not be less than 100% of the Fair Market
Value of the Common Stock on the date the option is granted; provided
that if the employee, at the time the option is granted, owns more than
10% of the total combined voting power of all classes of stock of the
Company, the option price shall not be less than 110% of the Fair
Market Value of the Common Stock on the date the option is granted. The
purchase price for options granted under this Plan which do not qualify
as incentive stock options may be equal to, greater than or less than
the Fair Market Value of the Common Stock on the date the option is
granted. "Fair Market Value," as used in this Plan, shall mean the
value of the Common Stock on a pertinent date as determined by the
Committee, using such valuation methods as it, in its sole discretion,
shall deem appropriate.

B. Upon the exercise of the option, the option price shall be
payable (i) in United States dollars, in cash or by check, or (ii) if
the Committee, in its sole discretion, shall so authorize, in shares of
the Common Stock of the Company then owned by the optionee, which
shares shall be valued at their Fair Market Value on the date of
delivery. The Committee, in its sole discretion, may permit the
optionee to authorize a third party to sell shares of the Common Stock
(or a sufficient portion of the shares) acquired upon the exercise of
the option and remit to the Company a sufficient portion of the sale
proceeds to pay the entire option price and any tax withholding
resulting from such exercise.

C. The proceeds of the sale of the Common Stock subject to
option shall be added to the general funds of the Company and used for
its corporate purposes.

7. TERMS AND EXERCISE OF OPTIONS. Each option granted under this Plan
shall be exercisable during the periods and for the number of shares as shall be
provided in the Option Agreement evidencing the option granted by the Committee
and the terms thereof. In no event, however, shall any option be exercisable by
its terms after the expiration of ten years from the date of grant, nor shall
any incentive stock option granted to a person then owning more than 10% of the
total combined voting power of all classes of stock of the Company be
exercisable by its terms after the expiration of five years from the date of
grant.

<PAGE>

8. WITHHOLDING TAXES.

A. The Company shall have the right to require the payment
(through withholding from the optionee's salary or otherwise) of any
federal, state or local taxes required by law to be withheld with
respect to the issuance of shares upon the exercise of an option or
with respect to any disposition of such shares by the optionee.

B. In order to assist an optionee in paying federal and state
income taxes required to be withheld upon the exercise of a
non-qualified option granted hereunder, the Committee in its discretion
and subject to such additional terms and conditions as it may adopt,
may permit the optionee to elect to satisfy such income tax withholding
obligation by having the Company withhold a portion of the shares of
Common Stock otherwise to be delivered upon exercise of such option
with a Fair Market Value equal to the taxes required to be withheld.

9. REQUIREMENT OF LAW. The granting of options and the issuance of
shares of Common Stock upon the exercise of an option shall be subject to all
applicable laws, rules and regulations, and shares shall not be issued except
upon approval of proper government agencies or stock exchanges as may be
required. The exercise of any option will be contingent upon receipt from the
optionee of a representation in writing that at the time of such exercise it is
the optionee's intention to acquire the shares being purchased for investment
and not for resale or other distribution thereof to the public.

10. NON-TRANSFERABILITY. Except as otherwise provided by the Committee,
awards under the Plan are not transferable other than as designated by the
optionee by will or by the laws of descent and distribution, and then only as
provided in the Option Agreement.

11. EARLY TERMINATION OF INCENTIVE STOCK OPTIONS. Unless otherwise
stated in the Option Agreement, if an optionee shall cease to be employed by the
Company, or a subsidiary of the Company, for whatever reason and at whatever
time, all options held by the optionee shall be cancelled as of the date of such
termination of employment.

12. EARLY TERMINATION OF NON-QUALIFIED OPTIONS. Unless otherwise stated
in the Option Agreement, a non-qualified option granted under this Plan will
continue for its full term without early termination.

13. ADJUSTMENTS; REORGANIZATION; LIQUIDATION.

A. In the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend or split,
recapitalization, reclassification, merger, consolidation, combination
or exchange of shares, or other similar corporate change, then if the
Board shall determine, in its sole discretion, that such change
necessarily or equitably requires an adjustment in the number of shares
subject to each outstanding option and the option prices or in the
maximum number of shares subject to this Plan,

<PAGE>

such adjustments shall be made by the Board and shall be conclusive and
binding for all purposes of this Plan. No adjustment shall be made in
connection with the issuance by the Company of any warrants, rights or
options to acquire additional shares of Common Stock or of securities
convertible into Common Stock.

B. If the Company shall become a party to any corporate
merger, consolidation, major acquisition of property for stock, sale of
all or substantially all of its common stock, reorganization or
liquidation, the Board shall have power to make any arrangement it
deems advisable with respect to outstanding options, which shall be
binding for all purposes of this Plan, including, but not limited to,
the substitution of new options for any options then outstanding, the
assumption of any such options and the termination of any such options.

C. Neither this Plan nor the grant of any option pursuant to
this Plan shall affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to dissolve, liquidate or
sell or transfer all or any part of its business or assets, or issue
additional shares of Common Stock or options.

14. CLAIM TO STOCK OPTION, OWNERSHIP OR EMPLOYMENT RIGHTS. No employee
or other person shall have any claim or right to be granted options under this
Plan. Prior to issuance of the stock, no optionee, his/her personal
representative, heirs or legatees shall be entitled to voting rights, dividends
or other rights of shareholders except as otherwise provided in this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee any right to be retained in the employ of the Company.

15. EXPENSE OF PLAN. The expenses of administering this Plan shall be
borne by the Company.

16. RELIANCE ON REPORTS. Each member of the Board shall be fully
justified in relying or acting in good faith upon any report made by the
independent public accountants of the Company and upon any other information
furnished in connection with this Plan by any person or persons other than
himself. In no event shall any person who is or shall have been a member of the
Board be liable for any determination made or other action taken, or any
omission to act, in reliance upon any such report or information, or for any
action taken, including the furnishing of information, or failure to act, if in
good faith.

17. INDEMNIFICATION. Each person who is or shall have been a member of
the Board shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim, action,
suit or proceeding to which he may be a party or in which he may be involved by
reason of any action taken or failure to act under this Plan and against and
from any and all amounts paid by such person in settlement thereof, with the
Company's approval, or paid by such person in satisfaction of a judgment in any
such action, suit or

<PAGE>

proceeding against him, provided he shall give the Company an opportunity, at
its own expense, to handle and defend the same before he undertakes to handle
and defend it on his own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such person may
be entitled under the Company's articles of incorporation or bylaws, as a matter
of law, or otherwise, or any power that the Company may have to indemnify him or
hold him harmless.

18. AMENDMENT AND TERMINATION. No options may be granted under this
Plan after February 2, 2008, or earlier termination of this Plan as hereinafter
provided. The Board may terminate this Plan or modify or amend this Plan in such
respect as it shall deem advisable, provided, however, that the Board may not,
without further approval within 12 months by the Company's shareholders, (a)
increase the maximum aggregate number of shares of Common Stock as to which
options may be granted under this Plan except as provided in Section 13, (b)
change the class of employees or others eligible to receive options, (c) change
the provisions of this Plan regarding the option price, (d) extend the period
during which options may be granted, or (e) extend the maximum period of ten
years after the date of grant during which options may be exercised. No
termination or amendment of this Plan may, without the consent of an individual
to whom an option shall theretofore have been granted, adversely affect the
rights of such individual under such option. Further, this Plan may not, without
the approval of the Company's shareholders, be amended in any manner that will
cause incentive stock options issued under it to fail to meet the requirements
of incentive stock options as defined in Section 422 of the Internal Revenue
Code of 1986 or any amendments thereto.

19. GENDER. Any masculine terminology used in this Plan shall also
include the feminine gender.

20. EFFECTIVE DATE. The effective date of this Plan is the date of its
adoption by the Board; provided, however, that it and any and all options
granted hereunder shall be and become null and void if the shareholders of the
Company shall fail to approve this Plan within 12 months from the date of its
adoption.

<PAGE>

INCENTIVE STOCK OPTION AGREEMENT
UNDER THE STOCK OPTION PLAN
OF INDUSTRIAL RUBBER PRODUCTS, INC.

AGREEMENT made between Industrial Rubber Products, Inc., a Minnesota
corporation (the "Company"), and _________________, an employee of the Company
(the "Optionee" or "Employee").

The Company desires, by affording the Employee an opportunity to
purchase shares of its Common Stock, par value $.001 per share (the "Common
Stock"), as hereinafter provided, to carry out the purpose of the Stock Option
Plan of Industrial Rubber Products, Inc. (the "Plan").

NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto have
agreed, and do hereby agree as follows:

1. GRANT OF OPTION. The Company hereby grants to the Employee the right
and option to purchase all or any part of an aggregate of __________ shares of
the Common Stock (such number being subject to adjustment as provided in
Paragraph 7 hereof) on the terms and conditions herein set forth.

2. TERM OF OPTION AND LIMITATIONS ON RIGHT TO EXERCISE. The term of
this option shall be for five years from the date hereof and all rights to
exercise this option shall end on such termination date, subject to earlier
termination as provided herein. This option will be exercisable (except as
otherwise provided herein) as follows: One-fourth of the number of shares
covered by this option shall become exercisable on _______________, and
one-fourth of the number of shares covered by this option shall become
exercisable on ____________ of each of the three years thereafter, cumulatively;
provided, however, that except as provided in Paragraph 5 or 6 below, no option
may be exercised unless the Employee is, at the time of such exercise, in the
employ of the Company, or a subsidiary or division of the Company, and shall
have been continuously so employed since the grant of Employee's option.
Notwithstanding anything else in this option to the contrary, if the Company has
not completed the initial public offering of its Common Stock on or before June
30, 1998, this option shall terminate on June 30, 1998.

Unless a registration statement relating to the shares covered by this
option has been filed with the Securities and Exchange Commission and is
effective on the date of exercise, the exercise of the option will be contingent
upon receipt from the Optionee (or the purchaser acting under Paragraph 6 below)
of a representation in writing that at the time of such exercise it is
Optionee's then intention to acquire the shares being purchased for investment
and not for resale or other distribution thereof to the public, and upon receipt
by the Company of the full purchase price of such shares. If such representation
in writing is required, the Company may in its discretion inscribe an investment
legend on the stock certificates issued pursuant to the exercise of this option.
The issuance of shares of Common

<PAGE>

Stock upon the exercise of this option shall be subject to all applicable laws,
rules and regulations and shares shall not be issued except upon the approval of
proper government agencies or stock exchanges as may be required. Provided,
however, this option shall not be exercisable if at any date of exercise, it is
the opinion of counsel for the Company that registration of said shares under
the Securities Act of 1933, or other applicable statute or regulation, is
required and said option shall again become exercisable only if the Company
elects to and thereafter effects a registration of said shares under the
Securities Act of 1933, or other applicable statute or regulation, within the
period of the option. Neither the Optionee nor Optionee's legal representatives,
legatees or distributees, as the case may be, will be or will be deemed to be, a
holder of any shares subject to an option for any purpose unless and until
certificates for such shares are issued to Optionee or them under the terms of
the Plan.

3. PURCHASE PRICE. The purchase price of the shares of the Common Stock
covered by this option shall be $____ per share. Upon the exercise of this
option, the purchase price shall be payable either (a) in United States Dollars,
in cash or by check, or (b) if the Board of Directors, in its sole discretion,
shall so authorize, in shares of the Common Stock of the Company then owned by
the Optionee. Shares of Common Stock delivered in payment of the option price
shall be valued at their Fair Market Value on the date such delivery is
authorized by the Board of Directors.

4. NONTRANSFERABILITY OF OPTION. This option shall not be transferable
by the Optionee, otherwise than by Will or the laws of descent and distribution,
and this option shall be exercisable, during Optionee's lifetime, only by
Optionee.

5. TERMINATION OF EMPLOYMENT. If the Optionee shall cease to be
employed by the Company, or a subsidiary or division of the Company, as a result
of retirement for age or disability, Optionee may, but only within a period of
90 days next succeeding such termination of employment, but in no case later
than the expiration date expressed in this option, exercise the option to the
extent that Optionee was entitled to exercise it as of the date of such
termination of employment. Termination of employment for any other reason (other
than death) shall result in cancellation of the option as of the date of
termination of employment. This option will not confer upon the Employee any
right with respect to continuance of employment by the Company, nor will it
interfere in any way with the Company's right to terminate Employee's employment
at any time.

6. DEATH OF OPTIONEE. In the event of the death of the Optionee while
in the employ of the Company, or any subsidiary or division of the Company, this
option shall be exercisable within a period of one year after the date of death,
but in no case later than the expiration date expressed in this option, and then
(a) only by the executors or administrators of the Optionee or by the person or
persons to whom the Optionee's rights under the option shall pass by the
Optionee's Will or the laws of descent and distribution, and (b) only to the
extent that Optionee was entitled to exercise the option at the date of
Optionee's death.

<PAGE>

7. ADJUSTMENTS. In the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend or split, recapitalization,
reclassification, merger, consolidation, combination or exchange of shares or
other similar corporate change, then if the Board of Directors shall determine,
in its sole discretion, that such change necessarily or equitably requires an
adjustment in the number of shares subject to this option or the option price,
such adjustments shall be made by said Board of Directors and shall be
conclusive and binding for all purposes on the Optionee. No adjustment shall be
made in connection with the issuance by the Company of any warrants, rights or
options to acquire additional shares of Common Stock or of securities
convertible into Common Stock.

8. INTERPRETATION. The interpretation and construction of any provision
of the Plan and this option shall be made by the Board of Directors of the
Company and shall be final, conclusive and binding on the Optionee and all other
persons.

9. OPTION PLAN GOVERNS. This option is in all respects subject to and
governed by all of the provisions of the Plan.

IN WITNESS WHEREOF, the Company has caused these presents to be
executed in its corporate name by its duly authorized officers, and the Optionee
has hereunto set his/her hand as of the _____ day of _______, ____.

INDUSTRIAL RUBBER PRODUCTS, INC.

BY:
----------------------------------
ITS PRESIDENT

-------------------------------------
, OPTIONEE
-----------------------

EXHIBIT 23.2

Minneapolis, Minnesota February 20, 1998

CONSENT OF COUNSEL

We hereby consent to references to our firm under the caption "Legal
Matters" in the Prospectus constituting a part of Registration Statement on Form
SB-2 (No. ____________). In giving this Consent, we hereby disclaim that we are
"experts" within the meaning of Section 11 of the Securities Act of 1933, as
amended, or within the category of persons whose consent is required by Section
7 of said Act.

LOMMEN, NELSON, COLE & STAGEBERG, P.A.

By /s/ Roger V. Stageberg
------------------------------------
Roger V. Stageberg

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in this Registration Statement on Form SB-2 (No.
_____) of our report, dated January 30, 1998, relating to the financial
statements of Industrial Rubber Products, Inc. We also consent to the reference
to our Firm under the captions "Experts" and "Selected Financial Data" in the
Prospectus.

McGLADREY & PULLEN, LLP

Duluth, Minnesota
February 20, 1998

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