Protocol Systems, Inc.

                          EXECUTIVE EMPLOYMENT AGREEMENT
                          ------------------------------
PARTIES:    Protocol Systems, Inc. ("Company")
            8500 SW Creekside Place
            Beaverton, OR 97008

            JAMES P. WELCH ("Executive")
            14340 SW Hazelhill
            Tigard, Oregon  97224


DATE:       July 1, 1998

RECITALS:
A.    The Company wishes to obtain the services of the Executive for at least 
      the duration of this Agreement, and the Executive wishes to provide his 
      services for such period, all upon the terms and conditions set out in  
      this Agreement.

B.    It is expressly recognized by the parties that the Executive's          
      continuance in the Executive's position with the Company and agreement  
      to be bound by the terms of this Agreement represents a substantial     
      commitment to the Company in terms of the Executive's personal and      
      professional career and a foregoing of present and future career options 
      by the Executive, for all of which the Company receives substantial     
      value. 

C.    The parties recognize that a Change of Control (as defined below) may   
      result in material alteration or diminishment of the Executive's        
      position and responsibilities and substantially frustrate the purpose of 
      the Executive's commitment to the Company and forbearance of career     
      options. 

D.    The parties recognize that in light of the above-described commitment   
      and forbearance of career options, it is essential that, for the benefit 
      of the Company and its stockholders, provision be made for a Change of  
      Control Termination (as defined below) in order to enable the Executive 
      to accept and effectively continue in the Executive's position in the   
      face of inherently disruptive circumstances arising from the possibility 
      of a Change of Control, although no such change is now contemplated or  
      foreseen. 

NOW, THEREFORE, for valuable consideration the receipt and sufficiency of 
which is hereby acknowledged, the parties agree as follows:
 
                                 ARTICLE 1
                                DEFINITIONS
                                -----------
1.1   "Base Salary" shall mean regular cash compensation paid on a periodic   
basis exclusive of benefits, bonuses or incentive payments. 

1.2   "Board" shall mean the Board of Directors of Protocol Systems, Inc. 

1.3   "Disability" shall mean the inability of the Executive to perform the 
essential functions of his position under this Agreement with or without 
reasonable accommodation because of physical or mental incapacity for a 
continuous period of five (5) months, as reasonably determined by the Company 
after consultation with a qualified physician selected by the Company. 

1.4   "Company" shall mean Protocol Systems, Inc. and, any successor in 
interest by way of consolidation, operation of law, merger or otherwise. 

1.5   "Confidentiality Agreement" shall mean that certain Non-competition and 
Confidentiality Agreement dated 18 March 1991 by and between the Company and 
Executive. 

                                  ARTICLE 2
                          EMPLOYMENT, DUTIES AND TERM
                          ---------------------------
2.1   EMPLOYMENT.  Upon the terms and conditions set forth in this Agreement, 
the Company hereby employs the Executive in the position of Vice President 
Systems, Marketing & Business Development,, and the Executive accepts such 
employment. 

2.2   DUTIES.  The Executive shall devote his full-time and best efforts to 
the Company and to fulfilling the duties of his position which shall include 
such duties as may from time to time be assigned him by the Chief Executive 
Officer, provided that such duties are reasonably consistent with the 
Executive's position.  The Executive shall comply with the Company's policies 
and procedures to the extent they are not inconsistent with this Agreement, in 
which case the provisions of this Agreement prevail. 

2.3   TERM.  This Agreement shall remain in effect until the earlier of (i) 
termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two 
(2) years from the date of this Agreement, provided however that if a Change 
in Control occurs within two (2) years from the date of this Agreement, then 
this Agreement shall remain in effect for two (2) years from the date of the 
first Change in Control event described in Section 6.1.1. 

                                 ARTICLE 3
                         COMPENSATION AND EXPENSES
                         -------------------------
3.1   BASE SALARY.  For all services rendered under this Agreement, the Company 
shall pay Executive a Base Salary that is not less than Executive's Base Salary 
as of the date of this Agreement.  If the Executive's salary is increased from 
time to time during the term of this Agreement, the increased amount shall be 
the Base Salary for the remainder of the term and any extensions.  All amounts 
payable to the Executive under this Agreement shall be reduced by such amounts 
as are required to be withheld by law. 

3.2   BONUS AND INCENTIVE.  Bonus or incentive compensation shall be in the 
sole discretion of the Board.  Except as otherwise provided in Article 6, the 
Company shall have the right in accordance with the terms of any bonus or 
incentive plan to alter, amend or eliminate all or any part of such plan, or 
the Executive's participation therein, without compensation to the Executive. 

3.3   BUSINESS EXPENSES.  The Company shall, in accordance with, and to the 
extent of, its policies in effect from time to time, reimburse all ordinary and 
necessary business expenses reasonably incurred by the Executive in performing 
his duties as an employee of the Company, provided that the Executive accounts 
promptly for such expenses to the Company in the manner prescribed from time to 
time by the Company. 

                                 ARTICLE 4
                             EARLY TERMINATION
                             -----------------
4.1   EARLY TERMINATION.  This Article 4 governs termination of this Agreement 
at any time during the term of the Agreement; provided, however, that this 
Article shall not govern a "Change of Control Termination" as defined in 
Article 6.  A Change in Control Termination is governed solely by the 
provisions of Article 6. 

4.2   TERMINATION FOR CAUSE.  The Company may terminate this Agreement and 
Executive's employment immediately for "Cause" as that term is defined herein, 
upon written notice to the Executive. 

  4.2.1 "Cause" means any one of the following:  (a) fraud, 
(b)misrepresentation, (c) theft or embezzlement of the Company assets, (d) 
intentional violations of law involving moral turpitude, (e) the continued 
failure by the Executive to satisfactorily perform his duties as reasonably 
assigned to the Executive pursuant to Section 2.2 of this Agreement for a 
period of sixty (60) days after a written demand for such satisfactory 
performance which specifically and with reasonable detail identifies the manner 
in which it is alleged the Executive has not satisfactorily performed such 
duties, and (f) any material breach of the Confidentiality Agreement. 

  4.2.2 In the event of termination for Cause pursuant to this Section 4.2, the 
Executive shall be paid his Base Salary through the date of termination 
specified in any notice of termination.  The Executive will not be entitled to 
any bonuses or incentives which are not earned and payable at the time of the 
termination. 

4.3   Termination Without Cause.  Either the Executive or the Company may 
terminate this Agreement and the Executive's employment without Cause by 
providing at least seventy-five (75) days' written notice; provided, however, 
that the Company shall have the option of making termination of the Agreement 
and termination of the Executive's employment effective immediately upon 
notice, in which case Executive shall be paid his Base Salary through a notice 
period of seventy-five (75) days.  This Section 4.3 shall not be applicable 
where Cause for termination exists. 

  4.3.1 If the notice of termination is given by the Company, in addition to 
any other amounts payable to Executive, under this Section 4.3, the Company 
shall pay Executive within fifteen (15) days following termination, a lump sum 
amount equal to one (1) year's Base Salary. 

  4.3.2 In the event that termination occurs pursuant to Section 4.3.1 then, in 
addition to the payments specified in said Section, the Company shall pay to 
the Executive bonuses, if any, as follows: 

    4.3.2.1  Company shall pay Executive an amount equal to the annual bonus or 
annual incentive, if any, to which the Executive would otherwise have become 
entitled under any Company bonus or incentive plan in effect at the time of 
termination of this Agreement had the Executive remained continuously employed 
for the full fiscal year in which termination occurred and continued to perform 
his duties in the same manner as they were performed immediately prior to 
termination; provided, however, that such bonus or incentive amount shall be 
pro-rated to the date of termination.  The amount payable pursuant to this 
Section 4.3.2.1 shall be earned and payable as of the date that is fifteen (15) 
days after the date such bonus would have been paid had the Executive remained 
employed for the full fiscal year.

    4.3.2.2 In the event Executive would have been entitled to a quarterly 
bonus or quarterly incentive payment had he remained employed for the entire 
quarter in which Executive was terminated, the Company shall pay Executive such 
quarterly bonus or incentive amount pro-rated to the date of termination, 
payable as of the date that is fifteen (15) days after the date such bonus 
would have been paid had the Executive remained employed for the full quarter.

4.4  TERMINATION IN THE EVENT OF DEATH OR DISABILITY.  This Agreement and 
Executive's employment shall terminate in the event of death or Disability of 
the Executive. 

  4.4.1 In the event of the Executive's death, the Company shall pay an amount 
equal to six (6) month's Base Salary to the executor, administrator or other 
personal representative of the Executive's estate.  The amount shall be paid as 
a lump sum as soon as practicable following Company's receipt of notice of the 
Executive's death.  All such payments shall be in addition to any payments due 
pursuant to Section 4.4.3 below. 

  4.4.2 In the event of termination due to Executive's Disability, Base Salary 
shall be terminated as of the final day of the fifth month referenced in the 
definition of "Disability."  Unless otherwise disqualified by the disability 
benefit program provider, this Section is not intended to limit the Executive 
from qualifying for and claiming disability benefits from any other disability 
program in which the Executive may be enrolled or otherwise for which he is 
qualified at the time of disability. 

  4.4.3 In the event of termination by reason of the Executive's death or 
Disability, the Company shall pay to the Executive an amount equal to the 
amount the Executive would have received in incentive plan bonus for the year 
in which termination occurred had "target" goals been achieved, provided, 
however, that such amount shall be pro-rated to the date of termination.  This 
amount shall be earned and payable as of the date that is fifteen (15) days 
after the date such bonus would have been paid had the Executive remained 
employed for the full fiscal year in which termination occurred. 

4.5   CONTINUATION OF BENEFITS.  In the event of termination of Executive's 
employment by the Company pursuant to Section 4.3.1 or termination due to 
Disability, the Company shall pay the applicable premiums for such group health 
plan continuation as Executive is entitled to under the Consolidated Omnibus 
Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the 
period of time the Executive is entitled to continue such coverage under COBRA. 

4.6   ENTIRE TERMINATION PAYMENT.  The compensation provided for in this 
Article 4 shall constitute the Executive's sole remedy for termination pursuant 
to this Article.  The Executive shall not be entitled to any other termination 
or severance payment which may be payable to the Executive under any other 
agreement between the Executive and the Company preceding or following the date 
of termination. 

                              ARTICLE 5
                   CONFIDENTIALITY; CONFLICT OF INTEREST
                   -------------------------------------
PROPRIETARY INFORMATION.   Executive shall keep confidential, except as the 
Company may otherwise consent in writing, and not disclose or make any use of 
except for the benefit of the Company, at any time either during or subsequent 
to his employment by the Company, any Proprietary Information which he may 
produce, obtain or otherwise acquire during the course of his employment.  As 
used herein, "Proprietary Information" shall include any trade secrets, 
confidential information, knowledge, data, or other information of the Company 
relating to products, processes, know-how, designs, formulae, test procedures 
and results, customer lists, business plans, marketing plans and strategies, 
and pricing strategies, or other subject matter pertaining to any business of 
the Company for any of its clients, customers, consultants, licensees of 
affiliates, which information is not in the public domain at the time of the 
alleged breach.  In the event of the termination of the Executive's employment 
for any reason whatsoever, Executive shall promptly return all records, 
materials, equipment, drawings and the like pertaining to any Proprietary 
Information. 
Notwithstanding the foregoing, this Section 5.2 shall not apply to the 
Executive if the Executive's employment was terminated pursuant to Section 4.3 
or Section 6.1.2.1 of this agreement.

5.2   COVENANT NOT TO COMPETE.  Executive acknowledges that he will provide 
special skills, and acquire special information, regarding the activities of 
the Company.  Executive agrees, therefore, that he will not, for a period of 
twelve (12) months from and after the date he ceases to be employed by the 
Company, join, control or participate in the ownership, management, operation 
or control of or be connected with, any business located in the United States 
of America whose commercial products are in direct competition with the Company 
or which is developing products which will be in direct competition with the 
Company, in such a manner and position that he would likely use Proprietary 
Information, unless released from such obligation by the Board of Directors of 
the Company.  Executive agrees that he shall be deemed to be connected with a 
business if such a business is carried on by a partnership in which he is a 
general or limited partner or employee of a corporation or association of which 
he is a shareholder, officer, director, employee, member, consultant or agent; 
provided, that nothing herein shall prohibit the purchase or ownership by him 
of shares of less than five percent (5%) in a publicly or privately held 
corporation.  Executive agrees to submit a list of such business interests in 
Exhibit A attached hereto and incorporated by reference herein. 

5.3   CONSENT TO INJUNCTION.  Executive agrees that the Company will or would 
suffer an irreparable injury if Executive were to compete with the business of 
the Company or any of its subsidiaries in violation of this Agreement and that 
the Company would by reason of such competition be entitled to injunctive 
relief in a court of appropriate jurisdiction and Executive stipulates to the 
entering of such injunctive relief prohibiting him from competing with the 
Company or any present affiliate of the Company in connection with the business 
of the Company, in violation of this Agreement. 

5.4   SEVERABILITY.  The parties intend that the covenants contained in Section 
5.2 be deemed to be separate covenants as to each county and state, and that if 
in any judicial proceeding a court shall refuse to enforce all of the separate 
covenants included herein because, taken together, they cover too extensive a 
geographic area or because any one includes too large an area or because they 
cover too large a period of time, the parties intend that such covenants shall 
be reduced in scope to the extent required by law or, if necessary, eliminated 
from the provisions hereof, and that all of the remaining covenants hereof not 
so affected shall remain fully effective and enforceable. 

5.5   ASSIGNMENT OF INVENTIONS.  As used in this Agreement, "inventions" shall 
include, but not be limited to, ideas, improvements, designs, and discoveries. 
 Executive hereby assigns and transfers to the Company entire right, title and 
interest in and to all inventions whether or not conceived by Executive 
(whether made solely by Executive or jointly with others) during the period of 
his employment with the Company which relate in any manner to the actual or 
demonstrably anticipated business, work, or research an development of the 
Company or its subsidiaries, or result from or are suggested by any tasks 
assigned to Executive or any work performed by Executive for or on behalf of 
the Company or its subsidiaries.  Executive agrees that all such inventions are 
sole property of the Company, provided, however, that this Agreement does not 
require assignment of any invention if such assignment would contravene 
applicable state law. 

5.6   DISCLOSURE OF INVENTIONS, PATENTS.  Executive agrees that in connection 
with any invention as defined in Section 5.5, above: 
5.6.1	Executive will disclose such invention promptly in writing to the Board 
of Directors of the Company, with a copy to the President, regardless of 
whether he believes the invention is protected by applicable state law, in 
order to permit the Company to claim rights to which it may be entitled under 
this Agreement.  Such disclosure shall be received in confidence by the 
Company. 

  5.6.2 Executive will, at the Company's request, promptly execute a written 
assignment of title to the Company for any invention required to be assigned by 
Section 5.5 ("assignable invention") and Executive will preserve any such 
assignable invention as confidential information of the Company; and

  5.6.3 Upon request, Executive agrees to assist the Company or its nominee (at 
its expense) during and at any time subsequent to his employment in every 
reasonable way to obtain for its own benefit patents and copyrights for such 
assignable inventions in any and all countries, which inventions shall be and 
remain the sole and exclusive property of the Company or its nominee, whether 
or not patented or copyrighted.  Executive agrees to execute such papers and 
perform such lawful acts as the Company deems to be necessary to allow it to 
exercise all right, title, and interest in such patents and copyrights. 

  5.6.4 Executive agrees to submit a list of inventions made prior to his 
employment by the Company on Exhibit B attached hereto and incorporated by 
reference herein. 

5.7   EXECUTION OF DOCUMENTATION.  In connection with Section 5.5 and Section 
5.6, Executive further agrees to execute, acknowledge and deliver to the 
Company or its nominee upon request and at its expense all such assignments of 
inventions, patents, and copyrights to be issued therefor, as the Company may 
determine necessary or desirable for which to apply.  Executive agrees to 
obtain letters, patents, and copyrights on such assignable inventions in any 
and all countries and/or protect the interest of the Company or its nominee in 
such inventions, patents and copyrights and to vest title thereto in the 
Company or its nominee. 

5.8   OTHER OBLIGATIONS.  Executive acknowledges that the Company from time to 
time may have agreements with other persons or with the U.S. Government, or 
agencies thereof, which impose obligations or restrictions on the Company 
regarding inventions made during the course of work thereunder or regarding the 
confidential nature of such work.  Executive agrees to be bound by all such 
obligations and restrictions and to take all action necessary to discharge the 
obligations of the Company thereunder. 

5.9   TRADE SECRETS OF OTHERS.  Executive represents that his performance  of 
all the terms of this Agreement and as an employee of the Company such 
employment does not and will not breach any agreement to keep in confidence 
proprietary information, knowledge, or data acquired by Executive in confidence 
or in trust prior to his employment with the Company.  Executive will not 
disclose to the Company, or induce the Company to use, any confidential or 
proprietary information or material belonging to any previous employer or 
others.  Executive agrees not to enter into any agreement either written or 
oral in conflict herewith. 

5.10   CONFLICT OF INTEREST.  During Executive's employment with the Company, 
Executive will engage in no activity or employment which may conflict with the 
interest of the Company and will comply with the Company's policies and 
guidelines pertaining to business conduct and ethics. 

5.11   PREVIOUS AGREEMENTS.    Executive represents and warrants to the Company 
that as of the date of this Agreement, he has fully complied with the terms of 
the Confidentiality Agreement.  Executive's obligations under this Agreement 
are in addition to, do not limit, and are not limited by, Executive's 
Confidentiality Agreement.  To the extent any provision of the Confidentiality 
Agreement conflicts with the provisions of this Agreement, the provisions of 
this Agreement control. 

5.12   SURVIVAL OF OBLIGATIONS.  The provisions of this Article 5 shall survive 
termination of this Agreement. 

                                  ARTICLE 6
                              CHANGE OF CONTROL
                              -----------------
6.1   DEFINITIONS.  For purposes of this Article 6, the following definitions 
shall be applied: 

  6.1.1  "Change of Control" shall mean any of the following events:
    
    6.1.1.1 a merger or consolidation to which the Company is a party if the 
individuals and entities who were stockholders of the Company immediately 
prior to the effective date of such merger or consolidation have beneficial 
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) 
of less than fifty percent (50%) of the total combined voting power for 
election of directors of the surviving corporation immediately following the 
effective date of such merger or consolidation; or

    6.1.1.2 the direct or indirect beneficial ownership (as defined in 
Rule 13d-3 under the Securities Exchange Act of 1934), in the aggregate, of 
securities of the Company, representing twenty percent (20%) or more of the 
total combined voting power of the Company's then issued and outstanding 
securities, by any person or entity, or group of associated persons or 
entities acting in concert; or

    6.1.1.3 the sale of all or substantially all of the assets of the Company 
to any person or entity which is not a subsidiary of the Company; or 
 
   6.1.1.4 the stockholders of the Company approve any plan or proposal for 
the liquidation of the Company; or

    6.1.1.5 a change in the composition of the Board at any time during any 
consecutive 24-month period such that the Continuity Directors cease for any 
reason to constitute at least a seventy percent (70%) majority of the Board.  
For purposes of this clause, "Continuity Directors" means those members of the 
Board who either:

      6.1.1.5.1 were directors at the beginning of such consecutive 24-month 
period; or

      6.1.1.5.2 were elected by, or on the nomination or recommendation of, at 
least a two-thirds (2/3) majority of the then-existing Board.

  6.1.2  "Change of Control Termination" shall mean, with respect to the 
Executive, any of the following events occurring within two (2) years after a 
Change of Control: 

    6.1.2.1 Termination of the Executive's employment by the Company for any 
reason other than for Cause, as Cause is defined in Section 4.2 of this 
Agreement.  
    
    6.1.2.2 Termination of employment with the Company by the Executive 
pursuant to Section 6.2 of this Article 6.  A Change of Control Termination 
shall not, however, include termination by reason of death or Disability. 

  6.1.3 "Good Reason" shall mean a good faith determination by the Executive, 
in the Executive's reasonable judgment, that any one or more of the following 
events has occurred without the Executive's express written consent, after a 
Change of Control, and the Company's failure to correct such occurrence for a 
period of thirty (30) days following Executive's written notice to Company 
identifying the event alleged to provide Good Reason and stating Executive's 
intent to invoke Section 6.2 of this Article 6. 

    6.1.3.1 A change in the Executive's reporting responsibilities, titles or 
offices as in effect immediately prior to the Change of Control, or any 
removal of the Executive from, or any failure to re-elect the Executive to, 
any of such positions, which has the effect of materially diminishing the 
Executive's responsibility or authority; 
 
    6.1.3.2 A reduction by the Company in the Executive's Base Salary as in 
effect immediately prior to the Change of Control; 
 
   6.1.3.3 A requirement by the Company that the Executive be based anywhere 
other than within twenty-five (25) miles of the Executive's job location at 
the time of the Change of Control; 

    6.1.3.4 A material diminishment of Executive's pension, bonus, incentive, 
stock ownership, purchase, option, life insurance, health, accident, 
disability, or any other employee compensation or benefit plan, program or 
arrangement and/or any membership (collectively, "Benefit Plans"), in which 
the Executive is participating immediately prior to a Change of Control; or 
the taking of any action by the Company that would materially adversely affect 
the Executive's participation or materially reduce the Executive's benefits 
under any Benefit Plans or Benefit Plan; 

    6.1.3.5 Any material breach of this Agreement by the Company. 

  6.1.4  "Internal Revenue Code" -- Any references to a section of the Internal 
Revenue Code shall mean that section of the Internal Revenue Code of 1986, or 
to the corresponding section of such Code, as from time to time amended. 

6.2  CHANGE OF CONTROL TERMINATION RIGHT.  For a period of two (2) years 
following a Change of Control, the Executive shall have the right, at any 
time, to terminate employment with the Company for Good Reason.  Such 
termination shall be accomplished by, and effective upon, the Executive giving 
written notice to the Company of the Executive's decision to terminate.  
Except as otherwise expressly provided in this Agreement, upon the exercise of 
said right, all obligations and duties of the Executive under this Agreement 
shall be of no further force and effect. 

  6.2.1 CHANGE OF CONTROL TERMINATION PAYMENT.  In the event of a termination 
pursuant to Section 6.2, without further action by the Board, the Company 
shall, within thirty (30) days of such termination, make a lump sum payment to 
the Executive, equal to two (2) years' Base Salary. 

  6.2.2  In addition to the amounts paid pursuant to Section 6.2.1 the Company 
shall pay to the Executive an amount equal to (a) two (2) times what the 
Executive would have received in incentive plan bonus for the year in which 
termination occurs as if the "target" goals had been achieved for that fiscal 
year, or (b) the actual amount of the incentive bonus to which the Executive 
would have been entitled had he remained with the Company based on the 
Company's actual performance, for the fiscal year in which termination occurs, 
whichever is greater.  The amount provided by this Section 6.2.2 shall be 
earned and payable on the date that is fifteen (15) days after the date 
Executive would have been paid an annual incentive bonus had he remained with 
the Company for the fiscal year in which termination occurs. 

  6.2.3 Notwithstanding anything in this Agreement to the contrary, in the 
event any of the payments to the Executive under this Agreement would 
constitute an excess parachute payment pursuant to Section 280 G of the 
Internal Revenue Code, the amount payable pursuant to Section 6.2.2 shall be 
reduced by the minimum amount necessary such that none of the compensation 
payable to Executive as a result of a Change in Control shall constitute an 
excess parachute payment. 

6.3  INTEREST.  In the event the Company does not make timely payment in full 
of the Change of Control Termination payment described in Section 6.2, the 
Executive shall be entitled to receive interest on any unpaid amount at the 
lower of:  (a) prime rate of interest (or such comparable index as may be 
adopted) established from time to time by the Company's principal banking 
institution or (b) the maximum rate permitted under Section 280G(d)(4) of the 
Internal Revenue Code. 

6.4  CONTINUATION OF BENEFITS.  In the event of termination of Executive's 
employment pursuant to Section 6.2 herein, the Company shall pay the 
applicable premiums for such group health plan continuation as Executive is 
entitled to under COBRA and such payment shall continue for the period of time 
the Executive is entitled to continue such coverage under COBRA. 

6.5  VESTING OF STOCK OPTIONS.  All unvested stock options held by Executive, 
if any, shall vest immediately upon a Change in Control Termination as defined 
in paragraph 6.1.2.1.  Executive may exercise such options in accordance with 
the terms and conditions of the stock option plan and the agreement pursuant 
to which such options were granted. 


                                   ARTICLE 7
                               GENERAL PROVISIONS
                               ------------------

7.1  SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and inure to 
the benefit of the successors and assigns of the Company and each subsidiary, 
whether by way of merger, consolidation, operation of law, assignment, purchase 
or other acquisition of substantially all of the assets or business of the 
Company, and any such successor or assign shall absolutely and unconditionally 
assume all of the Company's obligations hereunder. 

7.2  NOTICES.  All notices, requests and demands given to or made pursuant 
hereto shall, except as otherwise specified herein, be in writing and be 
delivered or mailed to any such party at its address as set forth at the 
beginning of this Agreement.  Either party may change its address, by notice to 
the other party given in the manner set forth in this Section.  Any notice, if 
mailed properly addressed, postage prepaid, registered or certified mail, shall 
be deemed dispatched on the registered date or that stamped on the certified 
mail receipt, and shall be deemed received within the third business day 
thereafter or when it is actually received, whichever is sooner. 

7.3  CAPTION. The various headings or captions in this Agreement are for 
convenience only and shall not affect the meaning or interpretation of this 
Agreement. 

7.4  GOVERNING LAW.  The validity, construction and performance of this 
Agreement shall be governed by the laws of the State of Oregon 

7.5  MEDIATION.  In case of any dispute arising under this Agreement which 
cannot be settled by reasonable discussion, the parties agree that, prior to 
commencing any arbitration proceeding as contemplated by Section 7.6 they will 
first engage the services of a professional mediator agreed upon by the parties 
and attempt in good faith to resolve the dispute through confidential non-
binding mediation.  Each party shall bear one-half (1/2) of the mediator's fees 
and expenses and shall pay all of its own attorneys' fees and expenses related 
to the mediation. 

7.6  ARBITRATION.  Any dispute concerning the interpretation, construction, 
breach or enforcement of this Agreement or arising in any way from Executive's 
employment with Company or termination of employment shall be submitted to 
final and binding arbitration.  Such arbitration is to be before a single 
arbitrator in Portland, Oregon.  In the event the parties are unable to agree 
upon an arbitrator, an arbitrator shall be appointed by the court pursuant to 
ORS 36.320.  The arbitration shall be conducted pursuant to the rules of the 
American Arbitration Association ("AAA") Employment Dispute Resolution Rules.  
Executive and the Company agree that the procedures outlined in Section 7.5 and 
7.6 are the exclusive method of dispute resolution. 

7.7  ATTORNEY FEES.  If any action at law, in equity or by arbitration is taken 
to enforce or interpret the terms of this Agreement, the prevailing party shall 
be entitled to reasonable attorneys' fees, costs and necessary disbursements in 
addition to any other relief to which such party may be entitled, including 
fees and expenses on appeal. 

7.8  CONSTRUCTION.  Wherever possible, each provision of this Agreement shall 
be interpreted in such manner as to be effective and valid under applicable 
law, but if any provision of this Agreement shall be prohibited by or invalid 
under applicable law, such provision shall be ineffective only to the extent of 
such prohibition or invalidity without invalidating the remainder of such 
provision or the remaining provisions of this Agreement. 

7.9  WAIVERS.  No failure on the part of either party to exercise, and no 
delay in exercising, any right or remedy hereunder shall operate as a waiver 
thereof; nor shall any single or partial exercise of any right or remedy 
hereunder preclude any other or further exercise thereof or the exercise of 
any other right or remedy granted hereby or by any related document or by law. 

7.10  ASSIGNMENT.  This Agreement shall be binding upon and inure to the 
benefit of the Company and its successors and assigns, and shall be binding 
upon the Executive, his administrators, executors, legatees, and heirs.  In 
that this Agreement is a personal services contract, it shall not be assigned 
by the Executive. 

7.11  MODIFICATION.  This Agreement may not be and shall not be modified or 
amended except by written instrument signed by the parties hereto. 

7.12  ENTIRE AGREEMENT.  This Agreement together with the Confidentiality 
Agreement constitutes the entire agreement and understanding between the 
parties hereto in reference to all the matters herein agreed upon.  This 
Agreement replaces and supersedes all prior employment agreements or 
understandings of the parties hereto; provided, however, that the 
Confidentiality Agreement continues in full force and effect according to its 
terms. 

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be 
duly executed and delivered as of the day and year first above written.

EXECUTIVE                           PROTOCOL SYSTEMS, INC.
                                    By                    
----------------------                ----------------------------
James P. Welch                      David Bolender, Chairman & CEO