HEALTH FITNESS PHYSICAL THERAPY, INC.

                             1995 STOCK OPTION PLAN
                        (As Amended through June 4, 1997)

                      ARTICLE 1. ESTABLISHMENT AND PURPOSE

         1.1   Establishment.   Health  Fitness  Physical  Therapy,   Inc.  (the
"Company") hereby establishes a plan providing for the grant of stock options to
certain  eligible  employees,  directors and  consultants of the Company and its
subsidiaries.  This  plan  shall be known as the 1995  Stock  Option  Plan  (the
"Plan").

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

                             ARTICLE 2. DEFINITIONS

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

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

         2.2 "Change in Control" means an event described in Article 11 below.

         2.3 "Code" means the Internal Revenue Code of 1986, as amended.

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

         2.5 "Common  Stock" means the common  stock of the  Company,  par value
$.01 per share,  or the  number and kind of shares of stock or other  securities
into which such  Common  Stock may be changed in  accordance  with  Section  4.3
below.

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

         2.7 "Eligible Persons" means individuals who are (a) salaried employees
(including,  without limitation,  officers and directors who are also employees)
of the Company, (b) Non-Employee Directors, or (c) consultants to the Company.

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


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

                  (a) if the  Common  Stock is listed or  admitted  to  unlisted
         trading  privileges  on any national  securities  exchange or is not so
         listed or admitted but transactions in the Common Stock are reported on
         the NASDAQ Stock  Market,  the mean  between the reported  high and low
         sale prices of the Common Stock on such exchange or by the NASDAQ Stock
         Market as of such date (or, if no shares were traded on such day, as of
         the next preceding day on which there was such a trade); or

                  (b) if the Common  Stock is not listed or admitted to unlisted
         trading  privileges or reported on the Nasdaq Stock Market, and bid and
         asked prices  therefor in the  over-the-counter  market are reported by
         the  National  Quotation  Bureau,  Inc.  (or any  comparable  reporting
         service), the mean of the closing bid and asked prices as of such date,
         as reported by the  National  Quotation  Bureau,  Inc. (or a comparable
         reporting service); or

                  (c) if the Common  Stock is not listed or admitted to unlisted
         trading privileges, or reported on the NASDAQ Stock Market, and bid and
         asked prices are not reported,  the price that the Committee determines
         in  good  faith  in the  exercise  of its  reasonable  discretion.  The
         Committee's  determination  as to the current value of the Common Stock
         shall be final,  conclusive  and  binding for all  purposes  and on all
         persons,  including,  without limitation, the Company, the shareholders
         of    the    Company,    the    Optionees    and    their    respective
         successors-in-interest.  No member of the Board or the Committee  shall
         be liable for any  determination  regarding current value of the Common
         Stock that is made in good faith.

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

         2.11  "Non-Employee  Director" means any member of the Board who is not
an employee of the Company or any Subsidiary.

         2.12  "Non-Statutory  Stock  Option"  means a right to purchase  Common
Stock  granted to an Optionee  pursuant to Section 6.6 of the Plan that does not
qualify as an Incentive Stock Option.

         2.13 "Option" means an Incentive Stock Option or a Non-Statutory  Stock
Option.

         2.14  "Optionee"  means an  Eligible  Person who  receives  one or more
Incentive Stock Options or Non-Statutory Stock Options under the Plan.

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


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

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

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

         2.19  "Tax Date" means a date defined in Section 6.5(c) of the Plan.

                         ARTICLE 3. PLAN ADMINISTRATION

         The Plan shall be  administered  by the Board or by a Committee  of the
Board consisting of two or more directors who shall be appointed by and serve at
the pleasure of the Board.  As long as the Company's  securities  are registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, then,
to the  extent  necessary  for  compliance  with Rule  16b-3,  or any  successor
provision,  each  of the  members  of the  Committee  shall  be a  `Non-Employee
Director.' For purposes of this  paragraph,  `Non-Employee  Director' shall have
the same meaning as set forth in Rule 16b-3, or any successor provision, as then
in effect,  of the General Rules and Regulations  under the Securities  Exchange
Act of 1934,  as  amended.  Members of a  Committee,  if  established,  shall be
appointed  from time to time by the Board,  shall  serve at the  pleasure of the
Board and may resign at any time upon written notice to the Board. A majority of
the members of the Committee shall constitute a quorum.  The Committee shall act
by majority  approval of its  members,  shall keep  minutes of its  meetings and
shall provide  copies of such minutes to the Board.  Action of the Committee may
be taken without a meeting if unanimous written consent thereto is given. Copies
of minutes of the  Committee's  meetings  and of its actions by written  consent
shall be  provided  to the  Board  and kept with the  corporate  records  of the
Company.  As used in this Plan,  the term  "Committee"  will refer either to the
Board or to such a Committee, if established.

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


<PAGE>

         Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan shall be conclusive and binding
for all purposes and on all persons, including,  without limitation, the Company
and its Subsidiaries, the shareholders of the Company, the Committee and each of
the members  thereof,  the directors,  officers and employees of the Company and
its Subsidiaries, and the Optionees and their respective successors in interest.
No member of the Committee shall be liable for any action or determination  made
in good faith with respect to the Plan or any Option granted under the Plan.

                      ARTICLE 4. SHARES SUBJECT TO THE PLAN

         4.1 Number.  The maximum number of shares of Common Stock that shall be
reserved for issuance under the Plan shall be Two Million  (2,000,000),  subject
to adjustment upon changes in the  capitalization  of the Company as provided in
Section 4.3 below.  Shares of Common  Stock that may be issued upon  exercise of
Options shall be applied to reduce the maximum  number of shares of Common Stock
remaining available for use under the Plan.

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

         4.3 Change in Shares,  Adjustments,  Etc. If the number of  outstanding
shares of Common  Stock is  increased  or decreased or changed into or exchanged
for a  different  number or kind of shares of stock or other  securities  of the
Company  or of  another  corporation  by reason of any  reorganization,  merger,
consolidation, recapitalization,  reclassification, stock dividend, stock split,
reverse stock split,  combination of shares, rights offering or any other change
in the corporate  structure or shares of the Company,  the Committee (or, if the
Company is not the surviving  corporation in any such transaction,  the board of
directors of the surviving  corporation) shall make appropriate adjustment as to
the number and kind of securities subject to and reserved under the Plan and, in
order to prevent dilution or enlargement of the rights of Optionees,  the number
and kind of securities  subject to outstanding  Options.  Any such adjustment in
any  outstanding  Option shall be made without change in the aggregate  purchase
price  applicable  to  the  unexercised  portion  of  the  Option  but  with  an
appropriate adjustment in the price for each share or other unit of any security
covered  by the  Option.  However,  no change  shall be made in the terms of any
outstanding  Incentive  Stock  Options  as a result  of any such  change  in the
corporate  structure  or shares  of the  Company,  without  the  consent  of the
Optionee  affected  thereby,  that would  disqualify that Incentive Stock Option
from  treatment  under  Section  422  of the  Code  or  would  be  considered  a
modification,  extension  or renewal of an option  under  Section  424(h) of the
Code.


<PAGE>

                             ARTICLE 5. ELIGIBILITY

         Incentive Stock Options or Non-Statutory Stock Options shall be granted
only to those  Eligible  Persons  who,  in the  judgment of the  Committee,  are
performing, or during the term of an Option, will perform, vital services in the
management,  operation  and  development  of the  Company or a  Subsidiary,  and
significantly  contribute  or are expected to  significantly  contribute  to the
achievement of long-term corporate economic objectives. Optionees may be granted
from time to time one or more Incentive Stock Options and/or Non-Statutory Stock
Options under the Plan, in any case as may be determined by the Committee in its
sole  discretion.  The number,  type, terms and conditions of Options granted to
various Eligible  Persons need not be uniform,  consistent or in accordance with
any plan,  whether or not such  Eligible  Persons are  similarly  situated.  The
Committee  may grant both an Incentive  Stock Option and a  Non-Statutory  Stock
Option to the same  Optionee a the same time or at  different  times.  Incentive
Stock Options and  Non-Statutory  Stock Options,  whether granted at the same or
different times, shall be deemed to have been awarded in separate grants,  shall
be clearly  identified,  and in no event will the exercise of one Option  affect
the right to exercise  any other Option or affect the number of shares of Common
Stock for which any other Option may be  exercised.  Upon  determination  by the
Committee  that an Option is to be granted to an Optionee,  written notice shall
be given  such  person  specifying  such  terms,  conditions,  rights and duties
related  thereto.  Each Optionee shall enter into an agreement with the Company,
in such form as the Committee  shall  determine and which is consistent with the
provisions of the Plan, specifying the terms,  conditions,  rights and duties of
Incentive Stock Options and Non-Statutory  Stock Options granted under the Plan.
Options  shall be deemed to be  granted  as of the date  specified  in the grant
resolution  of the  Committee,  which  date  shall  be the  date of the  related
agreement with the Optionee.

                        ARTICLE 6. DURATION AND EXERCISE

         6.1  Manner  of  Option  Exercise.  An Option  may be  exercised  by an
Optionee  in  whole or in part  from  time to time,  subject  to the  conditions
contained herein and in the agreement  evidencing such Option,  by delivery,  in
person or through certified or registered mail, or written notice of exercise to
the Company at its principal  executive office  (Attention:  Secretary),  and by
paying in full the total  Option  exercise  price for the shares of Common Stock
purchased  in  accordance  with  Section  6.3.  Such  notice  shall be in a form
satisfactory  to the  Committee  and shall  specify  the  particular  Option (or
portion  thereof) that is being  exercised and the number of shares with respect
to which the Option is being exercised.  Subject to Section 9.1, the exercise of
the Option shall be deemed effective upon receipt of such notice and payment. AS
soon as  practicable  after the  effective  exercise of the Option,  the Company
shall  record on the stock  transfer  books of the Company the  ownership of the
shares  purchased in the name of the Optionee,  and the Company shall deliver to
the  Optionee  one or  more  duly  issued  stock  certificates  evidencing  such
ownership.

         6.2  Method of  Payment of Option  Exercise  Price.  At the time of the
exercise of an  Incentive  Stock Option or a  Non-Statutory  Stock  Option,  the
Optionee  may  determine  whether the total  purchase  price of the shares to be
purchased  shall be paid solely in cash or by transfer  from the Optionee to the
Company of  previously  acquired  shares of Common  Stock,  or by a  combination
thereof.  In the event the Optionee elects to pay the purchase price in whole or
in part with  previously  acquired  shares of  Common  Stock,  the value of such
shares shall be equal to their Fair Market  Value on the date of  exercise.  The
Committee may reject an  Optionee's  election to pay all or part of the purchase
price with previously  acquired shares of Common Stock and require such purchase
price to be paid entirely in cash if, in the sole  discretion of the  Committee,
payment in previously  acquired shares would cause the Company to be required to
recognize a charge to earnings in  connection  therewith.  For  purposes of this
Section 6.2,  "previously  acquired  shares" shall include both shares of Common
Stock that are already  owned by the Optionee at the time of exercise and shares
of Common  Stock that are to be acquired  pursuant to the exercise of the Option
concerned.  In its sole  discretion,  the Committee may determine  either at the
time of grant or exercise of an Incentive Stock Option or an Non-Statutory Stock
Option,  to permit a Optionee to pay all or any portion of the purchase price by
deliver of a promissory note in form and substance acceptable to the Committee.


<PAGE>

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

         6.4      Incentive Stock Options.

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

                  (b) Aggregate  Limitation of Stock Subject to Incentive  Stock
         Options. Notwithstanding any other provision of the Plan, the aggregate
         Fair Market Value  (determined as of the date an Incentive Stock Option
         is  granted)  of the  shares  of Common  Stock  with  respect  to which
         incentive stock options (within the meaning of Section 422 of the Code)
         are  exercisable  for the first time by an Optionee during any calendar
         year (under the Plan and any other  incentive stock option plans of the
         Company,  any  Subsidiary  or any  parent  corporation  of the  Company
         (within  the meaning of Section  424(e) of the Code))  shall not exceed
         $100,000  (or such other amount as may be  prescribed  by the Code from
         time to time; provided,  however, that if the exercisability or vesting
         of an Incentive  Stock  Option is  accelerated  as permitted  under the
         provisions  of this  Plan  and  such  acceleration  would  result  in a
         violation  of  the  limit   imposed  by  this  Section   6.4(b),   such
         acceleration shall be of full force and effect but the number of shares
         of Common Stock which exceed such limit shall be treated as having been
         granted  pursuant  to  a  Non-Statutory  Stock  Option;  and  provided,
         further,  that the  limits  imposed  by this  Section  6.4(b)  shall be
         applied to all outstanding Incentive Stock Options (under this Plan and
         any other incentive  stock option plans of the Company,  any Subsidiary
         or any parent corporation of the Company (within the meaning of Section
         424(e) of the Code)) in  chronological  order according to the dates of
         grant.


<PAGE>

                  (c) Duration of Incentive  Stock  Options.  The period  during
         which an Incentive  Stock Option may be exercised shall be fixed by the
         Committee  at the time such  Option is  granted,  but in no event shall
         such period exceed ten years from the date the Option is granted or, in
         the  case  of any  Optionee  that  owns,  directly  or  indirectly  (as
         determined pursuant to Section 424(d) of the Code) more than 10% of the
         total combined voting power of all classes of stock of the Company, any
         Subsidiary or any parent corporation of the Company (within the meaning
         of Section 424(e) of the Code),  five years from the date the Incentive
         Stock  Option is  granted.  An  Incentive  Stock  Option  shall  become
         exercisable  at such  times  and in  such  installments  (which  may be
         cumulative)  as shall be  determined  by the  Committee at the time the
         Option is granted.  Upon the  completion  of its  exercise  period,  an
         Incentive Stock Option, to the extent not then exercised, shall expire.
         Except as otherwise  provided in Article 7 or 11, all  Incentive  Stock
         Options  granted to an Optionee  hereunder  shall  terminate and may no
         longer be  exercised  if the  Optionee  ceases to be an employee of the
         Company  and all  Subsidiaries  or if the  Optionee is an employee of a
         Subsidiary and the Subsidiary  ceases to be a Subsidiary of the Company
         (unless the Optionee continues as an employee of the Company or another
         Subsidiary).

                  (d)  Disposition  of Common  Stock  Acquired  Pursuant  to the
         Exercise of Incentive Stock Options.  Prior to making a disposition (as
         defined  in Section  424(c) of the Code) of any shares of Common  Stock
         acquired  pursuant to the exercise of an Incentive Stock Option granted
         under the Plan  before the  expiration  of two years  after the date on
         which the Option was granted or before the expiration of one year after
         the date on which such shares of Common Stock were  transferred  to the
         Optionee  pursuant to exercise of the Option,  the Optionee  shall send
         written notice to the Company of the proposed date of such disposition,
         the number of shares to be  disposed  of, the amount of  proceeds to be
         received from such  disposition and any other  information  relating to
         such disposition that the Company may reasonably request.  The right of
         an Optionee to make any such  disposition  shall be  conditioned on the
         receipt by the Company of all amounts necessary to satisfy any federal,
         state  or  local  withholding  tax  requirements  attributable  to such
         disposition.   The  Committee   shall  have  the  right,  in  its  sole
         discretion, to endorse the certificates representing such shares with a
         legend  restricting  transfer and to cause a stop transfer  order to be
         entered  with the  Company's  transfer  agent  until  such  time as the
         Company  receives the amounts  necessary  to satisfy  such  withholding
         requirements or until the later of the expiration of two years from the
         date the  Option  was  granted  or one year from the date on which such
         shares were transferred to the Optionee pursuant to the exercise of the
         Option.


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                  (e) Withholding Taxes. The Company is entitled to withhold and
         deduct from future wages of the  Optionee,  or make other  arrangements
         for the  collection  of, all  legally  required  amounts  necessary  to
         satisfy  any  federal,  state or  local  withholding  tax  requirements
         attributable  to  any  action  by  the  Optionee,   including,  without
         limitation,  a  disposition  of  shares of Common  Stock  described  in
         Section 6.4(d) above,  that causes the Incentive  Stock Option to cease
         to quality as an incentive  stock option  within the meaning of Section
         422 of the Code.

         6.5      Non-Statutory Stock Options.

                  (a) Option Exercise  Price.  The per share price to be paid by
         the Optionee at the time a Non-Statutory Stock Option is exercised will
         be determined by the  Committee,  but shall not be less than 85% of the
         Fair Market  Value of one share of Common  Stock on the date the Option
         is granted.

                  (b) Duration of Non-Statutory Stock Options. The period during
         which a  Non-Statutory  Stock Option may be exercised shall be fixed by
         the Committee at the time such Option is granted, but in no event shall
         such  period  exceed 10 years and one month from the date the Option is
         granted. A Non-Statutory  Stock Option shall become exercisable at such
         times and in such  installments  (which may be  cumulative) as shall be
         determined by the Committee at the time the Option is granted. Upon the
         completion of its exercise period, a Non-Statutory Stock Option, to the
         extent not then exercised,  shall expire.  Except as otherwise provided
         in Articles 7 or 11, all Non-Statutory  Stock Options granted hereunder
         to an Optionee  who is an  employee of the Company or any  Subsidiaries
         shall  terminate and may no longer be exercised if the Optionee  ceases
         to be an employee of the Company or a Subsidiary  or if the Optionee is
         an  employee  of  a  Subsidiary  and  the  Subsidiary  ceases  to  be a
         Subsidiary of the Company (unless the Optionee continues as an employee
         of the Company or another  Subsidiary).  A  Non-Statutory  Stock Option
         granted  hereunder to an Optionee who is not an employee of the Company
         or a Subsidiary  will  terminate as  determined by the Committee at the
         time of grant.

                  (c)      Withholding Taxes.

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

                           (ii) The Committee may, in its discretion and subject
                  to such rules as the Committee  may adopt,  permit an Optionee
                  to  satisfy,   in  whole  or  in  part,  any  withholding  tax
                  obligation  which may arise in connection with the exercise of
                  a  Non-Statutory  Stock Option  either by electing to have the
                  Company  withhold from the shares of Common Stock to be issued
                  upon  exercise  that number of shares of Common  Stock,  or by
                  electing  to deliver to the  Company  already-owned  shares of
                  Common Stock,  in either case having a Fair Market  Value,  on
                  the date  such tax is  determined  under  the Code  (the  "Tax
                  Date"),   equal  to  the  amount   necessary  to  satisfy  the
                  withholding  amount  due. An  Optionee's  election to have the
                  Company   withhold  shares  of  Common  Stock  or  to  deliver
                  already-owned   shares  of  Common  Stock  upon   exercise  is
                  irrevocable  and is subject to the consent or  disapproval  of
                  the Committee. When shares of Common Stock are issued prior to
                  the Tax  Date to an  Optionee  making  such an  election,  the
                  Optionee  shall agree in writing to  surrender  that number of
                  shares on the Tax Date having an  aggregate  Fair Market Value
                  equal to the tax due.


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            ARTICLE 7. EFFECT OF TERMINATION OF EMPLOYMENT ON OPTIONS

         7.1 Termination of Employment or Other Service Due to Death, Disability
or  Retirement.  In the  event an  Optionee's  employment  or other  service  is
terminated  with the  Company  and all  Subsidiaries  by  reason  of his  death,
Disability  or  Retirement,   all   outstanding   Incentive  Stock  Options  and
Non-Statutory  Stock Options then held by the Optionee shall become  immediately
exercisable in full and remain  exercisable  for a period of three months in the
case of Retirement  and one year in the case of death or  Disability,  provided,
however, that an exercise may not occur after the expiration date thereof in any
event.  The  Company  shall  undertake  to use its best  efforts  to notify  the
Optionee or his heirs or  representatives,  as the case may be, of the last date
by which Options may be exercised  pursuant to this Section 7.1, at least thirty
(30) days in the case of Retirement  and at least sixty (60) days in the case of
death or Disability, prior to such date.

         7.2  Termination  of Employment or Other Service for Reasons Other than
Death, Disability or Retirement.

                  (a) Except as otherwise  provided in Article 11 and subsection
         (b) below,  in the event an  Optionee's  employment or other service is
         terminated with the Company and all  Subsidiaries  for any reason other
         than his death,  Disability or  Retirement,  all rights of the Optionee
         under the Plan shall  immediately  terminate without notice of any kind
         and no Incentive Stock Option or  Non-Statutory  Stock Option then held
         by the Optionee shall thereafter be exercisable.

                  (b)  Notwithstanding  the  provisions of Subsection (a) above,
         upon an Optionee's  termination of employment or other service with the
         Company and all Subsidiaries, the Committee may, in its sole discretion
         (which may be exercised  before or following such  termination),  cause
         Incentive  Stock Options and  Non-Statutory  Stock Options then held by
         such Optionee to become exercisable and to remain exercisable following
         such   termination  of  employment  or  other  service  in  the  manner
         determined by the Committee; provided, however, that no Option shall be
         exercisable  after the  expiration  date thereof in any event,  and any
         Incentive Stock Option that remains  unexercised more than three months
         following  termination of employment  shall therefore be deemed to be a
         Non-Statutory Stock Option.


<PAGE>

         7.3 Date of  Termination.  For  purposes  of the  Plan,  an  Optionee's
employment or other service shall be deemed to have  terminated on the date that
the Optionee  ceases to perform  services for the Company or the last day of the
pay  period  covered  by the  Optionee's  final  paycheck,  as the  case may be.
Notwithstanding the foregoing, the employee Optionee shall not be deemed to have
ceased to be an  employee  for  purposes of the Plan until the later of the 91st
day of any bona fide leave of absence  approved by the  Company or a  Subsidiary
for the Optionee (including, without limitation any layoff) or the expiration of
the  period of any bona fide  leave of  absence  approved  by the  Company  or a
Subsidiary  for the Optionee  (including  without  limitation any layoff) during
which the Optionee's  right to reemployment  is guaranteed  either by statute or
contract.

                    ARTICLE 8. RIGHTS OF EMPLOYEES; OPTIONEES

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

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

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


<PAGE>

               ARTICLE 9. SHARE ISSUANCE AND TRANSFER RESTRICTIONS

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

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

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

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

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

         THE  SECURITIES  EVIDENCED  HEREBY HAVE NOT BEEN  REGISTERED  UNDER THE
         SECURITIES  ACT OF 1933,  AS AMENDED ("THE ACT"),  OR UNDER  APPLICABLE
         STATE   SECURITIES  LAWS.  THESE  SECURITIES  HAVE  BEEN  ACQUIRED  FOR
         INVESTMENT   AND  MAY  NOT  BE  OFFERED  FOR  SALE,   SOLD,   ASSIGNED,
         TRANSFERRED,  PLEDGED,  ENCUMBERED  OR  OTHERWISE  DISPOSED  OF  EXCEPT
         PURSUANT TO AN EFFECTIVE  REGISTRATION STATEMENT UNDER THE ACT AND SUCH
         STATE LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION  UNDER THE ACT
         AND SUCH STATE LAWS, THE  AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
         THE SATISFACTION OF THE COMPANY.


<PAGE>

            ARTICLE 10. PLAN AMENDMENT, MODIFICATION AND TERMINATION

         The Board may suspend or terminate  the Plan or any portion  thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Incentive Stock Options and Non-Statutory Stock
Options  under  the Plan  shall  conform  to any  change in  applicable  laws or
regulations  or in any other  respect  that the Board may deem to be in the best
interests of the Company;  provided,  however,  that no amendment shall,  either
directly or indirectly,  (a)  materially  increase the total number of shares of
Common  Stock as to which  Options  may be  granted  under the  Plan,  except as
provided  in Section  4.3 of the Plan;  (b)  materially  increase  the  benefits
accruing to Optionees under the Plan; or (c) materially  modify the requirements
as to  eligibility  for  participation  in the Plan  without the approval of the
shareholders,  but only if such  approval is required  for  compliance  with the
requirements of any applicable law or regulation;  and provided,  further,  that
the Plan may not,  without the approval of the  shareholders,  be amended in any
manner that will cause Incentive Stock Options to fail to meet the  requirements
of Internal Revenue Code Section 422. No termination, suspension or amendment of
the Plan shall alter or impair any outstanding Option without the consent of the
Optionee  affected  thereby;  provided,  however,  that this sentence  shall not
impair the right of the Committee to take whatever  action it deems  appropriate
under Section 4.3.

                          ARTICLE 11. CHANGE IN CONTROL

         If,  during  the  term  of  an  Option,   (i)  the  Company  merges  or
consolidates  with any other  corporation  and is not the surviving  corporation
after  such  merger  or  consolidation;   (ii)  the  Company  transfers  all  or
substantially  all of its business and assets to any other person; or (iii) more
than 50% of the Company's  outstanding  voting shares are purchased by any other
person, the Committee may, in its sole discretion,  provide for the acceleration
of the right to exercise the option prior to the  anticipated  effective date of
any of the  foregoing  transactions  or take  any  other  action  as it may deem
appropriate to further the purposes of this Plan or protect the interests of the
Optionee.

                     ARTICLE 12. EFFECTIVE DATE OF THE PLAN

         12.1 Effective Date. The Plan is effective as of February 25, 1995, the
effective  date it was  adopted  by the Board  subject  to the  approval  of the
shareholders  within 12 months.  Options may be granted  under the Plan prior to
shareholder approval if made subject to shareholder approval.


<PAGE>

         12.2 Duration of the Plan. The Plan shall  terminate at midnight on ten
(10) years from February 25, 1995 and may be  terminated  prior thereto by Board
action,  and no  Options  shall  be  granted  after  such  termination.  Options
outstanding  upon  termination  of the  Plan may  continue  to be  exercised  in
accordance with their terms.

                            ARTICLE 13. MISCELLANEOUS

         13.1  Governing  Law. The Plan and all  agreements  hereunder  shall be
construed in accordance  with and governed by the laws of the State of Minnesota
without  regard to the conflict of laws  provisions  of any  jurisdictions.  All
parties agree to submit to the  jurisdiction  of the state and federal courts of
Minnesota with respect to matters relating to the Plan and agree not to raise or
assert the defense that such forum is not convenient for such party.

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

         13.3 Construction. Wherever possible, each provision of this Plan shall
be  interpreted  in such a manner as to be effective and valid under  applicable
law, but if any  provision of this Plan 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 Plan.

         13.4 Successors and Assigns.  This Plan shall be binding upon and inure
to  the  benefit  of the  successors  and  permitted  assigns  of  the  Company,
including,  without  limitation,   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 and all such  successors  and
assigns  shall  absolutely  and  unconditionally  assume  all of  the  Company's
obligations under the Plan.

         13.5  Survival  of  Provisions.   The  rights,  remedies,   agreements,
obligations  and  covenants  contained  in or made  pursuant  to the  Plan,  any
agreement  evidencing an Incentive  Award and any other notices or agreements in
connection therewith,  including,  without limitation, any notice of exercise of
an Option,  shall  survive  the  execution  and  delivery  of such  notices  and
agreements  and the  delivery  and  receipt of shares of Common  Stock and shall
remain in full force and effect.