MICRON ELECTRONICS, INC.
1995 STOCK OPTION PLAN


      1. Purposes of the Plan. The purposes of this Stock Option Plan are:

o      to attract, motivate and retain experienced and qualified personnel for
      positions of substantial responsibility,

o      to provide additional incentive to Employees and Consultants, and

o      to promote the success of the Company's business.

Options  granted under the Plan may be Incentive  Stock Options or  Nonstatutory
Stock Options, as determined by the Administrator at the time of grant.

      2. Definitions. As used herein, the following definitions shall apply:

           (a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.

           (b) "Applicable  Laws" means the legal  requirements  relating to the
administration  of stock option plans under  Minnesota  corporate and securities
laws and the Code.

           (c) "Board" means the Board of Directors of the Company.

           (d) "Change in Control"  means (i) the  acquisition  by any person or
entity  of  securities  of Micron  Electronics,  Inc.  such that such  person or
entity,  directly,  indirectly or beneficially,  acting alone or in concert, (A)
owns or  controls  more of the  combined  voting  power of all classes of voting
securities of Micron Electronics, Inc. than does Micron Technology, Inc. and (B)
owns or controls more than twenty percent (20%) of the combined  voting power of
all  classes  of voting  securities  of Micron  Electronics,  Inc.;  or (ii) the
acquisition  by any  person or entity,  directly,  indirectly  or  beneficially,
acting alone or in concert, of more than thirty-five percent (35%) of the common
stock of Micron Technology, Inc. outstanding at any time.

      .....(e)  "Code" means the Internal Revenue Code of 1986, as amended.

      .....(f)   "Committee"  means  a  Committee  appointed  by  the  Board  in
accordance with Section 4 of the Plan.

      .....(g)  "Common Stock" means the Common Stock of the Company.

      .....(h)  "Company" means Micron Electronics, Inc., a Minnesota
corporation.

      .....(i) "Consultant" means any person,  including an advisor,  engaged by
the Company or a Parent or Subsidiary to render  services and who is compensated
for such services.  The term  "Consultant"  shall not include  Directors who are
paid only a  director's  fee by the  Company or who are not  compensated  by the
Company for their services as Directors.

      .....(j)  "Continuous  Status as an Employee or Consultant" means that the
employment  or  consulting   relationship  with  the  Company,  any  Parent,  or
Subsidiary,  is not interrupted or terminated.  Continuous Status as an Employee
or Consultant  shall not be considered  interrupted in the case of (i) any leave
of absence  approved by the Company or (ii) transfers  between  locations of the
Company or between the Company, its Parent, any Subsidiary,  or any successor. A
leave of absence  approved by the Company  shall  include  sick leave,  military
leave, or any other personal leave approved by an authorized  representative  of
the Company.  For purposes of Incentive Stock Options,  no such leave may exceed
90 days,  unless  reemployment  upon  expiration  of such leave is guaranteed by
statute or  contract.  If  reemployment  upon  expiration  of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave any
Incentive  Stock  Option  held by the  Optionee  shall cease to be treated as an
Incentive  Stock Option and shall be treated for tax purposes as a  Nonstatutory
Stock Option.

      .....(k)  "Director" means a member of the Board.

      .....(l)  "Disability" means total and permanent  disability as defined in
Section 22(e)(3) of the Code.

      .....(m)  "Employee" means any person,  including  Officers and Directors,
employed  by the Company or any Parent or  Subsidiary  of the  Company.  Neither
service as a Director  nor payment of a director's  fee by the Company  shall be
sufficient to constitute "employment" by the Company.

      .....(n)  "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

                                       1
<PAGE>

      .....(o)  "Fair Market Value" means,  as of any date,  the value of Common
Stock determined as follows:

      ..... (i) If the Common Stock is listed on any established  stock exchange
or a national  market system  including  without  limitation the Nasdaq National
Market  of the  National  Association  of  Securities  Dealers,  Inc.  Automated
Quotation  ("Nasdaq")  System,  the Fair Market Value of a Share of Common Stock
shall be the average  closing sales price for such stock (or the closing bid, if
no sales were  reported)  as quoted on such  exchange or system (or the exchange
with the  greatest  volume of  trading  in the  Common  Stock)  for the five (5)
business days preceding the day of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;

      ..... (ii) If the Common Stock is quoted on the over-the-counter market or
is regularly quoted by a recognized  securities  dealer,  but selling prices are
not reported, the Fair Market Value of a Share of Common Stock shall be the mean
between  the high bid and low  asked  prices  for the  Common  Stock on the last
market  trading day prior to the day of  determination,  as reported in The Wall
Street Journal or such other source as the Administrator deems reliable;

      ..... (iii)In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

      .....(p)  "Incentive  Stock Option" means an Option intended to qualify as
an incentive  stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

      .....(q)  "Nonstatutory  Stock  Option"  means an Option not  intended  to
qualify as an Incentive Stock Option.

      .....(r) "Notice of Grant" means a written notice evidencing certain terms
and conditions of an individual  Option grant. The Notice of Grant is subject to
the terms and conditions of the Option Agreement.

      .....(s)  "Officer" means a person who is an officer of the Company within
the  meaning  of Section 16 of the  Exchange  Act and the rules and  regulations
promulgated thereunder.

      .....(t)  "Option" means a stock option granted pursuant to the Plan.

      .....(u) "Option  Agreement" means a written agreement between the Company
and an Optionee  evidencing  the terms and  conditions of an  individual  Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.

      .....(v)  "Option  Exchange  Program" means a program whereby  outstanding
options are surrendered in exchange for options with a lower exercise price.

      .....(w)  "Optioned Stock" means the Common Stock subject to an Option.

      .....(x) "Optionee" means an Employee,  Consultant or Outside Director who
holds an outstanding Option.

      .....(y)  "Outside  Director"  means a member  of the  Board who is not an
Employee of the Company,  Micron  Technology,  Inc.,  or any  Subsidiary  of the
Company or Micron Technology, Inc.

           (z) "Parent" means a "parent  corporation",  whether now or hereafter
      existing, as defined in Section 424(e) of the Code.

      .....(aa) "Plan" means this 1995 Stock Option Plan.

      .....(bb)  "Rule  16b-3"  means  Rule  16b-3  of the  Exchange  Act or any
successor to Rule 16b-3,  as in effect when  discretion is being  exercised with
respect to the Plan.

      .....(cc)  "Share"  means a share of the  Common  Stock,  as  adjusted  in
accordance with Section 11 of the Plan.

      .....(dd)  "Subsidiary" means a "subsidiary  corporation",  whether now or
hereafter existing,  as defined in Section 424(f) of the Code. In the case of an
Option that is not intended to qualify as an Incentive  Stock  Option,  the term
"Subsidiary"  shall also include any other  entity in which the Company,  or any
Parent or Subsidiary of the Company, has a significant ownership interest.

      3....Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum  aggregate number of Shares which may be optioned and sold
under the Plan is 10,000,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.

      If  an  Option  expires  or  becomes  unexercisable  without  having  been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased  Shares which were subject thereto shall become available for future
grant or sale  under  the Plan  (unless  the  Plan  has  terminated);  provided,
however,  that Shares that have actually been issued under the Plan shall not be
returned  to the Plan and shall not become  available  for  future  distribution
under the Plan.

                                       2
<PAGE>

      4....Administration of the Plan.

      .....(a)  Procedure.

      .....     (i)  Multiple Administrative Bodies.  If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to (i)
Directors, (ii) Officers who are not Directors, and (iii) Employees who are
neither Directors nor Officers.

      .....  (ii)  Administration  With Respect to Employees  Subject to Section
16(b).  With respect to Option grants made to Employees who are also Officers or
Directors  subject  to  Section  16(b) of the  Exchange  Act,  the Plan shall be
administered  by (A)  the  Board,  if the  Board  may  administer  the  Plan  in
compliance   with  the  rules   governing  a  plan  intended  to  qualify  as  a
discretionary plan under Rule 16b-3, or (B) a committee  designated by the Board
to administer the Plan,  which committee shall be constituted to comply with the
rules  governing a plan intended to qualify as a  discretionary  plan under Rule
16b-3. Once appointed,  such committee shall continue to serve in its designated
capacity until otherwise  directed by the Board. From time to time the Board may
increase  the size of the  Committee  and  appoint  additional  members,  remove
members  (with or without  cause) and  substitute  new members,  fill  vacancies
(however  caused),  and  remove  all  members of the  Committee  and  thereafter
directly administer the Plan, all to the extent permitted by the rules governing
a plan intended to qualify as a discretionary plan under Rule 16b-3.

      .....  (iii)Administration  With Respect to Other Persons. With respect to
Option  grants made to Employees or  Consultants  who are neither  Directors nor
Officers of the Company,  the Plan shall be administered by (A) the Board or (B)
a committee  designated by the Board,  which  committee  shall be constituted to
satisfy Applicable Laws. Once appointed, such Board may increase the size of the
Committee and appoint additional members, remove members (with or without cause)
and substitute  new members,  fill vacancies  (however  caused),  and remove all
members of the Committee and thereafter directly administer the Plan, all to the
extent permitted by Applicable Laws.

      .....(b)  Powers of the  Administrator.  Subject to the  provisions of the
Plan, and in the case of a Committee,  subject to the specific duties  delegated
by the Board to such Committee,  the Administrator shall have the authority,  in
its discretion:

      .....     (i)  to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(o) of the Plan;

      .....     (ii) to select the Consultants and Employees to whom Options
may be granted hereunder;

      .....     (iii)to determine whether and to what extent Options are
granted hereunder;

      .....     (iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;

      .....     (v)  to approve forms of agreement for use under the Plan;

      ..... (vi) to determine the terms and conditions,  not  inconsistent  with
the terms of the Plan, of any award granted hereunder. Such terms and conditions
include,  but are not limited  to, the  exercise  price,  the time or times when
Options  may be  exercised  (which may be based on  performance  criteria),  any
vesting acceleration or waiver of forfeiture  restrictions,  and any restriction
or  limitation  regarding  any  Option or the  shares of Common  Stock  relating
thereto,  based in each case on such factors as the  Administrator,  in its sole
discretion, shall determine;

      .....     (vii)to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;

      .....     (viii)    to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;

      .....     (ix) to prescribe, amend, and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

      .....     (x)  to modify or amend each Option (subject to Section
14(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;

      .....     (xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
                                      3
<PAGE>
      .....     (xii)to institute an Option Exchange Program; and

      .....     (xiii)    to make all other determinations deemed necessary
or advisable for administering the Plan.

      .....(c)  Effect  of   Administrator's   Decision.   The   Administrator's
decisions, determinations, and interpretations shall be final and binding on all
Optionees and any other holders of Options.

      5....Eligibility.  Nonstatutory Stock Options may be granted to
Employees, Consultants and Outside Directors.  Incentive Stock Options may
be granted only to Employees.  If otherwise eligible, an Employee or
Consultant who has been granted an Option may be granted additional Options.

      6....Limitations.

      .....(a)  Each Option shall be designated in the Notice of Grant as either
an  Incentive   Stock  Option  or  a   Nonstatutory   Stock   Option.   However,
notwithstanding such designations,  to the extent that the aggregate Fair Market
Value of Shares subject to an Optionee's  Incentive Stock Options granted by the
Company or any Parent or Subsidiary, which become exercisable for the first time
during  any  calendar  year  (under  all plans of the  Company  or any Parent or
Subsidiary)   exceeds  $100,000,   such  excess  Options  shall  be  treated  as
Nonstatutory Stock Options.  For purposes of this Section 6(a),  Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time of grant.

      .....(b) Neither the Plan nor any Option shall confer upon an Optionee any
right  with  respect to  continuing  the  Optionee's  employment  or  consulting
relationship  with the  Company,  nor shall they  interfere  in any way with the
Optionee's  right  or the  Company's  right  to  terminate  such  employment  or
consulting relationship at any time, with or without cause.

      .....(c)  The following limitations shall apply to grants of Options
to Employees:

      ..... (i) No Employee shall be granted, in any fiscal year of the Company,
Options to purchase more than 250,000  Shares;  provided,  however,  that in the
fiscal year in which an employee commences employment with the Company,  options
granted to such employee shall be limited to 500,000 Shares in such fiscal year.
The purchase price per Share payable by an Optionee upon exercise of each Option
intended to qualify under Section  162(m) of the Code shall be equal to the fair
market value of the Company's Common Stock on the date of grant.

            (ii) The foregoing limitations shall be adjusted proportionately
in connection  with any change in the Company's  capitalization  as described in
Section 11.

      ..... (iii)If an Option is canceled in the same fiscal year of the Company
in which it was granted (other than in connection  with a transaction  described
in Section 11), the canceled  Option will be counted against the limit set forth
in Section  6(c)(i).  For this  purpose,  if the exercise  price of an Option is
reduced, the transaction will be treated as a cancellation of the Option and the
grant of a new Option.

             (d) The  following  limitations  shall  apply to grants of  Options
to Outside Directors:

                (i) Each Outside  Director shall receive a formula  Nonstatutory
Stock  Option (a "Formula  Option")  as of the  Effective  Date with  respect to
10,000 shares of Common Stock, as shall each Outside Director later appointed or
elected  to the Board  (with  the grant  made as of the date of his or her first
election or  appointment).  Each Outside Director serving on the Board as of the
date  immediately  following each annual  meeting of the Company's  shareholders
shall  receive a Formula  Option as of the date of that  meeting with respect to
3,000 shares of Common Stock.  The Exercise  Price for Formula  Options shall be
the Fair Market Value of the Common Stock on the date of grant.


                (ii) Unless the Administrator specifies otherwise,  each Formula
Option shall become  exercisable as to 100% of the covered shares as of the date
of grant. To the extent that a Formula Option is not immediately exercisable,  a
Formula Option shall become  exercisable in accordance with the terms of section
9(c) of the Plan upon the Outside  Director's  Disability and in accordance with
the terms of section 9(d) of the Plan upon the Outside Director's death.  Unless
the Administrator  specifies  otherwise,  Options shall be granted for a term of
six  years.  Options  shall  be  forfeited  to the  extent  they  are  not  then
exercisable if an Outside Director resigns,  is removed or fails to be reelected
or  reappointed  as a Director.  Options  shall  terminate  within 30 days of an
Outside  Director's  resignation,   removal,  or  failure  to  be  reelected  or
reappointed as a Director.

                                       4
<PAGE>
      7. Term of Option.  The term of each Option  shall be stated in the Notice
of Grant; provided,  however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such  shorter term as may
be provided in the Notice of Grant.  Moreover, in the case of an Incentive Stock
Option  granted  to an  Optionee  who,  at the time  Incentive  Stock  Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary,  the term of
the  Incentive  Stock  Option  shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.


      8.   Option Exercise Price and Consideration.

           (a) Exercise Price. The per share exercise price for the Shares to be
issued   pursuant  to  exercise  of  an  Option  shall  be   determined  by  the
Administrator, subject to the following:

                (i)  In the case of an Incentive Stock Option:

                     (A)  granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting  power of all  classes of stock of the  Company or Parent or
Subsidiary,  the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.

                     (B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.

                (ii) In the case of a Nonstatutory  Stock Option,  the per Share
exercise price shall be determined by the Administrator.  The per Share exercise
price of Nonstatutory  Stock Options intended to qualify under Section 162(m) of
the Code  shall be no less than 100% of the Fair  Market  Value per Share on the
date of grant.

           (b)  Waiting  Period  and  Exercise  Dates.  At the time an Option is
granted,  the Administrator  shall fix the period within which the Option may be
exercised and shall determine any conditions  which must be satisfied before the
Option may be  exercised.  In doing so, the  Administrator  may specify  that an
Option may not be exercised until the completion of a service period.

           (c) Form of  Consideration.  The  Administrator  shall  determine the
acceptable form of consideration for exercising an Option,  including the method
of payment.  In the case of an Incentive Stock Option,  the Administrator  shall
determine  the  acceptable  form of  consideration  at the time of  grant.  Such
consideration may consist entirely of:

                (i)  cash;

                (ii) check;

                (iii)promissory note;

                (iv) other Shares which (A) in the case of Shares  acquired upon
exercise of an option,  have been owned by the Optionee for more than six months
on the  date of  surrender,  and (B)  have a Fair  Market  Value  on the date of
surrender  equal to the aggregate  exercise price of the Shares as to which said
Option shall be exercised;

                (v) delivery of a properly  executed  exercise  notice  together
with  such  other   documentation  as  the  Administrator  and  the  broker,  if
applicable,  shall  require to effect an exercise of the Option and  delivery to
the Company of the sale or loan proceeds required to pay the exercise price;

                (vi) a reduction  in the amount of any Company  liability to the
Optionee,  including any liability attributable to the Optionee's  participation
in any Company-sponsored deferred compensation program or arrangement;

                (vii)any combination of the foregoing methods of payment; or

                (viii)  such other  consideration  and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

      9.   Exercise of Option.

           (a)  Procedure  for  Exercise;  Rights as a  Shareholder.  Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the  Administrator and set
forth in the Option Agreement.

                An Option may not be exercised for a fraction of a Share.
                                       5
<PAGE>
                An Option shall be deemed  exercised when the Company  receives:
(i) written notice of exercise (in accordance  with the Option  Agreement)  from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is  exercised.  Full payment may consist of any
consideration  and  method  of  payment  authorized  by  the  Administrator  and
permitted by the Option  Agreement and the Plan.  Shares issued upon exercise of
an Option  shall be issued in the name of the  Optionee  or, if requested by the
Optionee,  in the name of the  Optionee  and his or her spouse.  Until the stock
certificate  evidencing  such Shares is issued (as evidenced by the  appropriate
entry on the books of the Company or of a duly authorized  transfer agent of the
Company),  no  right to vote or  receive  dividends  or any  other  rights  as a
shareholder shall exist with respect to the Optioned Stock,  notwithstanding the
exercise of the Option.  The  Company  shall issue (or cause to be issued)  such
stock  certificate,  either in book entry form or in certificate form,  promptly
after the Option is  exercised.  No  adjustment  will be made for a dividend  or
other  right for  which  the  record  date is prior to the date the  Shares  are
issued, except as provided in Section 11 of the Plan.

                Exercising an Option in any manner shall  decrease the number of
Shares  thereafter  available,  both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.



           (b)  Termination  of  Employment  or  Consulting  Relationship.  Upon
termination  of an Optionee's  Continuous  Status as an Employee or  Consultant,
other than upon the Optionee's  death or  Disability,  the Optionee may exercise
his or her Option,  but only within such period of time as is  specified  in the
Notice of Grant,  and only to the  extent  that the  Optionee  was  entitled  to
exercise  it as the  date  of  termination  (but  in no  event  later  than  the
expiration  of the term of such Option as set forth in the Notice of Grant).  In
the absence of a specified time in the Notice of Grant,  the Option shall remain
exercisable  for 30 days  following  the  Optionee's  termination  of Continuous
Status  as an  Employee  or  Consultant.  If,  at the date of  termination,  the
Optionee  is not  entitled  to  exercise  his or her entire  Option,  the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after  termination,  the Optionee does not exercise his or her Option within the
time specified  herein,  the Option shall  terminate,  and the Shares covered by
such Option shall revert to the Plan.

           (c)  Disability  of  Optionee.   In  the  event  that  an  Optionee's
Continuous  Status as an Employee or  Consultant  terminates  as a result of the
Optionee's  Disability,  the Optionee may exercise his or her Option at any time
within  twelve (12) months  from the date of such  termination,  but only to the
extent  that  the  Optionee  was  entitled  to  exercise  it at the date of such
termination  (but in no  event  later  than the  expiration  of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination, the
Optionee does not exercise his or her entire  Option,  the Shares covered by the
unexercisable  portion  of the  Option  shall  revert  to the  Plan.  If,  after
termination,  the  Optionee  does not exercise his or her Option with respect to
the shares  covered  by the  exercisable  portion of the Option  within the time
specified  herein,  the Option shall  terminate,  and the Shares covered by such
Option shall revert to the Plan.

           (d) Death of Optionee. In the event of the death of an Optionee,  the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the  expiration  of the term of such Option
as set forth in the Notice of Grant),  by the  Optionee's  estate or by a person
who  acquired the right to exercise  the Option by bequest or  inheritance,  but
only to the extent that the  Optionee was entitled to exercise the Option at the
date of death.  If, at the time of  death,  the  Optionee  was not  entitled  to
exercise  his or her  entire  Option,  the Shares  covered by the  unexercisable
portion of the Option shall immediately revert to the Plan. If, after death, the
Optionee's  estate or a person who  acquired the right to exercise the Option by
bequest or  inheritance  does not exercise the Option within the time  specified
herein, the Option shall terminate,  and the Shares covered by such Option shall
revert to the Plan.

           (e) Rule 16b-3.  Options granted to individuals subject to Section 16
of the Exchange Act must comply with the applicable provisions of Rule 16b-3 and
shall  contain such  additional  conditions or  restrictions  as may be required
thereunder to qualify for the maximum  exemption from Section 16 of the Exchange
Act with respect to Plan transactions.

           (f)  Suspension.  Any  Optionee  who  is  also a  participant  in the
Retirement at Micron or Micron  Electronics  Retirement at Micron Section 401(k)
Plan (each a "RAM Plan" and  together  the "RAM  Plans")  and who  requests  and
receives a hardship  distribution  from any RAM Plan, is prohibited from making,
and must  suspend,  for a period of twelve  (12) months  thereafter,  his or her
elective contributions and employee contributions including,  without limitation
to the foregoing, the exercise of any Option granted from the date of receipt by
that employee of the hardship distribution from any RAM Plan.

      10.  Non-Transferability  of Options.  An Option may not be sold, pledged,
assigned, hypothecated,  transferred, or disposed of in any manner other than by
will or by laws of  descent or  distribution  and may be  exercised,  during the
lifetime of the Optionee, only by the Optionee.

      11.  Adjustments Upon Changes in Capitalization,  Dissolution,  Merger, or
Asset Sale.

           (a) Changes in Capitalization.  Subject to any required action by the
shareholders  of the Company,  the number of shares of Common  Stock  covered by
each outstanding  Option,  and the number of issued shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options have
yet been granted or which have been  returned to the Plan upon  cancellation  or
expiration of an Option,  as well as the price per share of Common Stock covered
by each such  outstanding  Option,  shall be  proportionately  adjusted  for any
increase or decrease in the number of issued  shares of Common  Stock  resulting
from a  stock  split,  reverse  stock  split,  stock  dividend,  combination  or
reclassification  of the Common  Stock or any other  increase or decrease in the
number of shares of Common Stock effected  without receipt of  consideration  by
the Company; provided, however, that conversion of any convertible securities of
the  Company  shall  not be deemed to have been  "effected  without  receipt  of
consideration."  Such adjustment shall be made by the Board, whose determination
in that respect shall be final,  binding,  and  conclusive.  Except as expressly
provided herein,  no issuance by the Company of shares of stock of any class, or
securities  convertible into shares of stock of any class,  shall affect, and no
adjustment by reason  thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
                                       6
<PAGE>
           (b)  Dissolution  or  Liquidation.  In  the  event  of  the  proposed
dissolution or liquidation of the Company,  to the extent that an Option has not
been  previously   exercised,   it  will  terminate  immediately  prior  to  the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such  instances,  declare that any Option shall  terminate as of a
date fixed by the Board and give each  Optionee the right to exercise his or her
Option as to all or any part of the Optioned stock, including Shares as to which
the Option would not otherwise be exercisable.

           (c)  Merger or Asset  Sale.  In the event of a merger of the  Company
with or into another corporation, or the sale of substantially all of the assets
of the  Company,  other than in either  such  case,  a Change in  Control,  each
outstanding  Option  may be  assumed  or an  equivalent  option  or right may be
substituted  by the  successor  corporation  or a Parent  or  Subsidiary  of the
successor  corporation.  In lieu of such assumption or  substitution,  or in the
event the  successor  corporation  does not assume the Option or  substitute  an
equivalent  option or right, the  Administrator  may provide for the Optionee to
have the right to  exercise  the Option as to all or a portion  of the  Optioned
Stock,  including  Shares as to which it would not otherwise be exercisable.  If
the  Administrator  makes  an  Option  exercisable  in  lieu  of  assumption  or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee that the Option shall be fully  exercisable  for a period of
thirty (30) days from the date of such  notice,  and the Option  will  terminate
upon the  expiration  of such period.  For the purposes of this  paragraph,  the
Option shall be considered  assumed if,  following the merger or sale of assets,
the option or right  confers the right to  purchase,  for each Share of Optioned
Stock subject to the Option  immediately  prior to the merger or sale of assets,
the  consideration  (whether  stock,  cash,  or other  securities  or  property)
received  in the merger or sale of assets by  holders  of Common  Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration,  the type of consideration chosen by the holders of a
majority  of  the  outstanding  Shares);   provided,   however,   that  if  such
consideration  received  in the merger or sale of assets  was not solely  common
stock of the successor  corporation or its Parent,  the Administrator  may, with
the consent of the successor  corporation,  provide for the  consideration to be
received  upon the  exercise  of the Option,  for each Share of  Optioned  Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.

           (d)  Change in  Control.  In the event of a Change  in  Control,  the
unexercised portion of the Option shall become immediately  exercisable,  to the
extent such  acceleration  does not  disqualify  the Plan, or cause an Incentive
Stock Option to be treated as a Nonstatutory Stock Option without the consent of
the Optionee.

      12.  Date of  Grant.  The date of grant of an  Option  shall  be,  for all
purposes,  the date on which the Administrator makes the determination  granting
such Option,  or such other later date as is  determined  by the  Administrator.
Notice  of the  determination  shall  be  provided  to each  Optionee  within  a
reasonable time after the date of such grant.

      13. Term of Plan. Subject to Section 18 of the Plan, the Plan shall become
effective upon the earlier to occur of its adoption by the Board or its approval
by the  shareholders  of the Company as described in Section 18 of the Plan.  It
shall  continue in effect for a term of ten (10) years from the  effective  date
unless terminated earlier under Section 14 of the Plan.

      14. Amendment and Termination of the Plan.

           (a)  Amendment  and  Termination.  The Board  may at any time  amend,
alter, suspend, or terminate the Plan.

           (b)  Shareholder  Approval.  The  Company  shall  obtain  shareholder
approval of any Plan  amendment to the extent  necessary and desirable to comply
with  Rule  16b-3 or with  Section  422 of the Code  (or any  successor  rule or
statute or other applicable law, rule, or regulation, including the requirements
of any  exchange  or  quotation  system on which the  Common  Stock is listed or
quoted).  Such shareholder  approval,  if required,  shall be obtained in such a
manner and to such a degree as is  required  by the  applicable  law,  rule,  or
regulation.

           (c) Effect of Amendment or  Termination.  No  amendment,  alteration,
suspension,  or termination of the Plan shall impair the rights of any Optionee,
unless mutually  agreed  otherwise  between the Optionee and the  Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
                                       7
<PAGE>
      15.  Conditions Upon Issuance of Shares.

           (a) Legal  Compliance.  Shares  shall not be issued  pursuant  to the
exercise of an Option  unless the  exercise of such Option and the  issuance and
delivery  of such  Shares  shall  comply with all  relevant  provisions  of law,
including,  without  limitation,  the  Securities  Act of 1933, as amended,  the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the  requirements  of any stock exchange or quotation  system upon which the
Shares  may then be  listed  or  quoted,  and shall be  further  subject  to the
approval of counsel for the Company with respect to such compliance.

           (b) Investment Representations.  As a condition to the exercise of an
Option,  the Company may require the person  exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company,  such a representation  is
required.

      16.  Liability of Company.

           (a)  Inability to Obtain  Authority.  The inability of the Company to
obtain authority from any regulatory body having  jurisdiction,  which authority
is deemed by the  Company's  counsel to be necessary to the lawful  issuance and
sale of any Shares  hereunder,  shall  relieve the Company of any  liability  in
respect of the failure to issue or sell such  Shares as to which such  requisite
authority shall not have been obtained.

           (b) Grants Exceeding  Allotted Shares.  If the Optioned Stock covered
by an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder  approval
of an amendment sufficiently increasing the number of shares subject to the Plan
is timely obtained in accordance with Section 14(b) of the Plan.

      17. Reservation of Shares. The Company, during the term of this Plan, will
at all  times  reserve  and keep  available  such  number  of Shares as shall be
sufficient to satisfy the requirements of the Plan.

      18.  Shareholder  Approval.  Continuance  of the Plan  shall be subject to
approval by the  shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted.  Such shareholder approval shall be obtained
in the manner and to the degree required under applicable  federal and Minnesota
law.


Rev. 12/98
                                       8
<PAGE>