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EXHIBIT 10.8    
  

 
 

SEVENTH AMENDMENT TO STOCK PURCHASE AGREEMENT    
  

    THIS SEVENTH AMENDMENT TO STOCK PURCHASE AGREEMENT ("Amendment") is entered into as of this 29th day of June, 2001, by and between Health Net, Inc., a
Delaware corporation ("Seller"), and Florida Health Plan Holdings II, L.L.C., a Florida limited liability company ("Purchaser"). 

RECITALS

    WHEREAS,
Seller and Purchaser entered into that certain Stock Purchase Agreement dated January 19, 2001 (the "Original Agreement") concerning the sale of all of the outstanding
shares of capital stock of Foundation Health, A Florida Health Plan, Inc., a Florida corporation (the "Company")(capitalized terms used but not defined in this Amendment shall have the meanings
given to them in the Agreement (as defined below)); 

    WHEREAS,
Seller and Purchaser amended the Original Agreement by (i) that certain Amendment to Stock Purchase Agreement dated as of February 2, 2001 (the "First
Amendment"), (ii) that certain Second Amendment to Stock Purchase Agreement dated as of February 8, 2001 (the "Second Amendment"), (iii) that certain Third Amendment to Stock
Purchase Agreement dated as of February 16, 2001 (the "Third Amendment"), (iv) that certain Fourth Amendment to Stock Purchase Agreement dated as of February 28, 2001 (the "Fourth
Amendment"), (v) that certain Fifth Amendment to Stock Purchase Agreement dated as of May 1, 2001 (the "Fifth Amendment"), and (vi) that certain Sixth Amendment to Stock Purchase
Agreement dated as of June 4, 2001 (the "Sixth Amendment") (the Original Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment,
and the Sixth Amendment are collectively referred to as the "Agreement"); and 

    WHEREAS,
Seller and Purchaser desire to further modify certain terms of the Agreement on the terms set forth hereinbelow. 

    NOW,
THEREFORE, in consideration of the foregoing and of the mutual obligations, promises and covenants herein contained, the receipt and adequacy of which is hereby acknowledged by
each of the parties hereto, it is hereby agreed as follows: 

    1.  Recitals. The foregoing recitals are true and correct and made a part hereof. 

    2.  Intercompany Accounts. The first sentence of Section 4.7 of the Agreement is hereby replaced in its entirety
with the following: 

All
intercompany accounts between the Company, on the one hand, and Seller or its Affiliates, on the other hand accrued on or before the Closing Date ("Intercompany
Accounts") will be settled within sixty (60) days after the Closing. 

    3.  Purchase Price. Section 1.2 (c) of the Agreement as previously amended is hereby amended to add the
following as new subsections (i), (ii) and (iii): 

    (i)  In
recognition of the fact that the Purchaser's Affiliates own, operate, control or manage other health maintenance organizations which operate in the same service
area as the Company, the Purchaser agrees that neither the Purchaser, nor any of Purchaser's Affiliates, shall engage in any course of conduct, whether directly or indirectly, (a) with the
specifically intended purpose of impairing any economic recovery rights of the Seller or any of Seller's Affiliates under any of this Agreement, the Promissory Note, any agreement or document securing
the payment of the Promissory Note, or the Reinsurance Agreement (collectively, the "Financial Documents"), or (b) with the specifically intended purpose of maximizing any economic recovery
rights of the Purchaser or any of Purchaser's Affiliates under any of the Financial Documents to the detriment of the Seller or any of Seller's Affiliates. The types of conduct prohibited by the
foregoing include, 

 

without limitation, (1) ceasing to market new business in the Company or the shifting of a line of business or subscriber group with a medical loss ratio ("MLR") lower than the Company's
average MLR from the Company into any of Purchaser's Affiliates; provided, however, the foregoing shall not prohibit a shifting of large group point of service business (the "POS") from the Company to
HIP Health Plan of Florida, Inc.'s (who is a Purchaser's Affiliate) large group POS policy issued pursuant to Florida Statutes Section 641.31(38) (2001), (2) the shifting into the
Company from any of Purchaser's Affiliates of a line of business or subscriber group that has a MLR higher than eighty-eight percent (88%), or (3) changes in the Company's and one or more of
Purchaser's Affiliates reimbursement arrangements with providers that are disproportionately more expensive for the Company than for the
Purchaser's Affiliate(s) if such conduct is specifically intended to accomplish one of the aforementioned prohibited purposes listed in (a) or (b) above. 

    (ii) The
payment of the indebtedness due under the Promissory Note shall be guaranteed by Florida Health Plan Management, Inc., a Florida corporation (the
"Manager") pursuant to a guaranty in favor of Seller (the "Guaranty"), which guaranty shall be substantially in the form of the guaranty executed by the Manager and delivered to NCFE or its
subsidiaries or affiliates ("NCFE") in connection with the financing provided by NCFE to Purchaser in connection with the closing of the transactions contemplated by this Agreement. Manager's
obligations under the Guaranty shall be secured by a security interest in all of the Manager's assets in favor of the Seller pursuant to the security agreement (the "Manager
Security Agreement"), which security agreement shall be substantially in the form of the security agreement attached to this Agreement as  Exhibit 1.2(c)(ii), which Manager's
Security Agreement shall be properly executed by the Manager and delivered to Seller at Closing, together
with appropriate financing statements, and any other documents necessary to perfect the security interest of Seller, all duly executed by the Manager. Seller acknowledges and agrees that the rights
and remedies of Seller under the Guaranty and the Manager Security Agreement shall be subordinate and junior to the rights and remedies of NCFE against the Manager and its assets. 

    (iii) The
repayment terms set forth in the Promissory Note are hereby amended as follows: 

    (A) The
interest only payment that would have been due the Seller from the Purchaser on the first (1st) anniversary of the Closing Date shall be due and payable on the
second (2nd) anniversary of the Closing Date. 

    (B) The
annual installment of principal due the Seller under the Promissory Note on the second (2nd) year anniversary of the Closing Date (the "First Principal
Installment") shall be subject to the Deferral Amount (as defined below). The Deferral Amount, if any, shall only apply with respect to the payment of the First Principal Installment, and in no event
shall the Purchaser be entitled to apply the Deferral Amount against the payment or balance of any other indebtedness or sum due under the Promissory Note. The "Deferral Amount" shall be determined as
follows: If the pre-tax statutory margin of the Company for the first (1st) and second (2nd) quarters of the calendar year 2003, determined in accordance with SAP using methods within the
then existing range of generally accepted industry practices and consistent with the Company's past practices, is less than three percent (3%), the First Principal Installment shall be reduced
prorata. Purchaser shall pay the First Principal Installment when due and payable under the Promissory Note, less the Deferral Amount, if any. A sum equal to the Deferral Amount, if any, shall be
added to the principal due under the Promissory Note and shall accrue interest as provided in the Promissory Note, and the Promissory Note shall be re-amortized such that the outstanding
principal balance due under the Promissory Note (including the Deferral Amount, if any), shall be payable in equal annual installments of principal (plus accrued interest) on the third (3rd), fourth
(4th), fifth (5th), and sixth (6th) year anniversaries of the Closing Date. As an example of the foregoing, assuming 

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that the pre-tax statutory margin of the Company for the first (1st) and second (2nd) quarters of the calendar year 2003 is 1.5%, and the amount of the First Principal Installment is
$5,000,000.00, then (i) the Deferral Amount would equal $2,500,000.00, (ii) the amount paid to the Seller on the second (2nd) year anniversary of the Closing Date would equal
$2,500,000.00, (iii) the sum of $2,500,000.00 (i.e., the Deferral Amount) would be added to the principal due under the Promissory Note, and (iv) the remaining annual installments of
principal due under the Promissory Note would equal $5,625,000.00 each (plus accrued interest). 

    4.  Post-Closing Adjustments for Pre-Closing Unpaid Claims and Unused Balance of Premium Deficiency
Reserve. 

    (a) The
first two sentences of Section 1.4 (b) of the Agreement as previously amended are hereby replaced in their entirety with the following: 

For
purposes of this Agreement "IBNR Account Balance" shall mean the amount shown as the balance of the balance sheet account of the Company reflected
as the "Outstanding Claim Liability, including LAE" line item determined as follows and otherwise in accordance with SAP using methods within the then existing range of generally accepted industry
practices and consistent with the Company's past practices which account balance on the Closing Balance Sheet shall equal (i) (x) Seventy Nine Million Five Hundred Ninety Three Thousand Forty
Six and No/100 Dollars ($79,593,046.00) representing the agreed upon best estimate of incurred but not reported claims of the Company that are incurred prior to the Closing Date and reported claims of
the Company that are received by the Company prior to the Closing Date but are unpaid as of the Closing Date, and (y) such additional or reduced amount as is agreed to by the parties to reflect
the July 2001 financial results of the Company (the sum of (x) plus (y) is collectively referred to as the "Closing IBNR"), plus (ii) One Million Three Hundred Ninety Two
Thousand Four Hundred Five and No/100 Dollars ($1,392,405.00) (the "LAE Amount"). For purposes of this Agreement, the phrases
"Pre-Closing Unpaid Claims", "reserve for Pre-Closing Unpaid Claims", and "Pre-Closing Unpaid Claims reserve" shall
each mean an amount equal to the IBNR Account Balance minus the LAE Amount. 

    (b) New
Section 1.4 (c)(A) is added to the Agreement as follows: 

    (i)  On
the dates which are ten (10) days after the three (3), six (6) and nine (9) month anniversaries of the Closing Date (each, a "Recalculation
Date") each of Towers Perrin (Tillinghast) ("TPT"), Seller's actuaries and Milliman & Roberts, Inc. ("M&R") shall recalculate the amount of the Closing IBNR utilizing the best
information then available, including items (1), (2) and (3) listed above in Section 1.4(c), and the recalculated amount of the Closing IBNR as calculated by Seller's actuaries,
M&R and TPT which falls in the middle range of the three such actuaries' recalculations of the amount of the Closing IBNR shall be conclusive as the Closing IBNR for the applicable Recalculation Date.
Each of the Seller's actuaries, M&R and TPT shall deliver to both Seller and Purchaser their recalculated amount of the Closing IBNR with respect to each Recalculation Date. TPT shall be retained
after the Closing by Seller and Purchaser to be prepared to perform the recalculation of the amount of the Closing IBNR at each of the three Recalculation Dates as set forth above. The costs of the
services provided
by TPT shall be split equally between the Seller and the Purchaser. If the amount of the Closing IBNR amount as recalculated on the first (1st) Recalculation Date as set forth above
exceeds the amount of the Closing IBNR on the Closing Balance Sheet, the Seller shall pay to the Company such excess amount within five (5) business days after the date of such determination.
If the amount of the Closing IBNR as recalculated on the second (2nd) Recalculation Date as set forth above exceeds the greater of (a) the amount of the Closing IBNR on the Closing Balance
Sheet, or (b) the 

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amount of the Closing IBNR as recalculated on the first (1st) Recalculation Date, the Seller shall pay to the Company such excess amount within five (5) business days after the
date of such determination. If the amount of the Closing IBNR as recalculated on the third (3rd) Recalculation Date as set forth above exceeds the greater of (x) the amount of the Closing IBNR
on the Closing Balance Sheet, (y) the amount of the Closing IBNR as recalculated on the first (1st) Recalculation Date, or (z) the amount of the Closing IBNR as
recalculated on the second (2nd) Recalculation Date, the Seller shall pay to the Company such excess amount within five (5) business days after the date of such determination. For purposes of
the calculations set forth in Section 1.4(c), (1) the amount of the Closing IBNR in the IBNR Account Balance as stated on the Closing Balance Sheet shall be deemed to equal the greatest
of the amount of the Closing IBNR as stated on the Closing Balance Sheet or as recalculated on any of the Recalculation Dates, and (2) the Seller shall be entitled to a credit towards the
computation of Statutory Surplus for the aggregate amount paid to the Company pursuant to this subsection (i) and such aggregate amount shall be treated as an admitted asset of the Company as
of the Closing Date. 

    (ii) If
the recalculation of the Closing IBNR on any of the Recalculation Dates indicates that the recalculated amount of the Closing IBNR is less than the amount of
the Closing IBNR in the IBNR Account Balance as stated on the Closing Balance Sheet (the "Excess IBNR"), then the Excess IBNR shall be kept on the balance sheet of the Company and shall not in any way
be recognized into income or distributed from the Company for any purpose, except that (i) if there is Excess IBNR as of the recalculation on the six (6) month anniversary of the Closing
Date, fifty percent (50%) of such Excess IBNR shall be applied against any sums due the Company from FH Assurance Company ("FH") under the Reinsurance Agreement, (ii) if there is Excess IBNR as
of the recalculation on the nine (9) month anniversary of the Closing Date which has not been already been applied under (i) above, seventy-five percent (75%) of such Excess
IBNR shall be applied against any sums due the Company from FH under the Reinsurance Agreement, and (iii) if there is Excess IBNR as of the recalculation on the twelve (12) month
anniversary of the Closing Date which has not been already been applied under (i) or (ii) above, one hundred percent (100%) of such Excess IBNR shall be applied against any sums due the
Company from FH under the Reinsurance Agreement. 

    (iii) After
the Closing, Purchaser shall cause the Company to afford Seller's officers, employees, accountants, actuaries, counsel and other authorized representatives,
during normal business hours and with reasonable advance notice, full and complete access to its claims systems and data, books and records, and such additional financial and operating data and other
information as to the Company's businesses as Seller or its duly authorized representatives may from time to time reasonably request in order to make the recalculations contemplated under
Section 1.4(c)(A). Purchaser shall cause its employees and representatives, and those of the Company, to cooperate in good faith with Seller and its representatives in connection with any such
access and examination. 

    (iv) Seller
and Purchaser agree that the LAE Amount on the Closing Balance Sheet will be recalculated one (1) year after the Closing Date to equal two percent
(2%) of the Paid Claims Amount and shall be settled and paid as between the Purchaser and the Seller as provided for in Section 1.4(c) 

    5.  Closing. Section 1.5 of the Agreement as previously amended is hereby replaced in its entirety with the
following: 

    Section 1.5  Closing. The sale and purchase of the Shares contemplated by this Agreement shall take place at a closing (the
"Closing") to be held at the offices of McDermott, Will & Emery located at 201 South Biscayne Boulevard, Miami, Florida at 10:00 a.m. EST
on the date which is one (1) day after the DOI shall have issued an order approving this Agreement and the 

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transactions contemplated by this Agreement, provided that the Closing shall be deemed effective as of the first day of the following calendar month (the "Closing
Date") and the documents delivered by the parties at Closing shall be dated as of the Closing Date; provided,  however, that the
execution and delivery of the Promissory Note shall take place outside the State of Florida at such location as is reasonably
acceptable to the parties. 

    6.  Reinsurance Agreement. Section 2.04 of the Reinsurance Agreement attached to the Agreement as  Exhibit 6.2(j) is hereby revised to delete the phrase "Eighteen
Million and No/100 Dollars ($18,000,000.00 U.S.) and substitute therefor the
phrase "Twenty-Eight Million and No/100 Dollars ($28,000,000.00 U.S.)." 

    7.  Conditions to the Obligations of Purchaser. Section 6.2 of the Agreement is hereby amended to add a new
(iii) to subsection (j) as follows: 

    (iii) Seller
shall deliver to Purchaser a conditional guarantee for the financial obligations of FH Assurance Company under the Reinsurance Agreement. 

    8.  Termination. 

    (a) Section 7.1(b)(i) of
the Agreement is hereby replaced in its entirety with the following: 

    (i)  if
the Closing shall not have occurred on or prior to August 31, 2001; provided,  however, that the right to terminate this Agreement under this
Section 7.l(b)(i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or prior to such date; 

    (b) Section 7.1
of the Agreement is hereby amended to add the following as new subsection (e): 

    (e) during
the period from August 1, 2001 through and including August 31, 2001 if the Closing does not take place on or before July 31, 2001, by
Seller, at Seller's sole option upon prior notice to Purchaser at any time prior to the DOI issuing the final written consent order approving the transactions contemplated by this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, if Seller terminates this Agreement pursuant to the terms of this Section 7.1(e), the Escrow Agent shall immediately
deliver one-half (1/2) of the Deposit to Purchaser and one-half (1/2) of the Deposit to Seller and Seller shall retain such portion of the Deposit
without in any way limiting any of Seller's other rights under this Agreement. 

    9.  Miscellaneous. This Amendment is a part of the Agreement; provided, however, that in the event that there are any
inconsistencies between the terms and provisions of this Amendment and the remaining portions of the Agreement, the terms and provisions of this Amendment shall govern, control and prevail. In all
other respects, the Agreement shall be unchanged and shall remain in full force and effect. The captions appearing in this Amendment are for convenience only and no way define, limit, construe or
describe the scope or intent of any section or paragraph. This Amendment shall not be construed more or less favorably with respect to either party as a consequence of the Amendment or various
provisions hereof have been drafted by one of the parties hereto. This Amendment may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. A facsimile copy of this Amendment and any signatures thereon shall be considered for all purposes as originals. 

[SIGNATURE PAGE FOLLOWS]  

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    IN WITNESS WHEREOF, the undersigned have executed this Seventh Amendment as of the date first above written. 

	 
	 	 
	 	 
	 	 
	 	 

	 	 	 	 	 	 	SELLER:	 	 
	WITNESSES:	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Health Net, Inc., a Delaware corporation
	

 /s/ GARY SCOTT DAVIS   
Print Name: Gary Scott Davis
	
 	

 	
 	

By: /s/ B. CURTIS WESTEN   
Print Name: B. Curtis Westen
Title: Sr. VP, Gen Csl &
Secretary

	

/s/ ED SAWYER   
Print Name: Ed Sawyer
	
 	

 	
 	

 	
 	

 
	

 	
 	

 	
 	

 	
 	

PURCHASER:	
 	

 
	

 	
 	

 	
 	

 	
 	

Florida Health Plan Holdings II, L.L.C., a Florida limited liability company
	

 /s/ DREW A. JOYCE   
Print Name: Drew A. Joyce
	
 	

 	
 	

By: /s/ STEVEN M. SCOTT, M.D.   
Print Name: Steven M. Scott, M.D.
Title: Manager

	

/s/ EDWARD E. SAWYER   
Print Name: Edward E. Sawyer
	
 	

 	
 	

 	
 	

 

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EXHIBIT 10.8

SEVENTH AMENDMENT TO STOCK PURCHASE AGREEMENT<Page>

                          AUGUST TECHNOLOGY CORPORATION

                             1997 STOCK OPTION PLAN
  (RESTATED TO INCLUDE AMENDMENTS AND STOCK ADJUSTMENTS THROUGH APRIL 20, 2001)

                      ARTICLE 1. ESTABLISHMENT AND PURPOSE

         1.1 ESTABLISHMENT. August Technology Corporation (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 1997 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.

         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

                                       1

<Page>

reported on the NASDAQ National Market System, the mean between the reported
high and low sale prices of the Common Stock on such exchange or by the NASDAQ
National Market System 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 National Market System, and bid and
asked prices therefor in the over-the-counter market are reported by the NASDAQ
System or 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 NASDAQ System, or, if not reported thereon, 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 National Market System, 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.

         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
<Page>

         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. In the event the Company's securities
are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, each of the members of the Committee shall be a "Non-Employee Director"
within the meaning of 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. From and after the date on which the Company
first registers a class of its equity securities under Section 12 of the
Exchange Act, no member of the Committee shall be eligible, or shall have been
eligible at any time within the lesser of one year or the period since the
Company first registered a class of its equity securities under Section 12 of
the Exchange Act, to receive an Incentive Stock Option or a Non-Statutory Stock
Option under the Plan.

         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.

         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,

                                       3
<Page>

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.

                      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 2,650,000, subject to adjustment
upon changes in capitalization of the Company as provided in Section 4.3 below.
The maximum number of shares authorized may be increased from time to time by
approval of the Board and, if required pursuant to Rule 16b-3, Section 422A of
the Code, or the rules of any securities exchange or the NASD, or the
shareholders of the Company. 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 Option 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.

                             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, provided that only employees of the Company or a
Subsidiary may be granted Incentive 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 at the same time or
at different times. Incentive Stock Options

                                       4
<Page>

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, of 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 only those shares of
Common Stock which the Optionee has owned for at least six (6) months prior to
the exercise of the stock option, or for such other period of time as may be
required by generally accepted accounting principles. In its sole discretion,
the Committee may determine either at the time of grant or exercise of an
Incentive Stock Option or a Non-Statutory Stock Option, to permit a Optionee to
pay all or any portion of the purchase price by delivery of a promissory note in
form and substance acceptable to the Committee.

         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
adjustments shall be made for dividends or other

                                       5
<Page>

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).

                  (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 an 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 Articles 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

                                       6
<Page>

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.

                  (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 qualify 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 of
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 Option either by

                                       7
<Page>

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 that number of 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 minimum
required tax withholding, based on the minimum statutory withholding rates for
federal and state tax purposes, including payroll taxes, that are applicable to
the supplemental income resulting from the option. In no event may the Company
or any Affiliate withhold shares having a Fair Market Value in excess of such
statutory minimum required tax withholding. An Optionee's election to have the
Company withhold shares of Common Stock or to deliver already-owned shares of
Common Stock is irrevocable, subject to the consent of the Committee, and
subject to such rules as the Committee may adopt to assure compliance with Rule
16b-3, or any successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, if applicable. If 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 minimum
statutory withholding tax due.

            ARTICLE 7. EFFECT OF TERMINATION OF EMPLOYMENT ON OPTIONS

         7.1 TERMINATION OF EMPLOYMENT OR OTHER SERVICE DUE TO DEATH, DISABILITY
OR RETIREMENT. Except as otherwise provided in the agreement evidencing the
option, 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 or in the
agreement evidencing the option, 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 thereafter be deemed to be a
Non-Statutory Stock Option.

                                       8
<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.

               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:

                                       9
<Page>

                  (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.

            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 the Board may deem to be in the best
interests of the Company; provided, however, that no such amendment, without
approval of the

                                       10
<Page>

shareholders of the Company, may (a) materially increase the benefits accruing
to Optionees under the Plan, (b) 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, or (c) materially modify the requirements as to
eligibility for participation in the Plan. 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, all outstanding stock options shall become immediately exercisable prior
to the anticipated effective date of any of the foregoing transactions, whether
or not such options had become exercisable prior to the transaction; provided,
however, that if the Board of Directors, based upon the opinion of either the
Company's independent outside legal counsel or independent certified public
accountants, deems that such acceleration of the exercisability of such options
would prohibit, negate or preclude the transaction under any applicable law or
generally accepted accounting principles then the exercisability of such options
shall not accelerate.

                     ARTICLE 12. EFFECTIVE DATE OF THE PLAN

         12.1 EFFECTIVE DATE. The Plan is effective as of July 31, 1997, 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.

         12.2 DURATION OF THE PLAN. The Plan shall terminate at midnight on July
30, 2007 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

                                       11
<Page>

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.

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