MEDWAVE, INC.

                     AMENDED AND RESTATED STOCK OPTION PLAN
               (COMPOSITE COPY AS AMENDED THROUGH AUGUST 4, 1998)

Article 1. Establishment and Purpose

         1.1 Establishment. Medwave, Inc. (the "Company") hereby establishes a
plan providing for the grant of stock options to certain eligible employees,
directors and key consultants of the Company and its subsidiaries. This plan
shall be known as the Amended and Restated Stock Option Plan (the "Plan").

         1.2 Purpose. The purpose of the Plan is to advance the interests of the
Company and its shareholders by enabling the Company and its subsidiaries to
attract and retain persons of ability as employees, directors, and key
consultants by providing an incentive to such individuals through equity
participation in the Company and by rewarding such employees, directors and key
consultants who contribute to the achievement by the Company of its long-term
economic objectives.

Article 2. Definitions

The following terms shall have the meanings set forth below, unless the context
clearly otherwise requires:

         2.1 "Board" means the Board of Directors of the Company.

         2.2 "Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.

         2.3 "Committee" means the entity administering the Plan, as provided in
Article 3 below.

         2.4 "Common Stock" means the common stock of the Company, no par value,
or the number and kind of shares of stock or other securities into which such
Common Stock may be changed in accordance with Section 4.3 below.

         2.5 "Disability" means the occurrence of an event which constitutes
permanent and total disability within the meaning of Section 22(e) (3) of the
Code.

         2.6 "Eligible Participants" means individuals who are full-time or
part-time employees of the Company or any Subsidiary, or directors or key
consultants to the Company or any Subsidiary.

         2.7 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.


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         2.8 "Fair Market Value" means, with respect to the Common Stock, as of
any date:

                  (a) if such stock is reported in the NASDAQ National Market
         System or the NASDAQ SmallCap Market, or is listed upon another
         established exchange or exchanges, the reported closing price of such
         stock in such National Market System, SmallCap Market or on such stock
         exchange or exchanges on the date the option is granted or, if no sale
         of such stock shall have occurred on that date, on the next preceding
         day on which there was a sale of stock;

                  (b) if such stock is not so reported in the NASDAQ National
         Market System or the NASDAQ SmallCap Market, or is not listed upon
         another established exchange, the average of the closing "bid" and
         "asked" prices quoted by a recognized specialist in the Common Stock of
         the Company on the date the option is granted, or if there are no
         quoted "bid" and "asked" prices on such date, on the next preceding
         date for which there are such quotes; or

                  (c) if such stock is not publicly traded as of the date the
         option is granted, the per share value as determined by the Board, or
         the Committee, in its sole discretion by applying principles of
         valuation with respect to all such options.

         2.9 "Incentive Stock Option" means a right to purchase Common Stock
granted to an Optionee pursuant to Section 6.5 of this Plan that qualifies as an
incentive stock option within the meaning of Section 422 of the Code.

         2.10 "Nonstatutory Stock Option" means a right to purchase Common Stock
granted to an Optionee pursuant to Section 6.6 of the Plan and does not qualify
as an Incentive Stock Option.

         2.11 "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option.

         2.12 "Optionee" means an Eligible Participant who receives one or more
Options under the Plan.

         2.13 "Person" means any individual, corporation, partnership, group,
association or other "person (as such term is used in Section 14(d) of the
Exchange Act), other than the Company, a wholly owned subsidiary of the Company
or any employee benefit plan sponsored by the Company.

         2.14 "Retirement" means the retirement of an Optionee pursuant to and
in accordance with the regular retirement plan or practice of the Company or the
Subsidiary employing the Optionee.

         2.15     "Securities Act" means the Securities Act of 1933, as amended.


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         2.16 "Subsidiary" means any corporation that is a subsidiary
corporation of the Company (within the meaning of Section 424(f) of the Code).

         2.17     "Tax Date" means a date defined in Section 6.6(c) of the Plan.
 
Article 3. Plan Administration

         The Plan shall be administered by the Board or by a committee of the
Board consisting of two (2) or more directors. As long as the Company's
securities are registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended, then, to the extent necessary for compliance with Rule
16b-3, or any successor provision, each of the members of the committee shall be
a "nonemployee director." Solely for purposes of this Article 3, "nonemployee
director" shall have the same meaning as set forth in Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended.

         Members of any committee shall be appointed from time by the Board. A
majority of the members of such committee shall constitute a quorum. Such
committee shall act by majority approval of the members, shall keep minutes of
its meetings and shall provide copies of such minutes to the Board. Action of
such committee may be taken without a meeting if unanimous written consent
thereto is given. Copies of minutes of such committee's meetings and of its
actions by written consent shall be provided to the Board and kept with the
corporate records of the Company. As used in this Plan, the term "Committee"
will refer either to the Board or to any committee established by the Board.

         In accordance with and subject to the provisions of the Plan, the
Committee shall select the Optionees from Eligible Participants; shall determine
the number of shares of Common Stock to be subject to Options granted pursuant
to the Plan, the time at which Options are granted, the Option exercise price,
Option period and the manner in which each Option becomes exercisable; and shall
fix such other provisions of Options as the Committee may deem necessary or
desirable as consistent with the terms of the Plan. The Committee shall
determine the form or forms of the agreements with Optionees which shall
evidence the particular terms, conditions, rights and duties of the Company and
the Optionees under Options granted pursuant to the Plan. The Committee shall
have the authority, subject to the provisions of the Plan, to establish, adopt
and revise such rules and regulations relating to the Plan as it may deem
necessary or advisable for the administration of the Plan. With the consent of
the Optionee affected thereby, the Committee may amend or modify the terms of
any outstanding Option in any manner, provided that the amended or modified
terms are permitted by the Plan as then in effect. Without limiting the
generality of the foregoing sentence, the Committee may, with the consent of the
Optionee affected thereby, modify, extend, renew or accept the surrender of any
outstanding Option, to the extent not previously exercised, and the Committee
may authorize the grant of new Options in substitution therefor.

         Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan shall be conclusive and binding
for all purposes and on all persons, including, without limitation, the Company

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and its Subsidiaries, the shareholders of the Company, the Committee and each of
the members thereof, the directors, officers and employees of the Company and
its Subsidiaries, and the Optionees and their respective successors in interest.
No member of the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under the Plan.


Article 4. Stock Subject to the Plan

         4.1 Number. The maximum number of shares of Common Stock that shall be
reserved for issuance under the Plan shall be 1,700,000, subject to adjustments
upon changes in the capitalization of the Company as provided in Section 4.3
below. The maximum number of shares authorized may be increased from time to
time by approval of the Board and the shareholders of the Company. Shares of
Common Stock that may be issued upon exercise of Options shall be applied to
reduce the maximum number of shares of Common Stock remaining available for use
under the Plan.

         4.2 Unused Stock. Any shares of Common Stock that are subject to an
Option (or any portion thereof) that lapses, expires or for any reason is
terminated unexercised shall automatically again become available for use under
the Plan.

         4.3 Capital Adjustments. If the number of outstanding shares of Common
Stock is increased or decreased or changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company or of
another corporation by reason of any reorganization, merger, consolidation,
recapitalization, reclassification, divestiture (including a spin-off), stock
dividend, stock split, combination of shares, rights offering or any other
change in the corporate structure or shares of the Company, the Committee (or,
if the company is not the surviving corporation of any such transaction, the
board of directors of the surviving corporation) shall make appropriate
adjustment as to the number and kind of securities subject to and reserved under
the Plan and, in order to prevent dilution or enlargement of the rights of
Optionees, the number and kind of securities subject to outstanding Options. Any
such adjustment in any outstanding Option shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the Option
(but with an appropriate adjustment in the price for each share or other unit of
any security covered by the outstanding Incentive Stock Option as a result of
any such change in the corporate structure or shares of the Company), without
the consent of the Optionee affected thereby, in accordance with Sections 422
and 424(h) of the Code.

Article 5. Participation

         Optionees shall be those Eligible Participants who, in the judgment of
the Committee, are performing, or during the term of an Option, will perform,
vital services in the management, operation and development of the Company or a
Subsidiary, and significantly contribute or are expected to significantly
contribute to the achievement of long-term corporate economic objectives.
Optionees may be granted from time to time one or more Incentive Stock Options
or Nonstatutory Stock Options under the Plan, as may be determined by the
Committee in its sole discretion; provided, however, directors and key

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consultants who are not employees of the Company shall not be eligible to
receive and shall not be granted Incentive Stock Options; and provided, further,
that directors who are not employees of the Company or any Subsidiary shall only
be eligible to receive Nonstatutory Stock Options pursuant to Article 13. Except
as otherwise provided in the Plan, the number, type, terms and conditions of
Options granted to various Eligible Participants need not be uniform, consistent
or in accordance with any plan, whether or not such Eligible Participants are
similarly situated. Upon determination by the Committee that an Option is to be
granted to an Optionee, written notice shall be given to such person specifying
such terms, conditions, rights and duties related thereto. Each Optionee shall
enter into an agreement with the Company, in such form as the Committee shall
determine and which shall be consistent with the provisions of the Plan,
specifying such terms, conditions, rights and duties. Options shall be deemed to
be granted as of the date specified in the grant resolution of the Committee,
which date shall be the date of the related agreement with the Optionee.

Article 6. Terms of Options

         6.1 Grant of Options. Except as otherwise provided in the Plan, an
Optionee may be granted one or more options under the Plan, and the Committee in
its sole discretion (to the extent permitted pursuant to Article 5) may
designate whether an Option is to be considered an Incentive Stock Option or a
Nonstatutory Stock Option. The Committee may grant both an Incentive Stock
Option and a Nonstatutory Stock Option to the same Optionee at the same time or
at different times. Incentive Stock Options and Nonstatutory Stock Options,
whether granted at the same or different times, shall be deemed to have been
awarded in separate grants, shall be clearly identified, and in no event will
the exercise of one Option affect the right to exercise any other Option or
affect the number of shares of Common Stock for which any other Option may be
exercised.

         6.2 Manner of Option Exercise. An Option may be exercised by an
Optionee in whole or in part from time to time, subject to the conditions
contained herein and in the agreement evidencing such Option, by delivery, in
person or through certified or registered mail, of written notice of exercise to
the Company at its principal executive office (Attention: Secretary), and by
paying in full the total Option exercise price of the shares of Common Stock
purchased. Such notice shall be in a form satisfactory to the Committee and
shall specify the particular Option (or portion thereof) that is being exercised
and the number of shares with respect to which the Option is being exercised.
Subject to Section 9.1, the exercise of the Option shall be deemed effective
upon receipt of such notice and payment. As soon as practicable after the
effective exercise of the Option, the Optionee shall be recorded on the stock
transfer books of the Company as the owner of the shares purchased and the
Company shall deliver to the Optionee one or more duly issued stock certificates
evidencing such ownership.

         6.3 Payment of Option Exercise Price. At the time of the Option
exercise, the Optionee may determine whether the total purchase price of the
shares to be purchased shall be paid solely in cash or by transfer from the
Optionee to the Company of previously acquired shares of Common Stock, or by a
combination thereof. In the event the Optionee elects to pay the purchase price

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in whole or in part with previously acquired shares of Common Stock, the value
of such shares shall be equal to their Fair Market Value on the date of
exercise. The Committee may reject an Optionee's election to pay all or part of
the purchase price with previously acquired shares of Common Stock and require
such purchase price to be paid entirely in cash. For purposes of this Section
6.3, "previously acquired shares" shall include only shares of Common Stock that
were already owned by the Optionee at the time of exercise. In its sole
discretion, the Committee may permit an Optionee to pay all or any portion of
the purchase price in installments or by delivery of a promissory note in form
and substance acceptable to the Committee, or in such other form of payment as
may be authorized by the Committee.

         6.4 Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Optionee shall have become the holder of record of such shares, and no
adjustments shall be made for dividends or other distributions or other rights
as to which there is a record date preceding the date the Optionee becomes the
holder of record of such shares except as the Committee may determine pursuant
to Section 4.3.

         6.5 Incentive Stock Options.

                  (a) Incentive Stock Option Exercise Price. The per share price
         to be paid by the Optionee at the time an Incentive Stock Option is
         exercised will be determined by the Committee, but shall not be less
         than (i) one hundred percent (100%) of the Fair Market Value of one (l)
         share of Common Stock on the date the Option is granted, (ii) one
         hundred ten percent (110%) of the Fair Market Value of one (1) share of
         Common Stock on the date the Option is granted if, at that time the
         Option is granted, the Optionee owns, directly or indirectly (as
         determined pursuant to Section 424(d) of the Code), more than ten
         percent (10%) of the total combined voting power of all classes of
         stock of the Company, any Subsidiary or any parent corporation of the
         Company (within the meaning of Section 424(e) of the Code).

                  (b) Duration of Incentive Stock Options. The period during
         which an Incentive Stock Option may be exercised shall be fixed by the
         Committee at the time such Option is granted, but in no event shall
         such period exceed ten (10) years from the date the Option is granted
         or, in the case of an Optionee that owns, directly or indirectly (as
         determined pursuant to Section 424(d) of the Code) more than ten
         percent (10%) of the total combined voting power of all classes of
         stock of the Company, any Subsidiary or any parent corporation of the
         Company (within the meaning of Section 424(e) of the Code), five (5)
         years from the date the Incentive Stock Option is granted. An Incentive
         Stock Option shall become exercisable at such times and in such
         installments (which may be cumulative) as shall be determined by the
         Committee at the time the Option is granted. Upon the completion of its
         exercise period, an Incentive Stock Option, to the extent not then
         exercised, shall expire.

                  (c) Other Provisions. The agreement evidencing an Incentive
         Stock Option authorized under this Section 6.5 shall contain such other

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         provisions as the Committee shall deem advisable. Any such agreement
         shall contain such limitations and restrictions upon the exercise of
         the Incentive Stock Option as shall be necessary to ensure that such
         Option complies with the requirements of Section 422 of the Code, as
         amended, and may contain such limitations and restrictions on the sale
         of shares acquired through the exercise of the Incentive Stock Option
         as the Committee may deem advisable to permit the Company to comply
         with any applicable federal, state or local tax withholding
         obligations.

         6.6      Nonstatutory Stock Options.

                  (a) Option Exercise Price. Unless otherwise determined by the
         Committee, the per share price to be paid by the Optionee at the time a
         Nonstatutory Stock Option is exercised shall not be less than
         eighty-five percent (85%) of the Fair Market Value of one (1) share of
         Common Stock on the date the Option is granted.

                  (b) Duration of Nonstatutory Stock Option. The period during
         which a Nonstatutory Stock Option may be exercised shall be fixed by
         the Committee at the time such option is granted. A Nonstatutory Stock
         Option shall become exercisable at such time and in such installments
         (which may be cumulative) as shall be determined by the Committee at
         the time the Option is granted. Upon the completion of its exercise
         period, a Nonstatutory Stock Option, to the extent not then exercised,
         shall expire.

                  (c) Withholding Taxes.

                           (i) The Company is entitled to (aa) withhold and
                  deduct from future wages of the Optionee, or make other
                  arrangements for the collection of, all legally required
                  amounts necessary to satisfy any federal, state or local
                  withholding tax requirements attributable to the Optionee's
                  exercise of a Nonstatutory Stock Option or otherwise incurred
                  with respect to the Option, or (bb) require the Optionee
                  promptly to remit the amount of such withholding to the
                  Company before acting on the Optionee's notice of exercise of
                  the Option.

                           (ii) The Committee may, in its discretion and subject
                  to such rules as the Committee may adopt, permit an Optionee
                  to satisfy, in whole or in part, any withholding tax
                  obligation which may arise in connection with the exercise of
                  a Nonstatutory Stock Option either by electing to have the
                  Company withhold from the shares of Common Stock to be issued
                  upon exercise that number of shares of Common Stock, or by
                  electing to deliver to the Company already-owned shares of
                  Common Stock, in either case having a Fair Market Value, on
                  the date such tax is determined under the Code (the "Tax
                  Date"), equal to the amount necessary to satisfy the
                  withholding amount due. An Optionee's election to have the
                  Company withhold shares of Common Stock or to deliver
                  already-owned shares of Common Stock upon exercise is
                  irrevocable and is subject to the consent or disapproval of
                  the Committee. If the Optionee is an officer, director or
                  beneficial owner of more than ten percent (10%) of the

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                  outstanding Common stock of the Company and at the time of
                  exercise of the Option the Company has a class of equity
                  securities registered under Section 12 of the Exchange Act,
                  such election must comply with any restrictions imposed by
                  Rule 16b-3 of the Exchange Act, as amended from time to time.
                  When shares of Common Stock are issued prior to the Tax Date
                  to an Optionee making such an election, the Optionee shall
                  agree in writing to surrender that number of shares on the Tax
                  Date having an aggregate Fair Market Value equal to the tax
                  due.

Article 7. Termination of Options

         7.1 Termination of Employment or Status as a Director or Consultant Due
to Death, Disability or Retirement. Unless otherwise provided in the agreement
evidencing the Option, in the event an Optionee's employment or status as a
director or consultant is terminated with the Company and all Subsidiaries by
reasons of his or her death, Disability or Retirement, all outstanding Options
then held by the Optionee shall become immediately exercisable in full and shall
remain exercisable until the earlier of: (i) the three-month anniversary of the
Optionee's date of termination because of Retirement, (ii) the one-year
anniversary of the Optionee's termination because of Disability, (iii) the
one-year anniversary of the Optionee's date of death, or (iv) the expiration
date stated in the agreement evidencing such Option. Notwithstanding the
foregoing, upon an Optionee's termination of employment or status as a director
or consultant due to death, Disability, or Retirement, the Committee may, in its
sole discretion, provide that all outstanding Options held by the Optionee shall
become immediately exercisable and shall remain exercisable following such
termination of employment or status as a director or consultant in the manner
determined by the Committee; provided, however, that no Option shall be
exercisable after the expiration date stated in the agreement evidencing such
Option, and Options exercised more than three (3) months following Retirement or
more than one (l) year following Disability will not qualify as Incentive Stock
Options.

         7.2 Termination of Employment or Status as a Director or Consultant for
Reasons Other than Death, Disability or Retirement.

                  (a) Except as otherwise provided in subsection (b) below, in
         the event an Optionee's employment or status as a director or
         consultant is terminated with the Company and all Subsidiaries for any
         reason other than his or her death, Disability or Retirement, all
         rights of the Optionee under the Plan shall terminate thirty (30) days
         following such termination without notice of any kind, and no Options
         then held by the Optionee shall thereafter be exercisable. During such
         thirty-day period, the Optionee may exercise any outstanding Options
         only to the extent such Options had become exercisable on the date of
         the Optionee's termination of employment or status as a director or
         consultant.

                  (b) Notwithstanding the provisions of Subsection (a) above,
         upon an Optionee's termination of employment with or status as a
         director or consultant of the Company and all Subsidiaries, the
         Committee may, in its sole discretion, provide that all outstanding
         Options then held by the Optionee shall remain exercisable for a period

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         in excess of thirty (30) days, in the manner determined by the
         Committee; provided, however, that no Option shall be exercisable after
         the expiration date stated in the agreement evidencing such Option, and
         Options exercised more than three (3) months following termination of
         employment will not qualify as Incentive Stock Options.

         7.3 Date of Termination. For purposes of the Plan, an Optionee's
employment or status as a director or consultant shall be deemed to have
terminated as of the date determined by the Committee in its sole discretion.

         7.4 Merger, Acquisition or Other Change in Control. All outstanding
Options held by Optionees, other than those Options remaining exercisable
pursuant to Section 7.2 above, shall become immediately exercisable in full,
notwithstanding any vesting schedule in the agreements evidencing such Options
or anything in this Plan to the contrary, upon the occurrence of any of the
following events:

                  (a) any individual, corporation, partnership, trust or other
         entity (other than any employee pension benefit plan (as defined under
         Section 3(2) of the Employee Retirement Income Security Act of 1974, as
         amended) established by the Company):

                           (i) makes a tender or exchange offer which results in
                  the purchase of sixty percent (60%) of the shares, in the
                  aggregate, of the Company's stock, or

                           (ii) together with its "affiliates" and "associates"
                  (as those terms are defined in Rule 12b-2 under the Securities
                  Exchange Act of 1934 (the "Act")) becomes the "beneficial
                  owner" (within the meaning of Rule 13d-3 under the Act) of at
                  least sixty percent (60%) of the Company's stock;

                  (b) the stockholders of the Company approve an agreement or
         plan to merge or consolidate the Company with or into another
         corporation, or to sell or otherwise dispose of all or substantially
         all of the Company's assets, or to liquidate the Company; or

                  (c) a majority of the members of the Company's Board of
         Directors become individuals other than Continuing Directors. For
         purposes of the foregoing, a "Continuing Director" shall mean: (i) any
         member of the Board of Directors of the Company as of November 29,
         1995; or (ii) any other member of the Board who, from time to time, was
         nominated for election by the Board, or was appointed by the Board to
         fill a vacancy on the Board, or to fill a newly created directorship,
         but excluding any individual nominated or appointed at a Board meeting
         at which the majority of the directors present were not Continuing
         Directors, or by unanimous written action of the Board, unless a
         majority of directors taking such action are Continuing Directors.



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Article 8. Rights of Employees; Optionees

         8.1 Employment. Nothing in the plan shall interfere with or limit in
any way the right of the Company or any Subsidiary to terminate the employment
of any Eligible Participant or Optionee at any time, nor confer upon any
Eligible Participant or Optionee any right to continue in the employ of the
Company or any Subsidiary.

         8.2 Nontransferability.

                  (a) Except as otherwise provided in Section 8.2(b), no right
         or interest of any Optionee in any Option granted pursuant to the Plan
         shall be assignable or transferable during the lifetime of the
         Optionee, either voluntarily or involuntarily, or subjected to any
         lien, directly or indirectly, by operation of law, or otherwise,
         including execution, levy, garnishment, attachment, pledge or
         bankruptcy. In the event of an Optionee's death, an Optionee's rights
         and interest in any Options shall be transferable by testamentary will
         or the laws of descent and distribution, and payment of any amounts due
         under the Plan shall be made to, and exercise of any Options (to the
         extent permitted pursuant to Section 7.1) may be made by, the
         Optionee's legal representatives, heirs or legatees. If in the opinion
         of the Committee an Optionee holding any Option is disabled from caring
         for his or her affairs because of mental condition, physical condition
         or age, any payments due the Optionee may be made to, and any rights of
         the Optionee under the Plan shall be exercised by, such Optionee's
         guardian, conservator or other legal personal representative upon
         furnishing the Committee with evidence satisfactory to the Committee of
         such status.

                  (b) Notwithstanding the foregoing, the Committee may, in its
         sole discretion, permit the Optionee to transfer any or all
         Nonstatutory Stock Options to any member of the Optionee's "immediate
         family" as such term is defined in Rule 16a-1(e) promulgated under the
         Securities Exchange Act of 1934, or any successor provision, or to one
         or more trusts whose beneficiaries are members of such Optionee's
         "immediate family" or partnerships in which such family members are the
         only partners; provided, however, that the Optionee receives no
         consideration for the transfer and such transferred Nonstatutory Stock
         Option shall continue to be subject to the same terms and conditions as
         were applicable to such Nonstatutory Stock Option immediately prior to
         its transfer.

         8.3 Non-Exclusivity of the Plan. Nothing contained in the Plan is
intended to amend, modify or rescind any previously approved compensation plans
or programs entered into by the Company. The Plan will be construed to be an
addition to any and all such other plans or programs. Neither the adoption of
the Plan nor the submission of the plan to the shareholders of the Company for
approval will be construed as creating any limitations on the power or authority
of the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.



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Article 9. Share Assurance and Transfer Restrictions

         9.1 Share Issuances. Notwithstanding any other provision of the Plan or
any agreements entered into pursuant hereto, the Company shall not be required
to issue or deliver any certificate for shares of Common Stock under this Plan
(and an Option shall not be considered to be exercised, notwithstanding the
tender by the Optionee of any consideration therefor), unless and until each of
the following conditions has been fulfilled:

                  (a) (i) there shall be in effect with respect to such shares a
         registration statement under the Securities Act and any applicable
         state securities laws if the Committee, in its sole discretion, shall
         have determined to file, cause to become effective and maintain the
         effectiveness of such registration statement; or (ii) if the Committee
         has determined not to so register the shares of Common Stock to be
         issued under the Plan, (A) exemptions from registration under the
         Securities Act and applicable state securities laws shall be available
         for such issuance (as determined by counsel to the Company) and (B)
         there shall have been received from the Optionee (or, in the event of
         death or disability, the Optionee's heir(s) or legal
         representatives(s)) any representations or agreements requested by the
         Company in order to permit such issuance to be made pursuant to such
         exemptions; and

                  (b) there shall have been obtained any other consent, approval
         or permit from any state or federal governmental agency which the
         Committee shall, in its sole discretion upon the advice of counsel,
         deem necessary or advisable.

         9.2 Share Transfers. Shares of Common Stock issued pursuant to the
exercise of Options granted under the Plan may not be sold, assigned,
transferred, pledged, encumbered or otherwise disposed of (whether voluntarily
or involuntarily) except pursuant to registration under the Securities Act and
applicable state securities laws or pursuant to exemptions from such
registrations. The Company may condition the sale, assignment, transfer, pledge,
encumbrance or other disposition of such shares, not issued pursuant to an
effective and current registration statement under the Securities Act and all
applicable state securities laws, on the receipt from the party to whom the
shares of Common Stock are to be so transferred of any representations or
agreements requested by the Company in order to permit such transfer to be made
pursuant to exemptions from registration under the Securities Act and applicable
state securities laws.

         9.3 Legends. Unless a registration statement under the Securities Act
is in effect with respect to the issuance or transfer of shares of Common Stock
issued under the Plan, each certificate representing any such shares shall be
endorsed with a legend in substantially the following form, unless counsel for
the Company is of the opinion as to any such certificate that such legend is
unnecessary:

         THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE
         STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
         INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,

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         TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
         PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH
         STATE LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
         AND SUCH STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
         THE SATISFACTION OF THE COMPANY.

Article 10. Plan Amendment, Modification and Termination

         The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Options under the Plan shall conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company. Notwithstanding the foregoing,
to the extent required by Section 422 of the Code, Rule 16b-3 of the Exchange
Act or other applicable law or regulation, no such revision or amendment shall
(i) materially increase the number of shares subject to the Plan except as
provided in Section 4.3, (ii) change the definition of Eligible Participants,
(iii) decrease the price at which options may be granted, (iv) materially
increase the benefits accruing to Optionees under the Plan, or (v) cause
Incentive Stock Options to fail to meet the requirements of Section 422 of the
Code, unless such revision or amendment is approved by the shareholders of the
Company. Furthermore, no termination, suspension or amendment of the Plan shall
alter or impair any outstanding Option without the consent of the Optionee
affected thereby, except to the extent provided under Section 4.3.


Article 11. Effective Date of the Plan

         11.1 Effective Date. The effective date of this Plan is November 29,
1995, the date it was adopted by the Board, subject to shareholder approval.
Options may be granted under the Plan prior to shareholder approval if made
subject to shareholder approval.

         11.2 Duration of the Plan. Incentive Stock Options may be granted
pursuant to the Plan from time to time until November 29, 2005. Nonstatutory
Stock Options may be granted pursuant to the Plan from time to time until the
Plan is discontinued or terminated by the Board. Options outstanding upon
termination of the Plan may continue to be exercised in accordance with their
terms.

Article 12.       Miscellaneous

         12.1 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Minnesota.

         12.2 Gender and Number. Except when otherwise indicated by the context,
reference to the masculine gender in the Plan shall include, when used, the
feminine gender and any term used in the singular shall also include the plural.


<PAGE>

Article 13.       Formula Awards

         13.1 Grant of Nonstatutory Stock Options. From and after the date on
which the Company first registers a class of its equity securities under Section
12 of the Exchange Act, Nonstatutory Stock Options for directors who are not
employees of the Company or any Subsidiary (the "Nonemployee Directors") shall
be granted only under this Article 13, shall be automatic and nondiscretionary
and shall be granted strictly in accordance with the following provisions:

                  (a) No person shall have any discretion to select the
         Nonemployee Directors that shall be eligible for Nonstatutory Stock
         Options granted pursuant to this Article 13 or to determine the number
         of shares of Common Stock to be subject to such Nonstatutory Stock
         Options, the option price per share or the date of grant.

                  (b) Each Nonemployee Director who is first elected to the
         Board after the effective date of the Plan, as restated, shall be
         granted a Nonstatutory Stock Option to purchase 30,000 shares of Common
         Stock on the date of such election to the Board.

                  (c) Beginning with the third anniversary of the date of his
         election to the Board, each Nonemployee Director shall, on the date of
         such third anniversary and on each anniversary date thereafter so long
         as the Nonemployee Director continues to serve on the Board, be granted
         a Nonstatutory Stock Option to purchase 10,000 shares of Common Stock;
         provided, however, that no Nonemployee Director shall be granted a
         Nonstatutory Stock Option pursuant to this Section 13.1(c) unless and
         until shareholder approval of the Plan, as amended to include this
         Section 13.1(c), has been obtained.

         13.2 Option Price. The option price per share for all Nonstatutory
Stock Options granted pursuant to Section 13.1 shall be one hundred percent
(100%) of the Fair Market Value of one (1) share of Common Stock on the date of
such Option is granted.

         13.3 Duration and Exercise of Options.

                  (a) Duration of Options. Except as otherwise provided in this
         Plan, the period during which any Nonstatutory Stock Option granted to
         Nonemployee Directors under this Article 13 may be exercised shall be
         ten (10) years after the date that such Option is granted.

                  (b) Exercisability of Nonstatutory Stock Options.

                           (i) In no event shall any Nonstatutory Stock Options
                  granted to Nonemployee Directors pursuant to Section 13.1(c)

<PAGE>

                  be exercisable prior to the date that the Plan, as restated,
                  is approved by the shareholders of the Company. If shareholder
                  approval of the Plan, as restated, is not obtained, any
                  Nonstatutory Stock Options previously granted to Nonemployee
                  Directors pursuant to Section 13.1(c) shall be revoked.

                           (ii) All Nonstatutory Stock Options granted to
                  Nonemployee Directors pursuant to Section 13.1(b) shall, on
                  each of the first through the fourth anniversary dates of the
                  date such Option is granted, become exercisable as to
                  twenty-five percent (25%) of the shares of Common Stock
                  subject to such Option, cumulatively, and, therefore, shall be
                  fully exercisable on the fourth anniversary of the date that
                  such Option is granted.

                           (iii) All Nonstatutory Stock Options granted to
                  Nonemployee Directors pursuant to Section 13.1(c) shall, on
                  the first anniversary of the date such Option is granted,
                  become exercisable as to one hundred percent (100%) of the
                  shares of Common Stock subject to such Option so long as the
                  Nonemployee Director continues to serve on the Board on such
                  anniversary of the date of grant.

                           (iv) If the Nonemployee Director does not purchase in
                  any year the full number of shares which the Nonemployee
                  Director is entitled to purchase in that year, the Nonemployee
                  Director shall be entitled to purchase in any subsequent year
                  such previously unpurchased shares, subject to the expiration
                  of such Nonstatutory Stock Option as specified in Section
                  13.3(a) above.

         13.4 Payment of Option Price. Upon the exercise of any Nonstatutory
Stock Option granted to a Nonemployee Director pursuant to this Article 13, the
purchase price for such shares to be purchased may be paid in any of the forms
of payment permitted by the Committee under Section 6.3.

         13.5 Compliance with Rule 16b-3. All Nonstatutory Stock Options granted
to Nonemployee Directors under this Article 13 must comply with the applicable
provisions of Rule 16b-3, or its successor, of the Exchange Act, as amended from
time to time.

         13.6 Termination of Status as a Director. In the event that a
Nonemployee Director's status as a director terminates, the period of time
following such termination during which the Nonemployee Director may exercise
any outstanding Nonstatutory Stock Options and the extent to which such Options
may become exercisable shall be governed by Article 7.