PROTOCOL SYSTEMS, INC.

                        1998 STOCK INCENTIVE PLAN


1.    PURPOSES OF THE PLAN.  The purpose of this Stock Incentive Plan is to
attract, retain and reward individuals who can and do contribute to the
Company's success by providing Employees and Consultants an opportunity to
share in the equity of the Company and to more closely align their interests
with the Company and its shareholders.

      Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"nonqualified stock options," at the discretion of the Board and as reflected
in the terms of the written option agreement.  In addition, shares of the
Company's Common Stock may be Sold hereunder independent of any Option grant.

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

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

(b)   "BOARD" shall mean the Board of Directors of the Company.

(c)   "CODE" shall mean the Internal Revenue Code of 1986, as amended.

(d)   "COMMITTEE" shall mean a committee appointed by the Board in accordance
with Section 4.(a) of the Plan.

(e)   "COMMON STOCK" shall mean the Common Stock of the Company.

(f)   "COMPANY" shall mean Protocol Systems, Inc., an Oregon corporation.

(g)   "CONSULTANT" shall mean any person who is engaged by the Company or any
Parent or Subsidiary to render consulting services and is compensated for such
consulting services and any Director of the Company whether compensated for
such services or not.

(h)   "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the absence
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) any sick leave, military leave, or any other
leave of absence approved by the Company; provided, however, that for purposes
of Incentive Stock Options, any such leave is for a period of not more than
ninety days or reemployment upon the expiration of such leave is guaranteed by
contract or statute, provided, further, that on the ninety-first day of such
leave (where re-employment is not guaranteed by contract or statute) the
Optionee's Incentive Stock Option shall automatically convert to a
Nonqualified Stock Option; or (ii) transfers between locations of the Company
or between the Company, its Parent, its Subsidiaries or its successor.

(i)   "DIRECTOR" shall mean a member of the Board.

(j)   "DISABILITY" shall mean total and permanent disability as defined in
Section 22(e)(3) of the Code.

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

(l)   "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.

(m)   "FAIR MARKET VALUE" shall mean, 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 or the Nasdaq SmallCap Market of the Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock as quoted on such
exchange or system for the date of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable;

(ii)  If the Common Stock 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 date 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.

(n)   "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.

(o)   "NONQUALIFIED STOCK OPTION" shall mean an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.

(p)   "NOTICE OF GRANT" shall mean a written notice evidencing certain terms
and conditions of an individual Option grant.  The Notice of Grant is part of
the Option Agreement.

(q)   "OFFICER" shall mean 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.

(r)   "OPTION" shall mean a stock option granted pursuant to the Plan.

(s)   "OPTION AGREEMENT" shall mean 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.

(t)   "OPTIONED STOCK" shall mean the Common Stock subject to an Option.

(u)   "OPTIONEE" shall mean an Employee or Consultant who receives an Option.

(v)   "PARENT" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

(w)   "PLAN" shall mean this 1998 Stock Incentive Plan.

(x)   "RULE 16B-3"  shall mean 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.

(y)   "SALE" or "SOLD" shall include, with respect to the sale of Shares under
the Plan, the sale of Shares for any form of consideration specified in
Section 8(b), as well as a grant of Shares for consideration in the form of
past or future services.

(z)   "SHARE" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.

(aa)  "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

3.    STOCK SUBJECT TO THE PLAN.

(a)   Subject to the provisions of paragraph (b) of this Section 3 and the
provisions of Section 11 of the Plan, the maximum aggregate number of Shares
which may be optioned and/or Sold under the Plan is 500,000 shares of Common
Stock.  The Shares may be authorized, but unissued, or reacquired Common
Stock.

(b)   If an Option should expire or become unexercisable for any reason, or is
otherwise terminated or forfeited, without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall
have been terminated, become available for future Option grants and/or Sales
under the Plan.  If any Shares issued pursuant to a Sale shall be cancelled or
forfeited for any reason, such Shares shall become available for future Option
grants and/or Sales under the Plan, unless the Plan shall have been
terminated.  If the exercise price of any Option granted under the Plan is
satisfied by tendering Shares of Common Stock to the Company (by either actual
delivery or by attestation), only the number of shares of Common Stock issued
net of the Shares of Common Stock tendered shall be deemed delivered for
purposes of determining the maximum number of Shares available for delivery
under the Plan.

(c)   Notwithstanding any other provision of this Section 3, the maximum
number of Shares that may be issued upon the exercise of Incentive Stock
Options shall be 300,000.

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 Directors, Officers
who are not Directors, and Employees who are neither Directors nor Officers.

(ii)  ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS 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, if any, 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, if any, governing a plan intended to
qualify as a discretionary plan under Rule 16b-3.  With respect to persons
subject to Section 16 of the Exchange Act, transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3.  To the
extent any provision of the Plan or action by the Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator.

(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 the legal requirements relating to the administration of stock option
plans under applicable corporate and securities laws and the Code.  Once
appointed, such Committee shall serve in its designated capacity until
otherwise directed by the Board.  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 legal requirements relating to the
administration of stock option plans under state corporate and securities laws
and the Code.

(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 grant Incentive Stock Options in accordance with Section 422 of the
Code, or Nonqualified Stock Options;

(ii)  to authorize Sales of Shares of Common Stock hereunder;

(iii) to determine, upon review of relevant information, the Fair Market Value
of the Common Stock;

(iv)  to determine the exercise/purchase price per Share of Options to be
granted or Shares to be Sold, which exercise/purchase price shall be
determined in accordance with Section (a) of the Plan;

(v)   to determine the Employees or Consultants to whom, and the time or times
at which, Options shall be granted and the number of Shares to be represented
by each Option;

(vi)  to determine the Employees or Consultants to whom, and the time or times
at which, Shares shall be Sold and the number of Shares to be Sold;

(vii) to interpret the Plan;

(viii)to prescribe, amend and rescind rules and regulations relating to the
Plan;

(ix)  to determine the terms and provisions of each Option granted (which need
not be identical) and, with the consent of the holder thereof, modify or amend
each Option;

(x)   to determine the terms and provisions of each Sale of Shares (which need
not be identical) and, with the consent of the purchaser thereof, modify or
amend each Sale;

(xi)  to accelerate or defer (with the consent of the Optionee) the exercise
date of any Option;

(xii) to accelerate or defer (with the consent of the Optionee or purchaser of
Shares) the vesting restrictions applicable to Shares Sold under the Plan or
pursuant to Options granted under the Plan;

(xiii) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option or Sale of Shares
previously granted or authorized by the Administrator;

(xiv) to determine the restrictions on transfer, vesting restrictions,
repurchase rights, or other restrictions applicable to Shares issued under the
Plan;

(xv)  to effect, at any time and from time to time, with the consent of the
affected Optionees, the cancellation of any or all outstanding Options under
the Plan and to grant in substitution therefor new Options under the Plan
covering the same or different numbers of Shares, but having an Option price
per Share consistent with the provisions of Section 8 of this Plan as of the
date of the new Option grant;

(xvi) to establish, on a case-by-case basis, different terms and conditions
pertaining to exercise or vesting rights upon termination of employment,
whether at the time of an Option grant or Sale of Shares, or thereafter;

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

(xviii) 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;

(xix) to determine whether and under what circumstances an Option may be
settled in cash under subsection 9(f) instead of Common Stock; and

(xx)  to make all other determinations deemed necessary or advisable for the
administration of the Plan.

(c)   EFFECT OF ADMINISTRATOR'S DECISION.  All decisions, determinations and
interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan or
Shares Sold under the Plan.


5.    ELIGIBILITY.

(a)   PERSONS ELIGIBLE.  Options may be granted and/or Shares Sold only to
Employees and Consultants.  Incentive Stock Options may be granted only to
Employees.  An Employee or Consultant who has been granted an Option or Sold
Shares may, if he or she is otherwise eligible, be granted an additional
Option or Options or Sold additional Shares.

(b)   ISO LIMITATION.  To the extent that the aggregate Fair Market Value: (i)
of Shares subject to an Optionee's Incentive Stock Options granted by the
Company, any Parent or Subsidiary, which (ii) 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
Nonqualified Stock Options.  For purposes of this Section 5(b), 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.

(c)   SECTION(B) LIMITATIONS.  Section (b) of the Plan shall apply only to an
Incentive Stock Option evidenced by an Option Agreement which sets forth the
intention of the Company and the Optionee that such Option shall qualify as an
Incentive Stock Option.  Section (b) of the Plan shall not apply to any Option
evidenced by a Option Agreement which sets forth the intention of the Company
and the Optionee that such Option shall be a Nonqualified Stock Option.

(d)   NO RIGHT TO CONTINUED EMPLOYMENT.  The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or
her right or the Company's right to terminate his employment or consulting
relationship at any time, with or without cause.

(e)   OTHER LIMITATIONS.  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 50,000 Shares.

(ii)  In connection with his or her initial employment, an Employee may be
granted Options to purchase up to an additional 50,000 Shares which shall not
count against the limit set forth in subsection (i) above.

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

(iv)  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 shall be counted against the limits set forth
in subsections (i) and (ii) above.  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.

6.    TERM OF 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 17 of the Plan.  It shall continue in effect
for a term of ten (10) years, unless sooner terminated under Section 13 of the
Plan.

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.  However, in the case of an
Incentive Stock Option granted to an Optionee 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 any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter term as may be provided in the
Notice of Grant.

8.    EXERCISE/PURCHASE PRICE AND CONSIDERATION.

(a)   EXERCISE/PURCHASE PRICE.  The per-Share exercise/purchase price for the
Shares to be issued pursuant to exercise of an Option or a Sale shall be such
price as is determined by the Administrator, but shall be subject to the
following:

(i)   In the case of an Incentive Stock Option

(A)   granted to an Employee who, at the time of the grant of such Incentive
Stock Option, 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 per Share exercise price shall be no less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of the grant.

(B)   granted to any other Employee, the per Share exercise price shall be no
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.

(ii)  In the case of a Nonqualified Stock Option or Sale, the per Share
exercise/purchase price shall be determined by the Administrator.

(iii) Any determination to establish an Option exercise price or effect a Sale
of Common Stock at less than Fair Market Value on the date of the Option grant
or authorization of Sale shall be accompanied by an express finding by the
Administrator specifying that the sale is in the best interest of the Company,
and specifying both the Fair Market Value and the Option exercise price or
Sale price of the Common Stock.

(b)   CONSIDERATION.  The consideration to be paid for the Shares to be issued
upon exercise of an Option or pursuant to a Sale, including the method of
payment, shall be determined by the Administrator.  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 of:

(i)   cash;

(ii)  check;

(iii) promissory note;

(iv)  transfer to the Company of 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 to be acquired;

(v)   delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price;

(vi)  such other consideration and method of payment for the issuance of
Shares to the extent permitted by legal requirements relating to the
administration of stock option plans and issuances of capital stock under
applicable corporate and securities laws and the Code; or

(vii) any combination of the foregoing methods of payment.

      If the Fair Market Value of the number of whole Shares transferred or
the number of whole Shares surrendered is less than the total exercise price
of the Option, the shortfall must be made up in cash or by check.
Notwithstanding the foregoing provisions of this Section 8.(b), the
consideration for Shares to be issued pursuant to a Sale may not include, in
whole or in part, the consideration set forth in subsection (v) above.

9.    EXERCISE OF OPTION.

(a)   PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER.  Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the
terms of the Plan.

     An Option may not be exercised for a fraction of a Share.

     An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company.  Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under the Option Agreement and
Section 8.(b) of the Plan.  Each Optionee who exercises an Option shall, upon
notification of the amount due (if any) and prior to or concurrent with
delivery of the certificate representing the Shares, pay to the Company
amounts necessary to satisfy applicable federal, state and local tax
withholding requirements.  An Optionee must also provide a duly executed
copy of any stock transfer agreement then in effect and determined to be
applicable by the Administrator.  Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no
right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock represented by such stock
certificate, notwithstanding the exercise of the Option.  No adjustment will
be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 11 of
the Plan.

(b)   TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP.  In the event that
an Optionee's Continuous Status as an Employee or Consultant terminates (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 determined by the
Administrator, and only to the extent that the Optionee was entitled to
exercise it at 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 case of an Incentive Stock Option, the Administrator shall determine
such period of time (in no event to exceed three (3) months from the date of
termination) when the Option is granted.  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 with
the time specified by the Administrator, 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
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.

(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 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 persons subject to Section 16(b) of the
Exchange Act must comply with 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)   BUYOUT PROVISIONS.  The Administrator may at any time offer to buy out,
in whole or in part, for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall
establish and communicate to the Optionee at the time that such offer is made.

10.    NONTRANSFERABILITY OF OPTIONS.  Except as otherwise specifically
provided in the Option Agreement, an Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will, or by the laws of descent and distribution, and may be exercised during
the lifetime of the Optionee only by the Optionee or, if incapacitated, by his
or her legal guardian or legal representative.

11.   ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.

(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 shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have
yet been granted or Sales made 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 issued 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 Administrator, 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.

(b)   DISSOLUTION OR LIQUIDATION.  In the event of the proposed dissolution or
liquidation of the Company, each outstanding Option will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided
by the Administrator.  The Administrator 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 proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding Option shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
Parent or Subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable.  If the Administrator makes an
Option fully 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 or such shorter period as the Administrator may
specify in the 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
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 and the Optionee, 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.

12.   TIME OF GRANTING OPTIONS.  The date of grant of an Option shall, for all
purposes, be the date on which the Administrator makes the determination
granting such Option.  Notice of the determination shall be given to each
Optionee within a reasonable time after the date of such grant.

13.   AMENDMENT AND TERMINATION OF THE PLAN.

(a)   AMENDMENT AND TERMINATION.  The Board may amend or terminate the Plan
from time to time in such respects as the Board may deem advisable.

(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.  Any such amendment or termination
of the Plan shall not affect Options already granted, and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company.

14.   CONDITIONS UPON ISSUANCE OF SHARES.  Shares shall not be issued pursuant
to the exercise of an Option or a Sale unless the exercise of such Option or
consummation of the Sale and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, applicable state
securities laws, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange (including NASDAQ) upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

15.   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.

16.   LIABILITY OF COMPANY.

(a)   INABILITY TO OBTAIN AUTHORITY.  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.

     As a condition to the exercise of an Option or a Sale, the Company may
require the person exercising such Option or to whom Shares are being Sold to
represent and warrant at the time of any such exercise or Sale 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 by any of the aforementioned relevant
provisions of law.

(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 13 of the Plan.

17.   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
state law.


ADOPTED by the Board of Directors on March 23, 1998.

RATIFIED by the shareholders on May 19, 1998.

AMENDED by the Board of Directors on February 10, 1999.

RATIFIED by the shareholders on May 19, 1999.

                                          PROTOCOL SYSTEMS, INC.


                                          By:  Craig M. Swanson, Secretary