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                                                                    EXHIBIT 10.1

                                  CONFIDENTIAL

                        SEPARATION AGREEMENT AND RELEASE

         This Separation Agreement and Release ("Agreement") is entered into as
of the 1st day of November, 2000, by and between Medical CV, Inc. ("MCV" or
"Company") and Adel A. Mikhail, Ph.D. ("Mikhail").

                                    RECITALS

         Mikhail is currently employed by the Company as its Chief Executive
Office ("CEO"), pursuant to the terms of an employment agreement with the
Company dated January 1, 1995 (the "Employment Agreement").

         Mikhail desires to retire as CEO. The purpose of this Agreement is to
set forth the terms and conditions under which Mikhail will retire and terminate
his employment relationship.

         NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:

         1. SEPARATION. Mikhail's employment with the Company shall terminate
effective on a date specified by the Company following approval by the board of
directors of the Company of the hiring of a new chief executive officer (the
"Termination Date"). Except as provided in Section 13 of this Agreement, the
Employment Agreement is hereby terminated in all respects.

         2. SEVERANCE COMPENSATION. In consideration of the termination of the
Employment Agreement, the Company shall pay Mikhail an amount equal to his base
salary currently in effect as follows: (a) Seventy-Two Thousand Dollars
($72,000), and (b) $72,000 payable in six equal monthly installments commencing
February 1, 2001 and on the first day of each month thereafter until paid in
full. Mikhail hereby acknowledges that other than accrued vacation pay, he is
not owed or entitled to any compensation for work already performed prior to the
date of this Agreement. Mikhail shall also be paid for his unused vacation
benefits through the date of termination of his employment as chief executive
officer of MCV. The provisions of this Section 2 supersede Sections 3.3 and 3.4
of the Employment Agreement.

         3. CONTINUATION AS CEO AND MEMBER OF BOARD OF DIRECTORS. Unless Mikhail
terminates his employment earlier, Mikhail agrees to continue his duties as
interim CEO of the Company until a new CEO is employed by the Company. During
such period, Mikhail shall receive salary and benefits at the same level paid to
him during the year 2000. After his retirement as CEO, Mikhail will continue to
fulfill his duties on the MCV Board of Directors ("Board") and as its Chairman,
subject to the right of the Board to appoint a chairman from time to time after
2001.

         4. VESTED UNEXERCISED STOCK OPTIONS.

                  (a) Mikhail currently has vested stock options to purchase up
         to 420,000 shares of MCV common stock (the "Option") at an exercise
         price of $1.375 per share, expiring on February 2, 2001. The Option
         shall be treated as follows:

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                           (i) Mikhail agrees to exercise 30,000 shares of the
                  Option at an exercise price of $1.375 per share;

                           (ii) Mikhail will surrender the Option to the extent
                  of 240,000 shares;

                           (iii) Mikhail agrees to exercise the remainder of the
                  Option (150,000 shares) on a cashless basis on or before
                  February 2, 2001 in accordance with the following formula:

                  X = 150,000(A-$1.375)/A

                  Where: X = the number of shares to be issued to Mikhail
         pursuant to the cashless exercise; and

                  A = $2.50, the value of one share of common stock as of the
          date of this Agreement, determined in good faith by the Board.

                  (b) MCV shall issue to Mikhail, in consideration of the
         surrendered options, and as an incentive for future services as an
         independent consultant following his retirement as CEO, a warrant in
         the form of Exhibit A to purchase 240,000 shares of MCV common stock
         (the "Warrant") exercisable from and after the date hereof, but prior
         to February 1, 2006 at an exercise price of $2.125 per share. The
         Warrant shall be deemed earned as of the date of this Agreement
         (provided that Mikhail does not rescind or repudiate this Agreement in
         any way) and shall not be subject to revocation or termination if the
         consulting agreement described below is terminated for any reason, or
         if Mikhail is unable to consult due to death or disability.

         5. INDEPENDENT CONSULTANT RELATIONSHIP.

                  (a) Following the termination of his employment as CEO, MCV
         agrees to retain Mikhail as an independent consultant to provide
         advice, counsel and technical expertise with respect to MCV's business
         operations to MCV as requested by the Board or CEO. At all times during
         the consulting relationship, Mikhail shall be an independent contractor
         and not an employee, principal, agent, partner or joint venturer of
         MCV. MCV shall retain Mikhail as a consultant for a period of two years
         following the date on which Mikhail ceases to serve as CEO of MCV.
         During this term, Mikhail shall provide up to 40 hours of consulting
         services per month as requested by the Board or CEO. Mikhail agrees to
         be reasonably available from time to time in a manner consistent with
         Mikhail's advisory and consultant role hereunder. Mikhail may elect to
         render the consulting services directly, or by contract through Medica
         Nova, Inc., a corporation controlled by Mikhail. Following the
         termination of his employment, MCV will give Mikhail an appropriate
         honorary (emeritus) title.

                  (b) Mikhail may terminate the consulting relationship upon at
         least three months written notice to MCV. MCV shall not terminate the
         independent contractor relationship before December 31, 2002, unless
         Mikhail is for any reason unable to perform his duties under this
         agreement for 90 (ninety) consecutive calendar days; or unless it
         provides 90 days' advance written notice to Mikhail and pays him a
         severance of consulting payment equal to the lesser of $72,000 or
         $6,000 per month for each month remaining prior to December 31, 2002.
         After December 31, 2002, the independent consulting relationship shall
         be on an at-will basis.

                  (c) In consideration for Mikhail's consulting services, MCV
         shall pay Mikhail a retainer of $6,000 per month. If additional service
         beyond 40 hours per month is requested by the

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         Board or CEO, MCV shall pay Mikhail an additional $125 per hour, up
         to a maximum of $1,000 per day. The Company also agrees to reimburse
         Mikhail for all reasonable travel, lodging, meals and other expenses
         related to out-of-town travel or entertainment related to such
         consulting services, in accordance with the Company's standard
         reimbursement policies.

                  (d) The Company and Mikhail agree that following the
         termination of his employment and the commencement of his services as
         an independent consultant, Mikhail shall be an independent contractor
         and not an employee of the Company and will not be entitled to any
         compensation or employee benefits, except as specifically provided in
         this Section 5. Mikhail shall be responsible for all federal, state and
         local income and/or other tax obligations relating to all payments made
         by the Company to him, and agrees to indemnify and hold the Company
         harmless from all such obligations, including principal, interest, and
         penalties. Except as authorized by the Company in writing, Mikhail
         shall not be authorized to contractually bind the Company. The parties
         acknowledge that Mikhail will be responsible for maintaining all
         insurance that Mikhail determines may be necessary in connection with
         the consulting services contemplated by this Section 5 and will provide
         the Company with documentary evidence of such on the Company's
         reasonable request. Mikhail is free to engage in all other business and
         professional activities without the consent of, or prior notice to the
         Company, provided that such activities do not directly conflict with
         Mikhail's contractual obligations herein.

                  (e) The Company shall specify the areas of consulting in
         regard to its business and products and Mikhail agrees to complete any
         consulting or projects assigned to him at his own place of business or
         such other location as the Company shall reasonably specify, and at his
         own discretion, will reasonably determine the number of hours required
         and manner of performance.

                  (f) The Company will indemnify Mikhail against any claims,
         damages or liabilities to which Mikhail may become subject as a result
         of the performance by Mikhail of the services contemplated by this
         Agreement, other than claims, damages or liabilities arising out of
         Mikhail's bad faith or willful negligence. The Company also agrees that
         Mikhail shall not have any liability to the Company arising out of the
         performance by Mikhail of the services contemplated by this Agreement,
         except to the extent that any claim, damage or liability is found by a
         court to have resulted from Mikhail's bad faith or willful negligence.
         In addition, with respect to Mikhail's continued service on the board
         of directors of the Company, the Company will indemnify Mikhail to the
         full extent provided in the Company's bylaws and Minnesota Business
         Corporation Act, Section 302A.551.

         6. REDEMPTION OF STOCK. The provisions of Section 6 of the Employment
Agreement with respect to the redemption of Mikhail's stock following
termination of employment are hereby waived.

         7. CONSIDERATION. Mikhail acknowledges and agrees that MCV's payments
to him and all other promises of MCV to him set forth in this Agreement
constitute full and adequate consideration for this Agreement and that, if
Mikhail does not sign this Agreement or if he rescinds pursuant to paragraph 11,
or otherwise challenges the effectiveness of all or any part of this Agreement
at any time, or breaches any of his obligations contained in this Agreement at
any time, the Company shall have no obligation to provide any portion of the
consideration specified.

         8. RELEASE. In exchange for the consideration stated and acknowledged
herein, and except as provided herein, Mikhail, including anyone who has or
obtains any legal rights or claims through or from Mikhail, hereby
unconditionally releases and discharges MCV, its affiliates and related
entities, predecessors, successors, any MCV pension, welfare or other employee
benefit plan, and any and all past and present: owners, officers, directors,
shareholders, partners, employees, agents, consultants,

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representatives, attorneys, trustees, administrators affiliated with any of
the foregoing (jointly referred to as "Released Parties" or in the singular
as a "Released Party") from any and all past or present claims, demands,
obligations, actions, causes of action, damages, costs, debts, liabilities,
expenses and compensation of any nature, whether for compensatory or punitive
damages, and whether based on statute or ordinance, in tort, contract,
quasi-contract or other theory of recovery (collectively the "Claims" and
individually a "Claim"), including but not limited to any Claims arising
under the Age Discrimination in Employment Act, as amended; Title VII of the
Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the
Americans with Disabilities Act; the Employee Retirement Income Security Act
of 1974 (ERISA); the Age Discrimination in Employment Act, or any other
federal, state or local discrimination law including but not limited to the
Minnesota Human Rights Act; and those claims based on wrongful discharge,
breach of an implied or express contract, promissory estoppel, emotional
distress, defamation, misrepresentation, fraud, public policy, common law,
good faith and fair dealing, negligence or any other Claim that Mikhail now
has or may have arising out of the relationship between the parties to date,
including this termination of Mikhail's employment, whether such Claims are
known or unknown, foreseen or unforeseen, at the time of executing this
Agreement. The foregoing unconditional release and discharge shall not be
construed to constitute a release of any claims which Mikhail may have now or
in the future against Principal Financial Group as asset custodian,
administrator or trustee of the Company's 401-K retirement plan.

         Mikhail further represents that he has not, and agrees to not,
institute any individual lawsuit or claims against any Released Party, and to
not pursue any claims against any Released Party or otherwise sue the Company or
any Released Party based on any claim relating in any way to Mikhail's
relationship with MCV up to the time of executing this Agreement. In the event
that any such claim or action has been or is asserted by Mikhail or anyone
acting directly or indirectly on his behalf, Mikhail agrees that this release
shall act as a total and complete bar to any recovery or relief by him or any
party acting directly or indirectly on his behalf. The foregoing release by
Mikhail shall not apply to and shall not affect Mikhail's right to enforce the
terms of this Agreement or to seek remedy for the breach of this Agreement nor
to subsequently assert any claim arising from acts occurring after the effective
date of this Agreement.

         9. RETURN OF PROPERTY. Upon termination of Mikhail's engagement as an
independent consultant, Mikhail agrees to return promptly all files, documents,
manuals or property of any kind in his possession or control relating to, or
constituting the property of, the MCV, its affiliates or customers including,
but not limited to, all office keys, keys to MCV vehicles, credit cards,
security cards, office equipment, cellular phones, computer hardware, software
products, MCV products or prototypes. Mikhail acknowledges that this obligation
is continuing and agrees to promptly return to the MCV any subsequently
discovered property as described above. Mikhail further agrees to make his
personal computer available for review of information, data, records and files
stored therein, and to allow MCV to retrieve or delete, at MCV's discretion, any
and all such information, data, records or files constituting the property of
MCV.

         10. CONSIDERATION OF AGREEMENT. Mikhail may consider this Agreement
prior to signing for up to 21 days from the date he receives it. The parties
agree that any changes in this Agreement made prior to signing, whether material
or not, do not restart the 21-day period for consideration. If Mikhail signs
this Agreement prior to expiration of the 21-day period, any right to further
consideration is forfeited and the rescission period described in Paragraph 11
of this Agreement begins immediately.

         11. RESCISSION. Mikhail may rescind and revoke this Agreement for
any reason within fifteen (15) calendar days after signing it. To be
effective, the rescission or revocation must be in writing and hand-delivered
or mailed to Nancy J. Wolf, Briggs and Morgan, W2200 First National Bank
Building, 332 Minnesota Street, St. Paul, Minnesota 55101-1396, within the
15-day period. If mailed, the rescission

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or revocation must be (a) postmarked within the 15-day period, (b) properly
addressed as set forth in the preceding sentence, and (c) sent by Certified
Mail, Return Receipt Requested. If delivered by hand, it must be given to
Nancy J. Wolf, within the 15-day period. This revocation period shall
include, and not be in addition to, the seven (7) day revocation period under
the Age Discrimination in Employment Act. Should Mikhail choose to rescind
this Agreement, all terms hereof are canceled and thereby ineffective.

         12. MERGER. This Agreement supersedes all prior oral and written
agreements and communications between the parties regarding their respective
subject matter, except for survival of the restrictive covenants as discussed in
paragraph 13, below.

         13. SURVIVAL OF CERTAIN PROVISIONS OF EMPLOYMENT AGREEMENT. The Company
and Mikhail acknowledge and agree that Sections 5, 6, 12 and 13 of the
Employment Agreement shall survive the termination thereof and shall also be
applicable to the consulting relationship between the Company and Mikhail
contemplated by this Agreement.

         14. SEVERABILITY. In case any one or more of the provisions of this
Agreement should be determined invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
in this Agreement will not in any way be affected or impaired thereby, except by
application of the provision of paragraph 18 below.

         15. ASSIGNMENT. No assignment of this Agreement shall be made by
Mikhail, and such purported assignment shall be null and void.

         16. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the internal laws of the State of Minnesota, without regard to
conflicts of laws provisions.

         17. SAVINGS CLAUSE. The parties agree that the scope and terms of this
Agreement are reasonable and that it is the parties' intent and desire that this
Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in the jurisdiction in which enforcement is sought. If
any particular provision of this Agreement shall be adjudicated to be invalid or
unenforceable, the parties specifically authorize the tribunal making such
determination to replace the invalid or unenforceable provision to allow this
Agreement, and the provisions thereof, to be valid and enforceable to the
fullest extent allowed by law and/or public policy.

         18. VOLUNTARY AND KNOWING ACTION. Mikhail acknowledges that he has been
advised in writing hereby to consult an attorney regarding the terms of this
Agreement; that he has had the opportunity to be represented by his own personal
attorney; that he has read and understands the terms of this Agreement; and that
he is voluntarily and without duress entering into this Agreement with full
knowledge of its implications. Mikhail specifically states that he has not been
represented by any attorney associated with Briggs and Morgan, Professional
Association in the negotiation, preparation, or review of this Agreement.

         IN WITNESS WHEREOF, the parties have caused this Separation Agreement
and Release to be executed as of the date first above written.

                                                  MEDICALCV, INC.
Dated:  June 7, 2001                              By: /s/ Blair Mowery
                                                  Its: CEO - Elect

Dated:  June 7, 2001                              /s/ Adel Mikhail, Ph.D.

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                                                                    EXHIBIT 10.2

                               C V DYNAMICS, INC.

                             1992 STOCK OPTION PLAN

1.       PURPOSE

         The purpose of C V Dynamics, Inc. 1992 Stock Option Plan (the "Plan")
is to promote the interests of C V Dynamics, Inc., a Minnesota corporation (the
"Company"), by providing employees of the Company and certain independent
contractors with an opportunity to acquire a proprietary interest in the Company
and thereby develop a stronger incentive to contribute to the Company's
continued success and growth. In addition, the granting of stock options will
assist the Company in attracting and retaining key personnel of outstanding
ability.

2.       DEFINITIONS

         Wherever used in the Plan, the following terms have the meanings set
forth below:

         2.1 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder.

         2.2 "Committee" means a committee of the Board of Directors of the
Company designated by such Board to administer the Plan and composed of not less
than two directors. Beginning on the date the Company first registers the Stock
under Section 12 of the Securities Exchange Act of 1934, each member of the
Committee must be a "disinterested person" within the meaning of Rule 16b-3.

         2.3 "Incentive Stock Option" or "ISO" means a stock option which is
intended to qualify as an incentive stock option as defined in Section 422 of
the Code.

         2.4 "Non-Statutory Stock Option" or "NSO" means a stock option that is
not intended to, or does not, qualify as an incentive stock option as defined in
Section 422 of the Code.

         2.5 "Option" means, where required by the context of the Plan, an ISO
or NSO granted pursuant to the Plan.

         2.6 "Optionee" means a Participant in the Plan who has been granted one
or more Options under the Plan.

         2.7 "Participant" means an individual described in Section 5 of this
Plan who may be granted Options under the Plan.

         2.8 "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934.

         2.9 "Stock" means the Common Stock, $.01 par value, of the Company.

         2.10 "Subsidiary" means any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns 50% or
more of the voting stock in one of the other corporations in such chain.

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3.       ADMINISTRATION

         3.1 The Plan shall be administered by the Committee, which shall have
full power, subject to the provisions and restrictions of the Plan, to grant
Options, construe and interpret the Plan, establish rules and regulations with
respect to the Plan and Options granted hereunder, and perform all other acts,
including the delegation of administrative responsibilities, that it believes
reasonable and necessary.

         3.2 The Committee shall have the sole discretion, subject to the
provisions of the Plan, to determine the Participants eligible to receive
Options pursuant to the Plan and the amount, type, and terms of any Options and
the terms and conditions of option agreements relating to any Option.

         3.3 The Committee may correct any defect, supply any omission, or
reconcile any inconsistency in the Plan or in any Option granted hereunder in
the manner and to the extent it shall deem necessary to carry out the terms of
the Plan.

         3.4 Any decision made, or action taken, by the Committee arising out of
or in connection with the interpretation and administration of the Plan shall be
final, conclusive and binding upon all Optionees.

4.       SHARES SUBJECT TO THE PLAN

         4.1 NUMBER. The total number of shares of Stock reserved for issuance
upon exercise of Options under the Plan is 500,000. Such shares shall consist of
authorized but unissued Stock. If any Option granted under the Plan lapses or
terminates for any reason before being completely exercised, the shares covered
by the unexercised portion of such Option may again be made subject to Options
under the Plan.

         4.2 CHANGES IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock of the Company by reason of any stock dividend,
split, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, or rights offering to purchase stock at a price
substantially below fair market value, or other similar corporate change, the
aggregate number of shares which may be subject to Options under the Plan and
the terms of any outstanding Option, including the number and kind of shares
subject to such Options and the purchase price per share thereof, shall be
appropriately adjusted by the Committee, consistent with such change and in such
manner as the Committee, in its sole discretion, may deem equitable to prevent
substantial dilution or enlargement of the rights granted to or available for
Optionees. Notwithstanding the preceding sentence, in no event shall any
fraction of a share of Stock be issued upon the exercise of an Option.

5.       ELIGIBLE PARTICIPANTS

         The following persons are Participants eligible to participate in the
Plan:

         5.1 INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary, including officers and
directors who are also employees of the Company or any Subsidiary.

         5.2 NON-STATUTORY STOCK OPTIONS. Non-statutory stock options may be
granted to (i) any employee of the Company or any Subsidiary, including any
officer or director who is also an employee of the Company or any Subsidiary;
and (ii) any consultant to, or other independent contractor of, the Company who
is not a director of the Company.

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6.       GRANT OF OPTIONS

         Subject to the terms, conditions, and limitations set forth in this
Plan, the Company, by action of the Committee, may from time to time grant
Options to purchase shares of the Company's Stock to those eligible Participants
as may be selected by the Committee, in such amounts and on such other terms as
the Committee in its sole discretion shall determine. Such Options may be (i)
"Incentive Stock Options" so designated by the Committee and which, when
granted, are intended to qualify as incentive stock options as defined in
Section 422 of the Code; (ii) "Non-Statutory Stock Options" so designated by the
Committee and which, when granted, are not intended to, or do not, qualify as
incentive stock options under Section 422 of the Code; or (iii) a combination of
both. The date on which the Committee approves the granting of an Option shall
be the date of grant of such Option, unless a different date is specified by the
Committee on such date of approval. Notwithstanding the foregoing, with respect
to the grant of any Incentive Stock Option under the Plan, the aggregate fair
market value of Stock (determined as of the date the Option is granted) with
respect to which Incentive Stock Options are exercisable for the first time by
an Optionee in any calendar year (under all such stock option plans of the
Company or Subsidiaries) shall not exceed $100,000. Each grant of an Option
under the Plan shall be evidenced by a written stock option agreement between
the Company and the Optionee setting forth the terms and conditions, not
inconsistent with the Plan, under which the Option so granted may be exercised
pursuant to the Plan and containing such other terms with respect to the Option
as the Committee in its sole discretion may determine.

7.       OPTION PRICE AND FORM OF PAYMENT

         The purchase price for a share of Stock subject to an Option granted
hereunder shall not be less than 100% of the fair market value of the Stock. For
purposes of this Section 7, the "fair market value" of the Stock shall be
determined as follows:

                           (a) if the Stock of the Company is listed or admitted
                  to unlisted trading privileges on a national securities
                  exchange, the fair market value on any given day shall be the
                  closing sale price for the Stock, or if no sale is made on
                  such day, the closing bid price for such day on such exchange;

                           (b) if the Stock is not listed or admitted to
                  unlisted trading privileges on a national securities exchange,
                  the fair market value on any given day shall be the closing
                  sale price for the Stock as reported on the NASDAQ National
                  Market System on such day, or if no sale is made on such day,
                  the closing bid price for such day as entered by a market
                  maker for the Stock;

                           (c) if the Stock is not listed on a national
                  securities exchange, is not admitted to unlisted trading
                  privileges on any such exchange, and is not eligible for
                  inclusion in the NASDAQ National Market System, the fair
                  market value on any given day shall be the average of the
                  closing representative bid and asked prices as reported on the
                  NASDAQ System, and if not reported on such system, then as
                  reported by the National Quotation Bureau, Inc. or such other
                  publicly available compilation of the bid and asked prices of
                  the Stock in any over-the-counter market on which the Stock is
                  traded; or

                           (d) if there exists no public trading market for the
                  Stock, the fair market value on any given day shall be an
                  amount determined in good faith by the Committee in such
                  manner as it may reasonably determine in its discretion,
                  provided that such amount shall not be less than the book
                  value per share as reasonably determined by the Committee as
                  of the date of determination or less than the par value of the
                  Stock.

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         Notwithstanding the foregoing, in the case of an Incentive Stock Option
granted to any Optionee then owning more than 10% of the voting power of all
classes of the Company's stock, the purchase price per share of the Stock
subject to such Option shall not be less than 110% of the fair market value of
the Stock on the date of grant of the Incentive Stock Option, determined as
provided above.

         Except as provided herein, the purchase price of each share of Stock
purchased upon the exercise of any Option shall be paid:

                           (a) in United States dollars in cash or by check,
                  bank draft or money order payable to the order of the Company;
                  or

                           (b) at the discretion of the Committee, through the
                  delivery of shares of Stock valued at fair market value at the
                  time the Option is exercised (as determined in the manner
                  provided under this Plan); or

                           (c) at the discretion of the Committee, by a
                  combination of both (a) and (b) above; or

                           (d) by such other method as may be permitted in the
                  written stock option agreement between the Company and the
                  Optionee.

         If such form of payment is permitted, the Committee shall determine
procedures for tendering Stock as payment upon exercise of an Option and may
impose such additional limitations and prohibitions on the use of Stock as
payment upon the exercise of an option as it deems appropriate.

         If the Committee in its sole discretion so agrees, the Company may
finance the amount payable by an Optionee upon exercise of any Option upon such
terms and conditions as the Committee may determine at the time such Option is
granted under this Plan.

8.       EXERCISE OF OPTIONS

         8.1 MANNER OF EXERCISE. An Option, or any portion thereof, shall be
exercised by delivering a written notice of exercise to the Company and paying
to the Company the full purchase price of the Stock to be acquired upon the
exercise of the Option. Until certificates for the Stock acquired upon the
exercise of an Option are issued to an Optionee, such Optionee shall not have
any rights as a shareholder of the Company with respect to such Stock.

         8.2 LIMITATIONS AND CONDITIONS ON EXERCISE OF OPTIONS. In addition to
any other limitations or conditions contained in this Plan or that may be
imposed by the Committee from time to time or in the stock option agreement to
be entered into with respect to Options granted hereunder, the following
limitations and conditions shall apply to the exercise of Options granted under
this Plan:

                  8.2.1 No Incentive Stock Option may be exercisable by its
         terms after the expiration of 10 years from the date of the grant
         thereof.

                  8.2.2 No Incentive Stock Option granted pursuant to the Plan
         to an eligible Participant then owning more than 10% of the voting
         power of all classes of the Company's stock may be exercisable by its
         terms after the expiration of five years from the date of the grant
         thereof.

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                  8.2.3 To the extent required to comply with Rule 16b-3, Stock
         acquired upon exercise of an Option granted under to the Plan may not
         be sold or otherwise disposed of for a period of six months from the
         date of grant of the Option.

9.       INVESTMENT PURPOSES

         Unless a registration statement under the Securities Act of 1933 is in
effect with respect to Stock to be purchased upon exercise of Options to be
granted under the Plan, the Company shall require that an Optionee agree with
and represent to the Company in writing that he or she is acquiring such shares
of Stock for the purpose of investment and with no present intention to
transfer, sell or otherwise dispose of such shares of Stock other than by
transfers which may occur by will or by the laws of descent and distribution,
and no shares of Stock may be transferred unless, in the opinion of counsel to
the Company, such transfer would be in compliance with applicable securities
laws. In addition, unless a registration statement under the Securities Act of
1933 is in effect with respect to the Stock to be purchased under the Plan, each
certificate representing any shares of Stock issued to an Optionee hereunder
shall have endorsed thereon a legend in substantially the following form:

         THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT
         REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
         AND WITHOUT REGISTRATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, IN
         RELIANCE UPON EXEMPTION(S) CONTAINED THEREIN. NO TRANSFER OF THESE
         SHARES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT PURSUANT TO EFFECTIVE
         REGISTRATION STATEMENTS UNDER SUCH LAWS UNLESS THE COMPANY HAS RECEIVED
         AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER OR
         DISPOSITION DOES NOT REQUIRE REGISTRATION UNDER SUCH LAWS AND, FOR ANY
         SALES UNDER RULE 144 OF THE ACT, SUCH EVIDENCE AS IT SHALL REQUEST FOR
         COMPLIANCE WITH THAT RULE, OR APPLICABLE STATE SECURITIES LAWS.

10.      TRANSFERABILITY OF OPTIONS

         No Option granted under the Plan shall be transferable by an Optionee
(whether by sale, assignment, hypothecation or otherwise) other than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined under the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder. An Option shall be exercisable
during the Optionee's lifetime only by the Optionee or, if permissible under
applicable law, by the Optionee's guardian or legal representative.

11.      TERMINATION OF OPTIONS

         11.1 Generally. Except as otherwise provided in this Section 11, if an
Optionee's employment with the Company or Subsidiary is terminated (hereinafter
"Termination") other than by death or Disability (as hereinafter defined), the
Optionee may exercise any Option granted under the Plan, to the extent the
Optionee was entitled to exercise the Option at the date of Termination, for a
period of three months after the date of Termination or until the term of the
Option has expired, whichever date is earlier.

         11.2 Death or Disability of Optionee. In the event of the death or
Disability of an Optionee prior to expiration of an Option held by him or her,
the following provisions shall apply:

                                       5
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                  11.2.1 If the Optionee is at the time of his or her Disability
         employed by the Company or a Subsidiary and has been in continuous
         employment (as determined by the Committee in its sole discretion)
         since the date of grant of the Option, then the Option may be exercised
         by the Optionee until the earlier of one year following the date of
         such Disability or the expiration date of the Option, but only to the
         extent the Optionee was entitled to exercise such Option at the time of
         his or her Disability. For the purpose of this Section 11, the term
         "Disability" shall mean a permanent and total disability as defined in
         Section 22(e)(3) of the Code. The determination of whether an Optionee
         has a Disability within the meaning of Section 22(e)(3) shall be made
         by the Committee in its sole discretion.

                  11.2.2 If the Optionee is at the time of his or her death
         employed by the Company or a Subsidiary and has been in continuous
         employment (as determined by the Committee in its sole discretion)
         since the date of grant of the Option, then the Option may be exercised
         by the Optionee's estate or by a person who acquired the right to
         exercise the Option by will or the laws of descent and distribution,
         until the earlier of one year from the date of the Optionee's death or
         the expiration date of the Option, but only to the extent the Optionee
         was entitled to exercise the Option at the time of death.

                  11.2.3 If the Optionee dies within three months after
         Termination, the Option may be exercised until the earlier of nine
         months following the date of death or the expiration date of the
         Option, by the Optionee's estate or by a person who acquires the right
         to exercise the Option by will or the laws of descent or distribution,
         but only to the extent the Optionee was entitled to exercise the Option
         at the time of Termination.

         11.3 TERMINATION FOR CAUSE. If the employment of an Optionee is
terminated by the Company or a Subsidiary for cause, then the Committee shall
have the right to cancel any Options granted to the Optionee under the Plan.

         11.4 SUSPENSION OR TERMINATION FOR MISCONDUCT. If the Committee
reasonably believes that an Optionee has committed an act of misconduct, it may
suspend the Optionee's right to exercise any Option pending a determination by
the Committee. If the Committee determines that an Optionee has committed an act
of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company's rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
engages in any conduct constituting unfair competition with respect to the
Company, or induces any party to breach a contract with the Company, neither the
Optionee nor the Optionee's estate shall be entitled to exercise any Option
whatsoever. In making such determination, the Committee shall act fairly and
shall give the Optionee an opportunity to appear and present evidence on the
Optionee's behalf at a hearing before the Committee.

12.      AMENDMENT AND TERMINATION OF PLAN

         12.1 The Committee, may at any time and from time to time suspend or
terminate the Plan in whole or in part or amend it from time to time in such
respects as may be in the best interests of the Company; provided, however, that
no such amendment shall be made without the approval of the shareholders if it
would: (a) materially modify the eligibility requirements for Participants as
set forth in Section 5 hereof; (b) increase the maximum aggregate number of
shares of Stock which may be issued pursuant to Options, except in accordance
with Section 4.2 hereof; (c) reduce the minimum Option price per share as set
forth in Section 7 hereof, except in accordance with Section 4.2 hereof; (d)
extend the period of granting Options; or (e) materially increase in any other
way the benefits accruing to Optionees.

                                       6
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         12.2 No amendment, suspension or termination of this Plan shall,
without the Optionee's consent, alter or impair any of the rights or obligations
under any Option theretofore granted to him or her under the Plan.

         12.3 The Committee may amend the Plan, subject to the limitations cited
above, in such manner as it deems necessary to permit the granting of Incentive
Stock Options meeting the requirements of future amendments to the Code.

         12.4 In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Committee. The Committee
may, in the exercise of its sole discretion in such instance, declare that any
Option shall terminate as of a date fixed by the Committee and give each
Optionee the right to exercise his or her Option as to all or any part of the
Option, including Stock as to which the Option would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Committee determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, that the
Optionee shall have the right to exercise the Option in full including Stock as
to which the Option would not otherwise be exercisable. If the Committee makes
an Option fully exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Committee shall notify the Optionee that the
Option shall be fully exercisable for a period of fifteen (15) days from the
date of such notice, and the Option will terminate upon the expiration of such
period.

13.      MISCELLANEOUS PROVISIONS

         13.1 NO RIGHT TO CONTINUED EMPLOYMENT. No person shall have any claim
or right to be granted an Option under the Plan, and the grant of an Option
under the Plan shall not be construed as giving an Optionee the right to
continued employment with the Company. The Company further expressly reserves
the right at any time to dismiss an Optionee or reduce an Optionee's
compensation with or without cause, free from any liability, or any claim under
the Plan, except as provided herein or in a stock option agreement.

         13.2 TRANSFER OF STOCK AND PAYMENT OF WITHHOLDING TAXES. The Company
shall have the right to require that payment or provision for payment of any and
all withholding taxes due upon the grant or exercise of an Option hereunder or
the disposition of any Stock or other property acquired upon exercise of an
Option be made by an Optionee. Stock acquired upon exercise of an Incentive
Stock Option may not be disposed of by the Optionee before the later of two
years from the date of grant or one year from the date of exercise unless
adequate provision is made for payment to the Company of funds sufficient for
payment of any withholding and other taxes required by any governmental
authority in respect of the disposition of such Stock. The Company may place a
legend on certificates restricting the transfer of Stock issued pursuant to
Incentive Stock Options in order to obtain compliance with tax withholding
requirements. The Committee shall have the right to establish such other rules
and regulations or impose such other terms and conditions in any agreement
relating to an Option granted hereunder with respect to tax withholding as the
Committee may deem necessary and appropriate.

         13.3 GOVERNING LAW. The Plan shall be administered in the State of
Minnesota, and the validity, construction, interpretation, and administration of
the Plan and all rights relating to the Plan shall be determined solely in
accordance with the laws of such state, unless controlled by applicable federal
law, if any.

                                       7
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14.      EFFECTIVE DATE

         The effective date of the Plan is April 7, 1992. No Option may be
granted after April 6, 2002 provided, however, that all outstanding Options
shall remain in effect until such outstanding Options have expired or been
canceled.

                                       8

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