Document:

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                           AMENDMENT NO. 2 TO

                   ADVANCED POWER TECHNOLOGY, INC.

                           STOCK OPTION PLAN

         The ADVANCED POWER TECHNOLOGY, INC., Stock Option Plan ("Plan") is
amended to increase the aggregate amount of Common Stock to be delivered upon
the exercise of all options granted under the Plan from 991,430 to 1,500,000.

         ADOPTED BY BOARD OF DIRECTORS effective May 31, 2000.

         APPROVED BY SHAREHOLDERS effective May 31, 2000.

                                    ---------------------------------
                                    GREG HAUGEN, Secretary

1 - AMENDMENT NO. 2 TO STOCK OPTION PLAN

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                               AMENDMENT NO. 1 TO

                         ADVANCED POWER TECHNOLOGY, INC.

                                STOCK OPTION PLAN

         The ADVANCED POWER TECHNOLOGY, INC., Stock Option Plan ("Plan") is
amended to increase the aggregate amount of Common Stock to be delivered upon
the exercise of all options granted under the Plan from 610,370 to 991,430.

         ADOPTED BY BOARD OF DIRECTORS effective July 1, 1996.

         APPROVED BY SHAREHOLDERS effective July 1, 1996.

                                          --------------------------------------
                                          GREG HAUGEN, Secretary

1 - AMENDMENT NO. 1 TO STOCK OPTION PLAN

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                         ADVANCED POWER TECHNOLOGY, INC.
                                STOCK OPTION PLAN

         SECTION 1. PURPOSE. The purpose of the Advanced Power Technology, Inc.
Incentive Stock Option Plan (this "Plan") is to provide a means whereby
officers, directors and selected employees of Advanced Power Technology, Inc.
(the "Company") or of any subsidiary (as defined in Subsection 5.7 and referred
to hereinafter as "related corporation") thereof, may be granted incentive stock
options (employees only) and/or nonqualified stock options to purchase the
Common Stock (as defined in Section 3) of the Company, in order to attract and
retain the services or advice of such officers and employees and to provide
added incentive to them by encouraging stock ownership in the Company.

         SECTION 2. ADMINISTRATION. This Plan shall be administered by the Board
of Directors of the Company (the "Board") or, in the event the Board shall
appoint and/or authorize a committee to administer this Plan, by such committee.
The administrator of this Plan shall hereafter be referred to as the "Plan
Administrator."

         In the event an officer who is also a member of the Board (or the
committee) may be eligible, subject to the restrictions set forth in Section 4,
to participate in or receive or hold options under this Plan, no member of the
Board of the committee shall vote with respect to the granting of an option
hereunder to himself or herself, as the case may be.

         The members of any committee serving as Plan Administrator shall be
appointed by the Board for such term as the Board may determine. The Board may
from time to time remove members from, or add members to, the committee.
Vacancies on the committee, however caused, may be filled by the Board. If at
any time an insufficient number of disinterested directors is available to serve
on such committee, interested directors may serve on the committee; however,
during such time, if the Company is a company required to report under the
Securities Exchange Act of 1934 ("Exchange Act") no options shall be granted
under this Plan to any person if the granting of such option would not meet the
requirements of Section 16(b) of the Exchange Act.

         For purposes of this Section 2, a disinterested director is a member of
the Board who meets the definition of "disinterested person" as set forth in the
rules and regulations promulgated under Section 16(b) of the Exchange Act, as
amended from time to time. Currently a disinterested director for purposes of
this Section 2 is a member of the Board who for one year prior to service as an
administrator of this Plan has not been granted or awarded equity securities,
including options for equity securities, pursuant to this Plan or any other plan
of the Company or its affiliates, except for certain exclusions described in
Rule 16b-3.

              2.1 PROCEDURES. The Board shall designate one of the members of
the Plan Administrator as chairman. The Plan Administrator may hold meetings at
such times and places as it shall determine. The acts of a majority of the
members of the Plan Administrator present at meetings at which a quorum exists,
or acts reduced to or approved in writing by all Plan Administrator members,
shall be valid acts of the Plan Administrator.

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              2.2 RESPONSIBILITIES. Except for the terms and conditions
explicitly set forth in this Plan, the Plan Administrator shall have the
authority, in its discretion, to determine all matters relating to the options
to be granted under this Plan, including selection of the individuals to be
granted options, the number of shares to be subject to each option, the exercise
price, and all other terms and conditions of the options. Grants under this Plan
need not be identical in any respect, even when made simultaneously. The
interpretation and construction by the Plan Administrator of any terms or
provisions of this Plan or any option issued here-under, or of any rule or
regulation promulgated in connection herewith, shall be conclusive and binding
on all interested parties, so long as such interpretation and construction with
respect to incentive stock options correspond to the requirements of Internal
Revenue Code (the "Code") Section 422, the regulations thereunder, and any
amendments thereto.

              2.3 SECTION 16(b) COMPLIANCE AND BIFURCATION OF PLAN. It is the
intention of the Company that at any time the Company is required to report
under the Exchange Act, this Plan shall comply in all respects with Rule 16b-3
under the Exchange Act and, if any Plan provision is later found not to be in
compliance with such Section, the provision shall be deemed null and void, and
in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3. Notwithstanding anything in the Plan to the
contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
participants who are both officers and directors subject to Section 16(b) of the
Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other participants.

         SECTION 3. STOCK SUBJECT TO THIS PLAN. The stock subject to this Plan
shall be the Company's Common Stock (the "Common Stock"), presently authorized
but unissued or subsequently acquired by the Company. Subject to adjustment as
provided in Section 7 hereof, the aggregate amount of Common Stock to be
delivered upon the exercise of all options granted under this Plan shall not
exceed 610,370 shares as such Common Stock was constituted on the effective date
of this Plan. If any option granted under this Plan shall expire, be
surrendered, exchanged for another option, canceled or terminated for any reason
without having been exercised in full, the unpurchased shares subject thereto
shall thereupon again be available for purposes of this Plan, including for
replacement options which may be granted in exchange for such surrendered,
canceled or terminated options.

         SECTION 4. ELIGIBILITY. An incentive stock option may be granted only
to any individual who, at the time the option is granted, is an employee of the
Company or any related corporation. A nonqualified stock option may be granted
to any officer, director or employee of the Company or any related corporation,
whether an individual or an entity. Any party to whom an option is granted under
this Plan shall be referred to hereinafter as an "Optionee."

         SECTION 5. TERMS AND CONDITIONS OF OPTIONS. Options granted under this
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan. Notwithstanding the
foregoing, options shall include or incorporate by reference the following terms
and conditions:

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              5.1 NUMBER OF SHARES AND PRICE. The maximum number of shares that
may be purchased pursuant to the exercise of each option and the price per share
at which such option is exercisable (the "Exercise price") shall be as
established by the Plan Administrator, provided that the Plan Administrator
shall act in good faith to establish the exercise price which shall be not less
than the fair market value per share of the Common Stock at the time the option
is granted with respect to incentive stock options, provided that, with respect
to incentive stock options granted to greater than 10 percent shareholders, the
exercise price shall be as required by Section 6. For purposes of this Plan, the
fair market value of the Company's stock shall be determined in good faith by
the Company's Board of Directors unless the Company's stock is publicly traded,
in which case the air market value of the Company's stock shall be deemed to be
the average of the bid and ask price as quoted for the date nearest to the date
such value needs to be determined.

              5.2 TERM AND MATURITY. Subject to the restrictions contained in
Section 6 with respect to granting incentive stock options to greater than 10
percent shareholders, the term of each incentive stock option shall be as
established by the Plan Administrator and, if not so established, shall be 10
years from the date it is granted but in no event shall the term of any
incentive stock option exceed 10 years. The term of each nonqualified stock
option shall be as established by the Plan Administrator. To ensure that the
Company or related corporation will achieve the purpose and receive the benefits
contemplated in this Plan, any option granted to any Optionee hereunder shall,
unless the condition of this sentence is waived or modified in the agreement
evidencing the option or by resolution adopted by the Plan Administrator, be
exercisable according to a vesting schedule and the achievement of specific
performance goals as set forth in each option agreement.

              5.3 EXERCISE. Subject to the vesting schedule and the achievement
of performance goals as referred to in subsection 5.2 above and to any
additional holding period required by applicable law, each option may be
exercised in whole or in part; provided, however, that only whole shares will be
issued pursuant to the exercise of any option. During an Optionee's lifetime,
any incentive stock options granted under this Plan are personal to him or her
and are exercisable solely by such Optionee. Options shall be exercised by
delivery to the Company of notice of the number of shares with respect to which
the option is exercised, together with payment of the exercise price.

              5.4 PAYMENT OF EXERCISE PRICE. Payment of the option exercise
price shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's check
or personal check (unless at the time of exercise the Plan Administrator in a
particular case determines not to accept a personal check) for the Common Stock
being purchased. At the discretion of the Plan Administrator, as evidenced in
each Optionee's written option agreement, payment may be made through the
delivery of a full-recourse promissory note executed by the Optionee; provided,
that (i) such note delivered in connection with an incentive stock option shall,
and such note delivered in connection with a nonqualified stock option may, in
the sole discretion of the Plan Administrator, bear interest at a rate specified
by the Plan Administrator but in no case less than the rate required to avoid
imputation of interest (taking into account any exceptions to the imputed
interest rules) for federal income tax purposes, and (ii) the Plan Administrator
in its sole discretion shall specify the term and other provisions of such note
at the time an incentive stock option is granted or at

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any time prior to exercise of a nonqualified stock option, and (iii) the Plan
Administrator may require that the Optionee pledge the Optionee's shares to the
Company for the purpose of securing the payment of such note and may require
that the certificate representing such shares be held in escrow in order to
perfect the Company's security interest, and (iv) the Plan Administrator in its
sole discretion may at any time restrict or rescind this right upon notification
to the Optionee. In addition, at the Optionee's discretion, payment may be made
by transferring Common Stock (acquired by the exercise of the option or
previously owned by Optionee) to the Company in payment of the exercise price.
If payment is made by the transfer of Common Stock, the value of such Stock
shall be its fair market value at the time the option is exercised.

              5.5 WITHHOLDING TAX REQUIREMENT. The Company or any related
corporation shall have the right to retain and withhold from any payment of cash
or Common Stock under the Plan the amount of taxes required by any government to
be withheld or otherwise deducted and paid with respect to such payment. At its
discretion, the Company may require in Optionee receiving shares of Common Stock
to reimburse the Company for any such taxes required to be withheld by the
Company and withhold any distribution in whole or in part until the Company is
so reimbursed. In lieu thereof, the Company shall have the right to withhold
from any other cash amounts due or to become due from the Company to the
Optionee an amount equal to such taxes or retain and withhold a number of shares
having a market value not less than the amount of such taxes required to be
withheld by the Company to reimburse the Company for any such taxes and cancel
(in whole or in part) any such shares so withheld. If the Company is required to
report under the Exchange Act and if required by Section 16(b) of the Exchange
Act, the election to pay withholding taxes by delivery of shares held by any
person who at the time of exercise is subject to Section 16(b) of the Exchange
Act, shall be made either six months prior to the date the option exercise
becomes taxable or during the quarterly 10-day window period required under
Section 16(b) of the Exchange Act for exercises of stock appreciation rights.

              5.6 NONTRANSFERABILITY OF OPTION. Incentive options granted under
this Plan and the rights and privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by the applicable laws of descent and
distribution, and shall not be subject to execution, attachment or similar
process. Any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of any option under this Plan, or of any right or privilege conferred
hereby, contrary to the Code or to the provisions of this Plan, or the sale or
levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void.

              5.7 TERMINATION OF RELATIONSHIP. If the Optionee's relationship
with the Company or any related corporation ceases for any reason other than
termination for cause, death or total disability, and unless by its terms the
option sooner terminates or expires, then the Optionee may exercise, for a
three-month period, that portion of the Optionee's option which is exercisable
at the time of such cessation, but the Optionee's option shall terminate at the
end of such period following such cessation as to all Shares for which it has
not theretofore been exercised, unless such provision is waived in the agreement
evidencing the option or by resolution adopted by the Plan Administrator. IF, in
the case of an incentive stock option, an Optionee's relationship with the
Company or related corporation changes (i.e., from employee to nonemployee, such
as a consultant), such change shall constitute a termination of an Optionee's

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employment with the Company or related corporation and the Optionee's incentive
stock option shall terminate in accordance with this subsection. Upon the
expiration of the three-month period following cessation of employment in the
case of an incentive stock option, or within 90 days of the cessation of an
Optionee's relationship with the Company in the case of a nonqualified stock
option, the Plan Administrator shall have sole discretion in a particular
circumstance to extend the exercise period following such cessation beyond that
specified above. If, however, in the case of an incentive stock option, the
Optionee does not exercise the Optionee's option within three months after
cessation of employment, the option will no longer qualify as an incentive stock
option under the Code.

         If an Optionee is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Optionee shall thereupon have no
right to purchase any shares pursuant to such option. "Termination for cause"
shall mean dismissal for dishonesty, conviction or confession of a crime
punishable by law (except minor violations), fraud, misconduct or disclosure of
confidential information. If an Optionee's relationship with the Company or any
related corporation is suspended pending an investigation of whether or not the
Optionee shall be terminated for cause, all Optionee's rights under any option
granted hereunder likewise shall be suspended during the period of
investigation.

         If an Optionee's relationship with the Company or any related
corporation ceases because of a total disability, the Optionee's option shall
not terminate or, in the case of an incentive stock option, cease to be treated
as an incentive stock option until the end of the 12-month period following such
cessation (unless by its terms it sooner terminates and expires). As used in
this Plan, the term "total disability" refers to a mental or physical impairment
of the Optionee which is expected to result in death or which has lasted or is
expected to last for a continuous period of 12 months or more and which causes
the Optionee to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity. Total disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of total disability to the Plan Administrator.

         For purposes of this subsection 5.7, a transfer of relationship between
or among the Company and/or any related corporation shall not be deemed to
constitute a cessation of relationship with the Company or any of its related
corporations. For purposes of this subsection 5.7, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.

         As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in,
at the time of the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50 percent or more of the total
combined voting power of all classes of stock of each of the corporations other
than the Company is owned by one of the other corporations in such chain. When
referring to a parent corporation, the term "related corporation" shall mean any

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corporation in an unbroken chain of corporations ending with the Company if,
at the time of the granting of the option, each of the corporations other than
the Company owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.

              5.8 DEATH OF OPTIONEE. If an Optionee dies while he or she has a
relationship with the Company or any related corporation or within the
three-month period (or 12-month period in the case of totally disabled
Optionees) following cessation of such relationship, any option held by such
Optionee to the extent that the Optionee would have been entitled to exercise
such option, shall be fully vested and may be exercised prior to the expiration
of its term after his or her death by the personal representative of his or her
estate or by the person or persons to whom the Optionee's rights under the
option shall pass by will or by the applicable laws of descent and distribution.

              5.9 STATUS OF SHAREHOLDER. Neither the Optionee nor any party to
which the Optionee's rights and privileges under the option may pass shall be,
or have any of the rights or privileges of, a shareholder of the Company with
respect to any of the shares issuable upon the exercise of any option granted
under this Plan unless and until such option has been exercised.

              5.10 CONTINUATION OF EMPLOYMENT. Nothing in this Plan or in any
option granted pursuant to this Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of a related corporation, or to
interfere in any way with the right of the Company or of any such corporation to
terminate his or her employment or other relationship with the Company at any
time with or without cause.

              5.11 MODIFICATION AND AMENDMENT OF OPTION. Subject to the
requirements of Code Section 422 with respect to incentive stock options and to
the terms and conditions and within the limitations of this Plan, the Plan
Administrator may modify or amend outstanding options granted under this Plan.
The modification or amendment of an outstanding option shall not, without the
consent of the Optionee, impair or diminish any of his or her rights or any of
the obligations of the Company under such option. Except as otherwise provided
in this Plan, no outstanding option shall be terminated without the consent of
the Optionee. Unless the Optionee agrees otherwise, any changes or adjustments
made to outstanding incentive stock options granted under this Plan shall be
made in such a manner so as not to constitute a "modification" as defined in
Code Section 424(h) and so as not to cause any incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Code Section 422(b).

              5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS. As to all
incentive stock options granted under the terms of this Plan, to the extent that
the aggregate fair market value (determined at the time the incentive stock
option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by the Optionee during any calendar year
exceeds $100,000, such options shall be treated as nonqualified stock options.
The previous sentence shall not apply if the Internal Revenue Service publicly
rules, issues a private ruling to the Company, any Optionee, or any legatee,
personal representative or distributee of an Optionee or issues regulations
changing or eliminating such annual limit.

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         SECTION 6. GREATER THAN 10 PERCENT SHAREHOLDERS.

              6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS. If
incentive stock options are granted under this Plan to employees who own more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any related corporation, the term of such incentive stock options
shall not exceed five years and the exercise price shall be not less than 110
percent of the fair market value of the Common Stock at the time the incentive
stock option is granted. This provision shall control notwithstanding any
contrary terms contained in an option agreement or any other document.

              6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in
determining stock ownership, an employee shall be deemed to own the stock owned,
directly or indirectly, by or for his brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries. If an
employee or a person related to the employee owns an unexercised option or
warrant to purchase stock of the Company, the stock subject to that portion of
the option or warrant which is unexercised shall not be counted in determining
stock ownership. For purposes of this Section 6, stock owned by an employee
shall include all stock actually issued and outstanding immediately before the
grant of the incentive stock option to the employee.

         SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate
number and class of shares for which options may be granted under this Plan, the
number and class of shares covered by each outstanding option and the exercise
price per share thereof (but not the total price), and each such option, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of Company resulting from a split-up or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.

              7.1 EFFECT OF LIQUIDATION, REORGANIZATION OR CHANGE IN CONTROL.

                   7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK. Except as
provided in subsection 7.1.2, upon a merger (other than a merger of the Company
in which the holders of Common Stock immediately prior to the merger have the
same proportionate ownership of Common Stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or stock,
separation, reorganization (other than a mere reincorporation or the creation of
a holding company) or liquidation of the company, as a result of which the
shareholders of the Company receive cash, stock or other consideration in
connection with their shares of Common Stock, any option granted hereunder shall
terminate, but the Optionee shall have the right immediately prior to any such
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise such in whole or in part whether or
not the vesting requirements set forth in the option agreement have been
satisfied.

                   7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE. If
the shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger

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have the same proportionate ownership of Common Stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation or reorganization (other than a mere
reincorporation or the creation of a holding company), all options granted
hereunder shall be converted into options to purchase shares of Exchange Stock
unless the Company and the corporation issuing the Exchange Stock, in their sole
discretion, determine that any or all such options granted hereunder shall not
be converted into options to purchase shares of Exchange Stock but instead shall
terminate in accordance with the provisions of subsection 7.1.1. The amount and
price of converted options shall be determined by adjusting the amount and price
of the options granted hereunder in the same proportion as used for determining
the number of shares of Exchange Stock the holders of the Common Stock receive
in such merger, consolidation, acquisition of property or stock, separation or
reorganization. Unless accelerated by the Board, the vesting schedule set forth
in the option agreement shall continue to apply for the Exchange Stock.

                   7.1.3 CHANGE IN CONTROL. In the event of a "Change in
Control," as defined below, of the Company after the Company has registered any
of its equity securities pursuant to Section 12(b) or 12(g) of the Exchange Act,
unless otherwise determined by the Board prior to the occurrence of such Change
in Control, the following acceleration and cash-out provisions shall apply:

                       (a) Any options or portions thereof outstanding as of the
date such Change in Control is determined to have occurred that are not yet
fully vested on such date shall become immediately exercisable in full; and

                       (b) Subject to Section 16(b) of the Exchange Act,
Optionees shall have, as an alternative to the right to exercise any
nonqualified stock option, the right to elect within 90 days following a Change
in Control to receive in cash an amount equal to the difference between the
option exercise price and the fair market value of the stock on the date of
exercising this election, times the number of shares subject to the option or
portion thereof for which this election is made. The election shall be made by
delivering written notice of making such election to the Company within the
ninety (90) day period. The notice shall specify the options or portions thereof
to which the election relates. The cash-out proceeds shall be paid to the
Optionee or, in the event of death of an Optionee prior to full payment, to the
estate of the Optionee or to a person who acquired the right to exercise the
option by bequest or inheritance.

                   7.1.4 DEFINITION OF "CHANGE IN CONTROL". For purposes of the
Plan, a "Change in Control" shall mean (a) the first approval by the Board or by
the stockholders of the Company of an Extraordinary Event, or (b) Purchase. For
purposes of the Plan, an "Extraordinary Event" shall mean any of the following
actions:

                       (a) Any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant to which
shares of Common Stock would be converted into cash, securities or other
property, other than a merger or the Company in which the holders of Common
Stock immediately prior to the merger have the same proportionate ownership of
common stock of the surviving corporation immediately after the merger;

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                       (b) Any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
the assets of the Company; or

                       (c) The adoption of any plan or proposal for liquidation
or dissolution of the Company.

         For purposes of the Plan, a "Purchase" shall mean the acquisition by
any person (as such term is defined in Section 13(d) of the Exchange Act) of any
shares of Common Stock (or securities convertible into Common Stock) without the
prior approval of a majority of the directors of the Company continuing in
office after the Purchase, if after making such acquisition such person is the
beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act)
directly or indirectly of Securities of the Company representing 20 percent or
more of the combined voting power of the Company's then outstanding securities
(calculated as provided in paragraph (d) of such Rule 13d-3).

              7.2 FRACTIONAL SHARES. In the event of any adjustment in the
number of shares covered by any option, any fractional shares resulting from
such adjustment shall be disregarded and each such option shall cover only the
number of full shares resulting from such adjustment.

              7.3 DETERMINATION OF BOARD TO BE FINAL. All Section 7 adjustments
shall be made by the Board, and its determination as to what adjustments shall
be made, and the extent thereof, shall be final, binding and conclusive. Unless
an Optionee agrees otherwise, any change or adjustment to an incentive stock
option shall be made in such a manner so as not to constitute a "modification"
as defined in Code Section 424(h) and so as not to cause his or her incentive
stock option issued hereunder to fail to continue to qualify as an incentive
stock option as defined in Code Section 422(b).

         SECTION 8. SECURITIES REGULATION. Shares shall not be issued with
respect to an option granted under this Plan unless the exercise of such option
and the issuance and delivery of such shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, any applicable
state securities laws, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance, including the availability of an exemption from registration for the
issuance and sale of any shares hereunder. Inability of the Company to obtain
the authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares hereunder or the unavailability of an exemption
from registration for the issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares as to which such requisite authority shall not have been obtained.

         As a condition to the exercise of an option, the Company may require
the Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the

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aforementioned laws. At the option of the Company, a stop-transfer order against
any shares of stock may be placed in the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation; may be stamped on stock certificates in order to
assure exemption from registration. The Plan Administrator may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.

         Should any of the Company's capital stock of the same class as the
stock subject to options granted hereunder be listed on a national securities
exchange, then at the option of the Company, all stock issued hereunder, if not
previously listed on such exchange, shall be authorized by that exchange for
listing thereon prior to the issuance thereof.

         SECTION 9. AMENDMENT AND TERMINATION.

              9.1 BOARD ACTION. The Board may at any time suspend, amend or
terminate this Plan, provided that except as set forth in Section 7, the
approval of the Company's shareholders is necessary within 12 months before or
after the adoption by the Board of any amendment which will:

                    9.1.1 Increase the number of shares which are to be reserved
for the issuance of options under this Plan;

                    9.1.2 Permit the granting of stock options to a class of
persons other than those presently permitted to receive stock options under this
Plan; or

                    9.1.3 Require shareholder approval under applicable law,
including Section 16(b) of the Exchange Act.

         Any amendment made to this Plan which would constitute a "modification"
to incentive stock options outstanding on the date of such amendment, shall not
be applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.

              9.2 AUTOMATIC TERMINATION. Unless sooner terminated by the Board,
this Plan shall terminate ten years from the earlier of (a) the date on which
this Plan is adopted by the Board or (b) the date on which this Plan is approved
by the shareholders of the Company. No option may be granted after such
termination or during any suspension of this Plan. The amendment or termination
of this Plan shall not, without the consent of the option holder, alter or
impair any rights or obligations under any option theretofore granted under this
Plan.

         SECTION 10. EFFECTIVENESS OF THIS PLAN. This Plan shall become
effective upon adoption by the Board so long as it is approved by the Company's
shareholders any time within 12 months before or after the adoption of this
Plan.

Page 10.  ADVANCED POWER TECHNOLOGY, INC. STOCK OPTION PLAN

<PAGE>

         SECTION 11. PLAN SUBJECT TO SHAREHOLDER AGREEMENT. The administration
of this Plan and the term, conditions and timing of any option granted under
this Plan are subject to the provisions of Section 9 of that certain Agreement
Among the Company and its Shareholders dated as of September 6, 1995.

Adopted by the Board of Directors on December 4, 1995, and approved by the
shareholders on DECEMBER 31, 1995.

Page 11.  ADVANCED POWER TECHNOLOGY, INC. STOCK OPTION PLAN<PAGE>

                         ADVANCED POWER TECHNOLOGY, INC.

                              EMPLOYMENT AGREEMENT
                       (MANAGEMENT & TECHNICAL PERSONNEL)
                            EXEMPT SALARIED EMPLOYEES

     THIS EMPLOYMENT AGREEMENT is made and entered into this day of AUGUST 16,
1985 by and between ADVANCED POWER TECHNOLOGY, INC., a Delaware corporation
("Company") and PATRICK SIRETA an individual ("Employee").

     WHEREAS, Company desires to employ Employee upon the terms and conditions
hereinafter set forth, and Employee desires to be so employed;

     NOW, THEREFORE, in consideration of the mutual promises contained herein,
Company and Employee agree as follows:

1.   EMPLOYMENT

     Company hereby employees Employee as PRESIDENT AND CHIEF EXECUTIVE OFFICER
     of the Company with the powers an duties consistent with such position, and
     Employee hereby accepts such employment, on the terms and conditions
     hereinafter set forth. Employee, subject to the control of the Management
     of Company, agrees to diligently utilize his or her best efforts to further
     the interests of the Company and to discharge those responsibilities and
     duties required for the planning, development, operation, promotion and
     advancement of the Company, and such other duties as Company may require.

2.   TERM AND TERMINATION

     2.1  This Agreement shall terminate upon the happening of any of the
     following events:

          (a)  By mutual agreement between Company and Employee;

          (b)  Unilaterally by Employee without cause;

          (c)  Upon the death of Employee;

          (d)  Upon the good faith determination of the Chief Executive Officer
          of the Company that Employee has become so physically or mentally
          disabled as to be incapable of satisfactorily performing his or her
          duties hereunder for a period of ninety (90) consecutive days, such
          determination based upon a certificate as to such physical or mental
          disability issued by a licensed physician and/or psychiatrist (as the
          case may be) employed by the Company; or

          (e)  By the Company for cause, that is to say only upon Employee's
          conviction of a felony, commission of any material act of dishonesty
          against the Company, material breach of this Agreement by Employee, or
          misconduct by Employee having a substantial adverse effect on the
          business of the Company.

<PAGE>

          (f)  Unilaterally by the Company without cause, in which event
          (Section 2.2 to the contrary not withstanding) the Company will
          continue to pay Employee the full amount due as salary for a period of
          thirty days following notice of termination.

     2.2  In the event that this Agreement is terminated pursuant to Paragraph
     2.1, neither Company nor Employee shall have any remaining duties or
     obligations hereunder, except that Company shall pay to Employee, or his or
     her representatives, such compensation as is due pursuant to Sub-Section
     2.1(f) and Section 3. The provisions of Section 4-9 shall survive
     termination.

     2.3  This Agreement shall not be terminated by any:

          (a)  Merger, whether the Company is or is not the surviving
          corporation; or

          (b)  Transfer of all or substantially all of the assets of the
          Company; or

          (c)  Voluntary or involuntary dissolution or liquidation of the
          Company; or

          (d)  Consolidation to which the Company is a party.

     In the event of any such merger, transfer of assets, dissolution,
     liquidation, or consolidation, the surviving corporation or transferee, as
     the case may be, shall be bound by and shall have the benefits of this
     Agreement, and Company shall take all action to ensure that such
     corporation or transferee is bound by the provisions of this Agreement.

3.   COMPENSATION

     3.1  As the total consideration for services which Employee agrees to
     render hereunder, Employee is entitled to the following:

          (a)  Beginning on AUGUST 16, 1985, an annual base salary at the rate
          of __________Dollars ($150,000), subject to increases at the
          discretion of Company, in accordance with the regular and ordinary
          payment practices of Company. All payroll payments shall be subject to
          deduction of payroll taxes and related deductions as required by law.

          (b)  Participation in all plans or programs sponsored by Company for
          employees in general, including without limitation participation in
          any group health plan, medical reimbursement plan and life insurance
          plan, pension and profit sharing plan.

          (c)  Reimbursement of any and all necessary and reasonable expenses
          incurred by Employee from time to time in the performance of his or
          her duties hereunder, including without limitation entertainment
          expenses and air fare, taxi, automobile, and other traveling expenses.

          (d)  After six (6) months of continuous employment, Employee shall be
          eligible for five (5) working days of paid vacation; after twelve (12)
          months of

<PAGE>

          continuous employment, Employee shall be eligible for ten (10) working
          days of paid vacation; thereafter, Employee shall be eligible for ten
          (10) working days of paid vacation upon the completion of each
          successive twelve (12) month period of continuous employment. Paid
          vacations non-cumulative and must be taken during the twelve (12)
          months following accrual.

          (e)  Such other benefits as Company, in its sole discretion, may from
          time to time provide.

     3.2  Subject to the limitations contained in Paragraph 2.1, if Employee
     shall be absent on account of personal injuries or physical or mental
     disability, Employee shall continue to receive all payments provided in
     this Agreement; provided, however, that any such payments may, at the sole
     option of Company, be reduced by any amount that Employee receives for the
     period covered by such payments as disability compensation under insurance
     policies maintained by Company or under governmental programs.

     3.3  Company shall have the right to deduct from the compensation due to
     Employee hereunder any and all sums required for social security and
     withholding taxes and for any other federal, state, or local tax or charge
     which may be in effect or hereafter enacted or required as a charge on the
     compensation of Employee.

     3.4  Employee shall repay relocation expenses paid by Company if he or she
     voluntarily terminates employment, or is terminated for cause within one
     year from date of employment.

4.   NON-DISCLOSURE

     Employee shall not disclose or use in any way, either during his or her
employment with Company or thereafter, except as required in the course of his
or her employment with Company, any confidential business or technical
information or trade secrets acquired during his or her employment by Company,
whether or not conceived of, discovered, developed or prepared by Employee,
including without limitation any formulae, patterns, inventions, procedures,
processes, plans, devices, products, operations, techniques, know-how,
specifications, data, compilations of information, customer lists, records,
financing or production methods, costs, employees, and information concerning
specific customer requirements, preferences, practices and methods of doing
business, all of which are exclusive and valuable property of Company.

<PAGE>

5.   ASSIGNMENT OF PROPRIETARY INTEREST

     Employee hereby assigns and transfers to Company his or her entire right,
title and interest in and to any and all inventions, improvements, processes,
sketches, methods of production, designs, discoveries, ideas (whether or not
shown or described in writing) or services (collectively "inventions") whether
or not patentable, which are made, conceived or first reduced to practice by
Employee with Company's equipment, supplies, facilities, or trade secrets and on
Company's time, or which relates to the business of Company or Company's actual
or anticipated research or business development, or which results from any work
performed by the Employee for Company. Employee agrees that Company shall have
the right to keep such inventions as trade secrets. To permit Company to claim
rights to which it may be entitled, the Employee agrees to promptly disclose to
Company in confidence all inventions which the employee makes, conceives, or
first reduces to practice during the course of his or her employment or within
one year after termination thereof if such inventions relate to a product,
process or service upon which Employee worked during the period of his or her
employment by Company, and all patent or copyright applications filed by the
Employee within a year after termination of this Agreement. Both during and
after the period of employment with Company, Employee shall further assist
Company in obtaining patents or copyrights on all inventions deemed patentable
or copyrightable by Company in the United States and in all foreign countries,
and shall execute all documents and do all things necessary to obtain letters
patent and/or copyrights, to vest Company with full and extensive title thereto,
and to protect Company's rights against infringement by others. Employee further
agrees that any patent application filed within a year after termination of his
or her employment on an invention for which the Employee was partially or
totally responsible shall be presumed to relate to an invention made during the
term of the Employee's employment unless the Employee can provide evidence to
the contrary.

6.   TANGIBLE ITEMS AS PROPERTY OF COMPANY

     Excluding any personal property owned by Employee prior to the date hereof,
all files, records, documents, drawings, plans, specifications, manuals, books,
forms, receipts, notes, reports, memoranda, studies, data, calculations,
recordings, catalogues, compilations of information, correspondence and all
copies, abstracts and summaries of the foregoing, instruments, tools and
equipment and all other physical items related to the business of Company, other
than a merely personal item of a general professional nature, whether of a
public nature or not, and whether prepared by Employee or not, are and shall
remain the exclusive property of Company and shall not be removed from the
premises of Company under any circumstances whatsoever without the prior written
consent of Company, and the same shall be promptly returned to Company by
Employee on the expiration or termination of his or her employment with Company
or at any time prior thereto upon the request of Company.

<PAGE>

7.   SOLICITATION OF CUSTOMERS AND EMPLOYEES

     Both during and after the period of employment, Employee shall not in any
way attempt to interfere with the business of Company and, shall not call on,
solicit, interfere with or attempt to entice away, either directly or
indirectly, any employee of Company with whom he or she became acquainted during
his or her employment with Company, either for his or her own benefit or
purposes or for the benefit or purposes of any other person, partnership,
corporation, firm, association or other business organization, entity or
enterprise.

8.   NONCOMPETITION

     Except as set forth in this Section 8, for a period of 18 months after
termination of this Agreement, Employee shall not, directly or indirectly,
engage or participate in, assist or have any interest in any person,
partnership, corporation, firm, association or other business organization,
entity or enterprise (whether as an employee, officer, director, agent, security
holder, creditor, consultant or otherwise) which, directly or indirectly,
manufactures, designs, develops, engineers, markets or otherwise produces or
offers for sale or sells inventions, products, processes, systems or services
the same as, similar to or competitive with any devices, inventions, products,
processes, systems or services manufactured, designed, developed, engineered,
marketed or otherwise produced or offered for sale or sold by Company (or any
successor thereof) in the United States or abroad.

     The parties intend that the covenant contained in this Section 8 shall be
construed as a series of separate covenants. If, in any judicial or arbitration
proceeding, a court shall refuse to enforce any of the separate covenants deemed
included in this paragraph, then this unenforceable covenant shall be deemed
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.
Moreover, if, in any judicial or arbitration proceedings, the term of
non-competition shall be determined to be unreasonable, the parties agree that
the term shall be shortened to the maximum period deemed reasonable under the
laws of the state of Oregon, and that modified period shall be enforceable as
though originally set forth herein.

9.   INJUNCTIVE RELIEF

     Employee hereby acknowledges and agrees that it would be difficult to fully
compensate Company for damages resulting from the breach or threatened breach of
Sections 4, 5, 6, 7 or 8 of this Agreement, and accordingly, that Company shall
be entitled to temporary and injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions, to enforce such
Sections without the necessity of proving actual damages therewith. This
provision with respect to injunctive relief shall not, however, diminish
Company's right to claim and recover damages.

<PAGE>

10.  INDEMNIFICATION

     Company shall, to the maximum extent permitted by law, indemnify and hold
Employee harmless against expenses, including reasonable attorney's fees,
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of Employee's
employment with Company if Employee, in incurring the above expenses, acted in
good faith and in a manner Employee believed to be in the best interests of
Company and, in the case of a criminal proceeding, had no reasonable cause to
believe Employee's conduct was unlawful.

11.  COPIES OF AGREEMENT

     Employee authorizes Company to send a copy of this Agreement to any and all
future employers which he or she may have, and to any and all persons, firms,
and corporations, with whom he or she may become affiliated in a business or
commercial enterprise, and to inform any and all such employers, persons, firms
or corporations that Company intends to exercise its legal rights should
Employee breach the terms of this Agreement or should another party induce a
breach of Employee's part.

12.  SEVERABLE PROVISIONS

     The provisions of this Agreement are severable and if any one or more
provisions may be determined to be illegal or otherwise unenforceable, in whole
or in part, the remaining provisions, and any partially unenforceable provisions
to the extent enforceable, shall nevertheless be binding and enforceable.

13.  BINDING AGREEMENT

     This Agreement shall inure to the benefit of and shall be binding upon
Company, its successors and assigns.

14.  CAPTIONS

     The Section captions are inserted only as a matter of convenience and
reference and in no way define, limit or describe the scope of this Agreement or
the intent of any provisions hereof.

15.  ENTIRE AGREEMENT

     This Agreement contains the entire agreement of the parties relating to the
subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
that are not set forth in these documents. No modification of this Agreement
shall be valid unless made in writing and signed by the parties hereto.

16.  GOVERNING LAW

     This Agreement shall be governed and construed in accordance with the laws
of the state of Oregon.

<PAGE>

17.  NOTICES

     Any notice or demand required or permitted to be given hereunder shall be
in writing and shall be deemed effective upon the personal delivery thereof or,
if mailed, forty-eight hours after having been deposited in the United States
mails, postage prepaid, and addressed to the party to whom it is directed at the
address et forth below:

     If to Company:

     ADVANCED POWER TECHNOLOGY, INC.
     405 S. W. Columbia Street
     Bend, Oregon  97702

     With a copy to:
     Thomas J. Poletti, Esq.
     Freshman, Marantz, Orlanski, Comsky & Deutsch
     9100 Wilshire Blvd., Ste. 8-E
     Beverly Hills, CA 90212

     If to EMPLOYEE:
     60462 TALL PINES
     ----------------------------------
     BEND, OREGON, 97702
     ----------------------------------

     ----------------------------------

Either party may change the address to which such notices are to be addressed by
giving the other party notice in the manner herein set forth.

          IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first written above.

ADVANCED POWER TECHNOLOGY, INC.
a Delaware corporation ("Company")

By:   S/S
      Ted Hollinger
      President

         S/S
------------
("Employee")

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