WINLAND ELECTRONICS, INC.
                        1997 EMPLOYEE STOCK PURCHASE PLAN


                        ARTICLE I - ESTABLISHMENT OF PLAN

1.01     Adoption by Board of Directors.  By action of the Board of Directors of
         Winland  Electronics,  Inc. (the  "Corporation")  on December 16, 1996,
         subject to approval by its shareholders, the Corporation has adopted an
         employee stock  purchase plan pursuant to which  eligible  employees of
         the  Corporation  and  certain of its  Subsidiaries  may be offered the
         opportunity to purchase shares of Stock of the  Corporation.  The terms
         and  conditions  of this Plan are set forth in this plan  document,  as
         amended from time to time as provided herein.  The Corporation  intends
         that the Plan shall qualify as an "employee  stock purchase plan" under
         Section 423 of the Internal  Revenue Code of 1986, as amended from time
         to time,  (the "Code") and shall be  construed  in a manner  consistent
         with  the   requirements  of  Code  Section  423  and  the  regulations
         thereunder.

1.02     Shareholder  Approval and Term.  This Plan shall become  effective upon
         its adoption by the Board of Directors and shall terminate December 31,
         2002; provided,  however, that the Plan shall be subject to approval by
         the shareholders of the Corporation within twelve (12) months after the
         Plan is adopted by the Board in the manner  provided under Code Section
         423 and the  regulations  thereunder;  and  provided,  further that the
         Board of  Directors  may extend the term of the Plan for such period as
         the Board, in its sole discretion,  deems  advisable.  In the event the
         shareholders  fail to approve the Plan within  twelve (12) months after
         the Plan is adopted by the Board,  this Plan shall not become effective
         and shall  have no force and  effect,  participation  in the Plan shall
         immediately  cease and all  outstanding  options shall  immediately  be
         cancelled.  No shares of stock shall be issued to any  Participant  for
         any Phase  unless and until the  shareholders  approve  the Plan within
         such twelve-month period.


                              ARTICLE II - PURPOSE

2.01     Purpose.  The primary  purpose of the Plan is to provide an opportunity
         for Eligible Employees of the Corporation to become shareholders of the
         Corporation,  thereby providing them with an incentive to remain in the
         Corporation's employ, to improve operations, to increase profits and to
         contribute more significantly to the Corporation's success.


                            ARTICLE III - DEFINITIONS

3.01     "Administrator"   means  the  Board  of  Directors  or  such  Committee
         appointed by the Board of Directors to administer  the Plan.  The Board
         or the Committee may, in its sole discretion, authorize the officers of
         the  Corporation to carry out the day-to-day  operation of the Plan. In
         its sole discretion, the Board may take such actions as may be taken by
         the  Administrator,  in addition to those powers expressly  reserved to
         the Board under this Plan.


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3.02     "Board of Directors" or "Board" means the Board of Directors of Winland
         Electronics, Inc.

3.03     "Compensation"  means the Participant's  base  compensation,  excluding
         commissions, overtime and all bonuses.

3.04     "Corporation" means Winland Electronics, Inc., a Minnesota corporation.

3.05     "Eligible  Employee"  means  any  employee  who,  as  determined  on or
         immediately prior to an Enrollment Period, is a United States full-time
         or part-time employee of the Corporation or one of its Subsidiaries.

3.06     "Enrollment  Period" means the period  determined by the  Administrator
         for purposes of accepting  elections to participate during a Phase from
         Eligible Employees.

3.07     "Fiscal  Year" means the fiscal year of the  Corporation,  which is the
         twelve-month  period  beginning  January 1 and ending  December 31 each
         year.

3.08     "Participant" means an Eligible Employee who has been granted an option
         and is  participating  during a Phase through payroll  deductions,  but
         shall exclude those employees  subject to the limitations  described in
         Section 9.03 below.

3.09     "Phase"  means the  period  beginning  on the date that the  option was
         granted,  otherwise  referred to as the commencement date of the Phase,
         and  ending  on the  date  that the  option  was  exercised,  otherwise
         referred to as the termination date of the Phase.

3.10     "Plan" means the Winland Electronics, Inc. 1997 Employee Stock Purchase
         Plan.

3.11     "Stock" means the voting common stock of the Corporation.

3.12     "Subsidiary"  means any  corporation  defined  as a  subsidiary  of the
         Corporation  in Code  Section  424(f) as of the  effective  date of the
         Plan, and such other  corporations  that qualify as subsidiaries of the
         Corporation  under  Code  Section  424(f)  as  the  Board  approves  to
         participate in this Plan from time to time.



                           ARTICLE IV - ADMINISTRATION

4.01     Administration.  Except for those  matters  expressly  reserved  to the
         Board pursuant to any provisions of the Plan, the  Administrator  shall
         have  full   responsibility  for  administration  of  the  Plan,  which
         responsibility  shall  include,  but  shall  not  be  limited  to,  the
         following:

         (a)      The  Administrator  shall,  subject to the  provisions  of the
                  Plan,  establish,  adopt and revise such rules and  procedures
                  for   administering   the  Plan,  and  shall  make  all  other
                  determinations  as it may deem  necessary or advisable for the
                  administration of the Plan;


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         (b)      The  Administrator  shall,  subject to the  provisions  of the
                  Plan,  determine all terms and conditions  that shall apply to
                  the grant and exercise of options under this Plan,  including,
                  but not  limited to, the number of shares of Stock that may be
                  granted,  the date of grant, the exercise price and the manner
                  of  exercise  of an  option.  The  Administrator  may,  in its
                  discretion,  consider the recommendations of the management of
                  the Corporation when determining such terms and conditions;

         (c)      The  Administrator  shall  have  the  exclusive  authority  to
                  interpret  the   provisions   of  the  Plan,   and  each  such
                  interpretation  or  determination   shall  be  conclusive  and
                  binding for all purposes and on all  persons,  including,  but
                  not  limited to, the  Corporation  and its  Subsidiaries,  the
                  shareholders  of the  Corporation  and its  Subsidiaries,  the
                  Administrator,  the  directors,  officers and employees of the
                  Corporation and its Subsidiaries, and the Participants and the
                  respective successors-in-interest of all of the foregoing; and

         (d)      The Administrator  shall keep minutes of its meetings or other
                  written records of its decisions regarding the Plan and shall,
                  upon requests, provide copies to the Board.


                         ARTICLE V - PHASES OF THE PLAN

5.01     Phases.  The Plan shall be carried out in one or more Phases of six (6)
         months each. Unless otherwise  determined by the Administrator,  in its
         discretion,  Phases  shall  commence  on  January  1 and July 1 of each
         fiscal  year  during  the  term  of the  Plan,  with  the  first  phase
         commencing  on  January  1, 1997 and  ending on June 30,  1997.  No two
         Phases shall run concurrently.

5.02     Limitations. The Administrator may, in its discretion, limit the number
         of shares  available  for  option  grants  during any Phase as it deems
         appropriate.  Without  limiting the foregoing,  in the event all of the
         shares of Stock  reserved for the grant of options  under Section 12.01
         is issued pursuant to the terms hereof prior to the commencement of one
         or more Phases or the number of shares of Stock  remaining is so small,
         in the opinion of the Administrator, as to render administration of any
         succeeding Phase  impracticable,  such Phase or Phases may be cancelled
         or the  number  of shares  of Stock  limited  as  provided  herein.  In
         addition,   if,  based  on  the  payroll   deductions   authorized   by
         Participants at the beginning of a Phase, the Administrator  determines
         that the number of shares of Stock which would be  purchased at the end
         of a Phase  exceeds  the number of shares of Stock  remaining  reserved
         under  Section  12.01  hereof for  issuance  under the Plan,  or if the
         number of shares of Stock for which  options are to be granted  exceeds
         the number of shares  designated for option grants by the Administrator
         for such Phase, then the Administrator shall make a pro rata allocation
         of the shares of Stock  remaining  available  in as nearly  uniform and
         equitable a manner as the Administrator  shall consider  practicable as
         of the  commencement  date of the  Phase or,  if the  Administrator  so
         elects,  as of the  termination  date of the  Phase.  In the event such
         allocation is made as of the commencement  date of a Phase, the payroll
         deductions   which   otherwise  would  have  been  made  on  behalf  of
         Participants shall be reduced accordingly.



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                            ARTICLE VI - ELIGIBILITY

6.01     Eligibility.   Each  employee  who  is  an  Eligible   Employee  on  or
         immediately  prior to the  commencement of a Phase shall be eligible to
         participate in such Phase.


                           ARTICLE VII - PARTICIPATION

7.01     Participation.  Participation  in the Plan is  voluntary.  An  Eligible
         Employee  who  desires  to  participate  in any  Phase of the Plan must
         complete the Plan  enrollment  form provided by the  Administrator  and
         deliver such form to the Administrator or its designated representative
         during the Enrollment Period established by the Administrator  prior to
         the commencement date of the Phase.

7.02     Subsequent  Phases. An Eligible Employee who elects to participate in a
         Phase of a fiscal year shall be deemed to have  elected to  participate
         in each  subsequent  Phase  during that fiscal year and all  subsequent
         fiscal  years unless such  Participant  elects to  discontinue  payroll
         deductions  during a Phase or  exercises  his or her right to  withdraw
         amounts  previously  withheld,  as provided under Article 10 hereof. In
         such event, such Participant must complete a change of election form or
         a new Plan  enrollment  form and file such form with the  Administrator
         during the  Enrollment  Period  prior to the next Phase with respect to
         which the Eligible Employee wishes to participate.


                   ARTICLE VIII - PAYMENT: PAYROLL DEDUCTIONS

8.01     Enrollment.  Each  Eligible  Employee  electing  to  participate  shall
         indicate  such  election  on the Plan  enrollment  form  and  designate
         therein  a  dollar  amount  to  be  deducted  from  such  Participant's
         Compensation  during  each  pay  period  during  the  Phase;  provided,
         however,  that the payroll deduction authorized by the Participant must
         equal or exceed $10 per paycheck. The payroll deductions during a Phase
         shall not equal more than fifteen  percent (15%) of such  Participant's
         Compensation  to be paid  during  such  Phase,  or such  other  maximum
         percentage as the  Administrator  may  establish  from time to time. In
         order to be  effective,  such Plan  enrollment  form  must be  properly
         completed and received by the  Administrator  by the due date indicated
         on such form, or by such other date established by the Administrator.


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8.02     Payroll Deductions. Payroll deductions for a Participant shall commence
         with the  paycheck  issued for the first  payroll  period  that  begins
         immediately  after  the  commencement  date  of  the  Phase  and  shall
         terminate  with the paycheck  issued for the last  payroll  period that
         begins immediately prior to the termination date of that Phase,  unless
         the Participant  elects to discontinue  payroll deductions or exercises
         his or  her  right  to  withdraw  all  accumulated  payroll  deductions
         previously  withheld during the Phase as provided in Article 10 hereof.
         The authorized payroll deductions shall be made over the pay periods of
         such Phase by deducting from the  Participant's  Compensation  for each
         such pay period that dollar amount  specified by the Participant in the
         Plan enrollment form.

         Unless the  Participant  elected to discontinue  payroll  deductions or
         exercised  his  or  her  right  to  withdraw  all  accumulated  payroll
         deductions  previously  withheld  during the preceding  Phase (in which
         event the Participant  must complete a change of election form or a new
         Plan enrollment form, as the case may be, to continue participation for
         any subsequent  Phase), the Corporation shall continue to withhold from
         such  Participant's  Compensation  the same  designated  dollar  amount
         specified by the  Participant in the most recent Plan  enrollment  form
         previously  completed by the  Participant  for all  subsequent  Phases;
         provided,  however,  that the Participant may, if he or she so chooses,
         discontinue payroll deductions for any or all such subsequent Phases by
         properly  completing a new enrollment form during the Enrollment Period
         for such subsequent Phase and delivering such form to the Administrator
         by the due date for receipt of such forms for that Phase.

8.03     Change  in  Compensation   During  a  Phase.  In  the  event  that  the
         Participant's Compensation is increased or decreased during a Phase for
         any  reason  so that the  amount  actually  withheld  on  behalf of the
         Participant as of the  termination  date of the Phase is different from
         the amount anticipated to be withheld as determined on the commencement
         date of the  Phase,  then the  extent  to  which  the  Participant  may
         exercise  his or her  option  shall be based  on the  amounts  actually
         withheld on his or her behalf,  subject to the  limitations  in Article
         IX. In the event of a change in the pay period of any Participant, such
         as from biweekly to monthly, an appropriate adjustment shall be made to
         the  deduction in each new pay period so as to insure the  deduction of
         the proper amount authorized by the Participant.

                              ARTICLE IX - OPTIONS

9.01     Grant of Option.  Subject to Article 10, a Participant  who has elected
         to  participate  in the manner  described  in  Article  VIII and who is
         employed by the Corporation or a Subsidiary as of the commencement date
         of a Phase shall be granted an option as of such date to purchase  that
         number of whole shares of Stock determined by dividing the total amount
         to be credited  to the  Participant's  account by the option  price per
         share set forth in Section  9.02(a)  below.  The option price per share
         for such Stock shall be determined  under Section 9.02 hereof,  and the
         number of shares  exercisable  shall be  determined  under Section 9.03
         hereof.

9.02     Option Price. Subject to the limitations hereinbelow,  the option price
         for such  Stock  shall be the  lower of the  amounts  determined  under
         paragraphs (a) and (b) below:


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                  (a) Eighty-five percent (85%) of the closing price for a share
                  of the Corporation's  Stock as reported on the NASDAQ National
                  Market, NASDAQ SmallCap Market or on an established securities
                  exchange as of the commencement date of the Phase; or

                  (b) Eighty-five percent (85%) of the closing price for a share
                  of the Corporation's  Stock as reported on the NASDAQ National
                  Market, NASDAQ SmallCap Market or on an established securities
                  exchange as of the termination date of the Phase.

         In the event that the  commencement or termination date of a Phase is a
         Saturday, Sunday or holiday, the amounts determined under the foregoing
         subsections  shall  be  determined  using  the  price  as of  the  last
         preceding trading day.

         If the  Corporation's  Stock is not so reported in the NASDAQ  National
         Market,  NASDAQ  SmallCap  Market  or  upon an  established  securities
         exchange,  the option  price shall equal the lesser of (i)  eighty-five
         percent  (85%) of the average of the closing  "bid" and "asked"  prices
         quoted  on the  National  Quotation  Bureau,  Inc.  (or any  comparable
         reporting  service)  as of the  commencement  date of the Phase,  or if
         there are no such quoted "bid" and "asked"  prices on such date, on the
         next  preceding date for which there are quotes,  and (ii)  eighty-five
         percent  (85%) of the average of the closing  "bid" and "asked"  prices
         quoted  on the  National  Quotation  Bureau,  Inc.  (or any  comparable
         reporting service) as of the termination date of the phase, or if there
         are no such quoted "bid" and "asked"  prices on such date,  on the next
         preceding date for which there are such quotes.

         If the Corporation's Stock is not reported on an established securities
         exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or the
         National Quotation Bureau, Inc. (or any comparable  reporting service),
         then the option price shall equal the lesser of (i) eighty-five percent
         (85%) of the fair market value of a share of the Corporation's Stock as
         of the commencement  date of the Phase,  and (ii)  eighty-five  percent
         (85%) of the fair market value of such stock as of the termination date
         of the Phase.  Such "fair  market  value"  shall be  determined  by the
         Board.

9.03     Limitations. No employee shall be granted an option hereunder:

         (a)  Which  permits  his or her  rights  to  purchase  Stock  under all
         employee stock purchase plans of the Corporation or its Subsidiaries to
         accrue at a rate which exceeds  Twenty-Five  Thousand Dollars ($25,000)
         of fair market value of such Stock  (determined at the time such option
         is granted) for each calendar year in which such option is  outstanding
         at any time;

         (b) If such employee would own and/or hold, immediately after the grant
         of the option,  Stock possessing five percent (5%) or more of the total
         combined  voting  power  or  value  of  all  classes  of  stock  of the
         Corporation or of any  Subsidiary.  For purposes of  determining  stock
         ownership under this paragraph, the rules of Section 424(d) of the Code
         shall apply.


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         (c) Which,  if  exercised,  would cause the limits  established  by the
         Administrator under Section 5.02 to be exceeded.

9.04     Exercise of Option. Subject to a Participant's right to withdraw in the
         manner  provided  in  Section  10.01,  a  Participant's  option for the
         purchase  of shares of Stock  will be  exercised  automatically  on the
         termination  date  of  that  Phase.   However,  in  no  event  shall  a
         Participant  be allowed to  exercise an option for more shares of Stock
         than can be purchased  with the payroll  deductions  accumulated by the
         Participant in his or her bookkeeping account during such Phase.

9.05     Delivery of Shares. As promptly as practicable after the termination of
         any  Phase,  the  Corporation's  transfer  agent  or  other  authorized
         representative  shall deliver to each Participant  herein  certificates
         for that number of whole shares of Stock purchased upon the exercise of
         the Participant's  option. Any accumulated payroll deductions remaining
         after the exercise of the Participant's option pursuant to Section 9.04
         above shall remain credited to the  Participant's  bookkeeping  account
         and applied to the  purchase of shares of Stock in the next  succeeding
         Phase,  unless the  Participant  requests a  withdrawal  of such amount
         pursuant to Section 10.01. The shares of the Corporation's common stock
         to be delivered to a Participant  pursuant to the exercise of an option
         under  Section 9.04 of the Plan will be  registered  in the name of the
         Participant.


                            ARTICLE X - WITHDRAWAL OR
                     DISCONTINUATION OF PAYROLL WITHHOLDINGS

10.01    Withdrawal.  A Participant  may request a withdrawal of all accumulated
         payroll  deductions  then  credited  to the  Participant's  bookkeeping
         account by  completing  a change of election  form and filing such form
         with the Administrator. The Participant's request shall be effective as
         of the beginning of the next payroll period  immediately  following the
         date  that  the  Administrator   receives  the  Participant's  properly
         completed change of election form. As soon as administratively feasible
         after the end of that  Phase,  all  payroll  deductions  credited  to a
         bookkeeping   account  for  the  Participant   will  be  paid  to  such
         Participant and no further payroll  deductions will be made during that
         Phase or any future Phase unless the  Participant  completes a new Plan
         enrollment  form as provided in Section 8.02 above.  If the Participant
         requests a withdrawal, the option granted to the Participant under that
         Phase of the Plan shall immediately lapse and shall not be exercisable.
         Partial withdrawals of payroll deductions are not permitted.

         Notwithstanding  the  foregoing,   in  order  to  be  effective  for  a
         particular  Phase,  the  Participant's  request for withdrawal  must be
         properly  completed and received by the  Administrator on or before the
         date that is fifteen  (15) days  before  the date of the last  paycheck
         during the Phase,  or on or before such other date  established  by the
         Administrator. Requests for withdrawal that are received after that due
         date shall not be effective  and no  withdrawal  shall be made,  unless
         otherwise determined by the Administrator.


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10.02    Discontinuation.  A Participant may also request that the Administrator
         discontinue any further payroll deductions that would otherwise be made
         during the  remainder  of the Phase by  completing a change of election
         form and filing such form with the  Administrator on or before the date
         that is fifteen (15) days before the date of the last  paycheck  during
         the  phase,  or on  or  before  such  other  date  established  by  the
         Administrator.  The Participant's  request shall be effective as of the
         beginning of the next payroll  period  immediately  following  the date
         that the Administrator  receives the Participant's  properly  completed
         change of election form.  Upon the effective date of the  Participant's
         request, the Corporation will discontinue making payroll deductions for
         such  Participant  for that Phase,  and all future  Phases,  unless the
         Participant  completes  another  change of  election  form as  provided
         above.


                     ARTICLE XI - TERMINATION OF EMPLOYMENT

11.01    Termination.  If, on or before the  termination  date of any  Phase,  a
         Participant's  employment  terminates  with  the  Corporation  for  any
         reason, voluntarily or involuntarily, including by reason of retirement
         or  death,  the  payroll  deductions  credited  to  such  Participant's
         bookkeeping  account  for such Phase,  if any,  will be returned to the
         Participant and any options granted to such Participant  under the Plan
         shall  immediately  lapse and shall not be  exercisable.  The return of
         such payroll  deductions  shall be made to the  Participant  as soon as
         administratively  practicable  following  the end of the Phase in which
         the  Participant's   termination  occurred.  In  the  event  that  such
         termination  occurs  near  the end of a Phase  and the  Corporation  is
         unable to discontinue  payroll  deductions for such Participant for his
         or her final paycheck(s), such deductions shall still be made but shall
         be returned to the  Participant as provided  herein.  In no event shall
         the  accumulated  payroll  deductions be used to purchase any shares of
         Stock.

         If the  option  lapses  as a result  of the  Participant's  death,  any
         accumulated   payroll   deductions   credited   to  the   Participant's
         bookkeeping  account will be paid to the  Participant's  estate. In the
         event a Participant dies after exercise of the Participant's option but
         prior to  delivery  of the  Stock  to be  transferred  pursuant  to the
         exercise of the option under Section 9.04 above,  any such Stock and/or
         accumulated  payroll deductions  remaining after such exercise shall be
         paid by the Corporation to the Participant's estate.

         The  Corporation  will not be  responsible  for or be  required to give
         effect to the  disposition  of any cash or Stock or the exercise of any
         option in accordance  with any will or other  testamentary  disposition
         made by such  Participant  or in accordance  with the provisions of any
         law concerning intestacy,  or otherwise.  No person shall, prior to the
         death of a  Participant,  acquire  any  interest  in any Stock,  in any
         option or in the cash credited to the Participant's bookkeeping account
         during any Phase of the Plan.

11.02    Subsidiaries.  In  the  event  that  any  Subsidiary  ceases  to  be  a
         Subsidiary of the  Corporation,  the employees of such Subsidiary shall
         be  considered  to have  terminated  their  employment  for purposes of
         Section  11.01  hereof  as of the date the  Subsidiary  ceased  to be a
         Subsidiary of the Corporation.



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                    ARTICLE XII - STOCK RESERVED FOR OPTIONS

12.01    Shares Reserved.  One Hundred Thousand (100,000) shares of Stock, which
         may be authorized but unissued shares of the Corporation (or the number
         and kind of securities to which said 100,000  shares may be adjusted in
         accordance  with Section  14.01  hereof) are reserved for issuance upon
         the exercise of options to be granted under the Plan. Shares subject to
         the  unexercised  portion of any lapsed or expired  option may again be
         subject to option under the Plan.

12.02    Rights  as  Shareholder.  The  Participant  shall  have no  rights as a
         shareholder  with  respect  to  any  shares  of  Stock  subject  to the
         Participant's  option  until  the  date  of  the  issuance  of a  stock
         certificate  evidencing  such shares as provided  in Section  9.05.  No
         adjustment  shall be made for  dividends  (ordinary  or  extraordinary,
         whether in cash, securities or other property),  distributions or other
         rights  for  which  the  record  date is prior to the date  such  stock
         certificate is actually issued, except as otherwise provided in Section
         14.01 hereof.


                   ARTICLE XIII - ACCOUNTING AND USE OF FUNDS

13.01    Bookkeeping  Account.  Payroll  deductions  for  Participants  shall be
         credited to bookkeeping  accounts,  established by the  Corporation for
         each such  Participant  under the Plan. A Participant  may not make any
         cash  payments  into such  account.  Such  account  shall be solely for
         bookkeeping purposes and shall not require the Corporation to establish
         any separate fund or trust hereunder. All funds from payroll deductions
         received or held by the Corporation under the Plan may be used, without
         limitation,  for any corporate purpose by the Corporation,  which shall
         not be obligated to segregate such funds from its other funds.


                       ARTICLE XIV - ADJUSTMENT PROVISION

14.01    General.  Subject to any  required  action by the  shareholders  of the
         Corporation,  in the event of an  increase or decrease in the number of
         outstanding  shares of Stock or in the event the Stock is changed  into
         or exchanged for a different number or kind of shares of stock or other
         securities of the  Corporation  or another  corporation  by reason of a
         reorganization,   merger,   consolidation,   divestiture  (including  a
         spin-off),  liquidation,   recapitalization,   reclassification,  stock
         dividend,  stock split,  combination of shares,  rights offering or any
         other change in the corporate  structure or shares of the  Corporation,
         the Board (or, if the  Corporation is not the surviving  corporation in
         any  such  transaction,   the  board  of  directors  of  the  surviving
         corporation),  in its sole discretion, shall adjust the number and kind
         of  securities  subject to and reserved  under the Plan and, to prevent
         the dilution or enlargement  of rights of those  Eligible  Employees to
         whom  options  have been  granted,  shall adjust the number and kind of
         securities  subject to such outstanding  options and, where applicable,
         the exercise price per share for such securities.


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         In the event of sale by the  Corporation  of  substantially  all of its
         assets and the  consequent  discontinuance  of its business,  or in the
         event of a merger, exchange, consolidation, reorganization, divestiture
         (including a spin-off), liquidation,  reclassification or extraordinary
         dividend (collectively referred to as a "transaction"), after which the
         Corporation  is not the  surviving  corporation,  the Board may, in its
         sole  discretion,  at the  time  of  adoption  of  the  plan  for  such
         transaction, may provide for one or more of the following:

                  (a)      The acceleration of the exercisability of outstanding
                           options granted at the commencement of the Phase then
                           in effect,  to the extent of the accumulated  payroll
                           deductions  made as of the date of such  acceleration
                           pursuant to Article 8 hereof;

                  (b)      The complete termination of this Plan and a refund of
                           amounts  credited  to the  Participants'  bookkeeping
                           accounts hereunder; or

                  (c)      The  continuance  of the Plan  only with  respect  to
                           completion of the then current Phase and the exercise
                           of   options   thereunder.   In  the  event  of  such
                           continuance,  Participants  shall  have the  right to
                           exercise their options as to an equivalent  number of
                           shares  of stock of the  corporation  succeeding  the
                           Corporation by reason of such transaction.

         In the event of a transaction where the Corporation survives,  then the
         Plan shall  continue  in effect,  unless the Board takes one or more of
         the actions  set forth  above.  The grant of an option  pursuant to the
         Plan  shall not limit in any way the right or power of the  Corporation
         to make adjustments,  reclassifications,  reorganizations or changes in
         its capital or business structure or to merge,  exchange or consolidate
         or to  dissolve,  liquidate,  sell or  transfer  all or any part of its
         business or assets.


                   ARTICLE XV - NONTRANSFERABILITY OF OPTIONS

15.01    Nontransferability.  Options  granted under any Phase of the Plan shall
         not be  transferable  and shall be exercisable  only by the Participant
         during the Participant's lifetime.

15.02    Nonalienation.  Neither payroll  deductions  granted to a Participant's
         account,  nor any rights with regard to the exercise of an option or to
         receive Stock under any Phase of the Plan may be assigned, transferred,
         pledged or  otherwise  disposed of in any way by the  Participant.  Any
         such attempted assignment,  transfer, pledge or other disposition shall
         be null and void and without effect,  except that the Corporation  may,
         at its option,  treat such act as an election to withdraw in accordance
         with Section 10.01.



<PAGE>

                     ARTICLE XVI - AMENDMENT AND TERMINATION

16.01    General.  The  Plan  may be  terminated  at any  time by the  Board  of
         Directors,  provided that, except as permitted in Section 14.01 hereof,
         no such termination  shall take effect with respect to any options then
         outstanding. The Board may, from time to time, amend the Plan as it may
         deem proper and in the best  interests of the  Corporation or as may be
         necessary  to  comply  with  Code  Section  423,  as  amended,  and the
         regulations  thereunder,  or  other  applicable  laws  or  regulations;
         provided,  however,  no such amendment shall,  without the consent of a
         Participant,  materially  adversely  affect  or  impair  the right of a
         Participant  with  respect to any  outstanding  option;  and  provided,
         further, that no such amendment shall:

                  (a)      increase the total number of shares for which options
                           may be granted  under the Plan (except as provided in
                           Section 14.01 herein);

                  (b)      modify the group of Subsidiaries  whose employees may
                           be eligible to  participate in the Plan or materially
                           modify any other  requirements  as to eligibility for
                           participation in the Plan; or

                  (c)      materially   increase   the   benefits   accruing  to
                           Participants under the Plan;

         without  the  approval  of  the  Corporation's  shareholders,  if  such
         approval is required for compliance  with Code Section 423, as amended,
         and  the   regulations   thereunder,   or  other   applicable  laws  or
         regulations.


                             ARTICLE XVII - NOTICES

17.01    General.  All  notices,  forms,  elections or other  communications  in
         connection  with the Plan or any Phase thereof shall be in such form as
         specified by the  Corporation or the  Administrator  from time to time,
         and  shall be  deemed to have been  duly  given  when  received  by the
         Participant or his or her personal representative or by the Corporation
         or its designated representative, as the case may be.