MICRON ELECTRONICS INC
RETENTION AGREEMENT
<DOCUMENT>
<TYPE>EX-10.83
<SEQUENCE>6
<FILENAME>dex1083.txt
<DESCRIPTION>RETENTION AGREEMENT
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.83

                              RETENTION AGREEMENT
                              -------------------

     This Retention Agreement (the "Agreement") is dated effective as of
December 1, 2000 (the "Effective Date"), between Micron Electronics, Inc., a
Minnesota corporation, located at 900 East Karcher Road, Nampa, Idaho 83687 (the
"Company"), and Steven P. Arnold, located at the business address of 900 East
Karcher Road, Nampa, Idaho 83687 (the "Executive"). Capitalized terms or words
that are not otherwise defined where stated in this Agreement shall have the
meanings assigned to such terms or words in Section 6.

    1.  Background and Purpose. The Company considers it essential to the best
        ----------------------
interests of its stockholders to take reasonable steps to retain its key
management, including Executive. Further, the Company recognizes that the
uncertainty and questions which might arise among management in the context of a
significant restructuring of the Company's business or any possible change of
control of the Company could result in the departure or distraction of key
management to the detriment of the Company and its stockholders. Accordingly,
the Company has determined that appropriate steps should be taken to reinforce
and encourage Executive's attention and dedication to the Company's business and
to the Executive's assigned duties without distraction in the face of possible
external opportunities, or any potential uncertainty and questions that may
arise in the context of a change of control or restructuring of the Company or
its business. The purpose of this Agreement, therefore, is to provide Executive
with reasonable compensation and incentives that encourage Executive's
continuation of employment with the Company.

     2.  Term of Agreement. The term of this Agreement shall commence on the
         -----------------
Effective Date and shall continue for 24 months following the Effective Date
(the "Term").

     3.  Not a Contract of Employment; Employment At-Will. This Agreement is
         ------------------------------------------------
not and shall not be construed as a contract of employment between the Company
and Executive, and nothing in this Agreement shall confer upon Executive any
right to continued employment by the Company. Executive's employment with the
Company shall remain on an at-will basis; meaning that both Executive and the
Company shall have the right to terminate employment at any time, for any
reason, with or without cause or prior notice.

     4.  Retention Pay and Benefits for Continuation in Employment. Subject to
         ---------------------------------------------------------
all of the terms, provisions and conditions set forth in this Agreement, the
Company shall pay to Executive the Retention Pay and Benefits set forth in
Sections 4.1, 4.2 and 4.3 below.

         4.1   Level One Retention Pay and Benefits. The Company shall pay to
Executive a retention bonus in two lump sum installment Payments, if the
Executive is continuously employed with the Company from the Effective Date
through the Retention Date, subject to Sections 4.1.1 and 4.1.2 below.

               4.1.1  First Installment. A lump sum Payment of One Hundred
                      -----------------
Twenty Five Thousand Dollars ($125,000) shall be paid to Executive within 10
days following the Execution Date, subject to the repayment conditions and
obligations in Section 4.1.3.

RETENTION AGREEMENT -- Page 1
<PAGE>

               4.1.2  Second Installment. A lump sum Payment of One Hundred
                      ------------------
Twenty Five Thousand Dollars ($125,000) shall be paid to Executive within 10
days following the Retention Date, subject to the repayment conditions and
obligations in Section 4.1.3.

               4.1.3  Repayment Obligation. In the event of Executive's
                      --------------------
Voluntary Termination or Termination for Cause prior to the earliest to occur of
(i) Executive's death, (ii) Executive's Disability, (iii) a Change in Control
Date, or (iv) the expiration of the Company's fiscal year 2001, Executive shall
be required to repay, and hereby expressly agrees to repay, to the Company the
full gross amount of the Payments paid pursuant to Section 4.1.1 ($125,000) and
Section 4.1.2 ($125,000) within 10 days following such Voluntary Termination or
Termination for Cause. In the event of Executive's Involuntary Termination
during the Term, Executive shall not be required to repay any Payments pursuant
to this Section 4.1.3.

         4.2  Level Two Retention Pay and Benefits. The Company shall pay to
Executive a retention bonus in a one-time lump sum Payment of Two Hundred Fifty
Thousand Dollars ($250,000), subject to the following conditions and
obligations:

               4.2.1  Change in Control. The Payment under Section 4.2 shall be
                      -----------------
paid to Executive within 10 days following the Change in Control Date in the
event of a Change in Control during the Term if the Executive is not given a
Buyer Employment Offer and Executive terminates employment with the Company for
any reason other than Termination for Cause. Alternatively, in the event of a
Change in Control and Executive's receipt of a Buyer Employment Offer during the
Term, Executive must accept such Buyer Employment Offer and remain continuously
employed with such Buyer from the Change in Control Date through at least the
CIC Retention Date, and in such event, Executive shall be paid the Payment under
Section 4.2 within 10 days following the CIC Retention Date; provided, however,
in the event of Executive's Involuntary Termination by such Buyer prior to the
CIC Retention Date, Executive shall be paid the Payment under Section 4.2 within
10 days following such Involuntary Termination.

               4.2.2  Involuntary Termination. Notwithstanding the provisions
                      -----------------------
of Section 4.2.1, the Payment under Section 4.2 shall be paid to Executive
within 10 days following the date of Executive's Involuntary Termination by the
Company during the Term.

         4.3  Level Three Retention Pay and Benefits. In the event that a Change
in Control occurs during the Term and prior to Executive's Voluntary
Termination, Termination for Cause, death, or Disability, the Company shall pay
to Executive a transaction bonus in a one-time lump sum Payment (the
"Transaction Bonus"), within ten (10) days following the Change in Control Date.
Alternatively, in the event of Executive's Involuntary Termination and a Change
in Control during the Term, Executive shall receive Payment of the Transaction
Bonus within 10 days following the Change in Control Date. If Executive is
eligible to receive Payment of the Transaction Bonus and to the extent that the
Change in Control results from the sale of substantially all, but less than all,
of the PC Business Assets, the Transaction Bonus shall be adjusted by
aggregating the consideration received by the Company for the sale of any
remaining PC Business Assets that occurs after the Change in Control Date and
during the Term. The Payment of the Transaction Bonus shall be calculated as set
forth on Schedule A to this Agreement.

RETENTION AGREEMENT -- Page 2
<PAGE>

     5.  Excise Tax. In the event that any Payment to the Executive is subject
         ----------
to the Excise Tax as determined pursuant to Section 5.1, the Company shall pay
to Executive a tax restoration payment (the "Gross-Up Payment") equal to: (a)
the Excise Tax on the Payment, plus (b) the Excise Tax on the Gross-Up Payment,
plus (c) federal, state and local income taxes on the Gross-Up Payment, assuming
that such taxes are imposed at their highest marginal rate. All determinations
with respect to any Gross-Up Payment shall be made in accordance with Sections
5.1 through 5.6 below.

         5.1  Determination of Gross-Up Payment. Upon prior written notice from
the Executive, the Company shall within 15 days following the earliest of the
Retention Date, the CIC Retention Date, the Change in Control Date, or the date
of termination of Executive's employment, cause the Accounting Firm to (i) make
a determination whether any Payment received by Executive is subject to the
Excise Tax, and (ii) provide supporting calculations and an analysis to
Executive and the Company with respect to such a determination. In the event
that the Accounting Firm determines that any Payment received by Executive is
subject to the Excise Tax, the Company shall cause the Accounting Firm to
determine the amount of the applicable Gross-Up Payment owed to Executive in
accordance with Section 5, and the Company shall thereafter provide such Gross-
Up Payment in accordance with Section 5.2. In the event that the Accounting Firm
determines that any Payment received by Executive is not subject to the Excise
Tax, then the Company shall cause the Accounting Firm to provide the Company,
which shall furnish Executive with a copy, with a written opinion that the
Company has substantial authority under the Code and Regulations not to withhold
such an Excise Tax or report such an Excise Tax on Executive's W-2. Any
determination or opinion by the Accounting Firm shall be binding upon Executive
and the Company with respect to whether the Company is required to provide any
Gross-Up Payment to Executive under this Section 5.1. The Company shall pay all
of the fees and expenses of the Accounting Firm relating to any determination or
opinion required under this Section 5.1. Notwithstanding the Accounting Firm's
determination or opinion, if a claim or notice of possible claim ultimately is
asserted by the Internal Revenue Service (the "Claim") that, if made and
successful, would subject any Payment to the Excise Tax, then Executive shall be
entitled to indemnification and the other rights and obligations as set forth in
Section 5 of this Agreement.

         5.2  Initial Gross-Up Payment. In the event that the Accounting Firm
determines a Gross-Up Payment is owed to Executive under Section 5.1, the
Company shall pay to Executive the amount of the Gross-Up Payment determined by
the Accounting Firm within 10 days of the Company's receipt of such
determination, subject to the requirements of Section 7.2 and all of the rights
and obligations as set forth in Section 5 of this Agreement.

         5.3  Underpayment and Overpayment; Adjustment to Gross-Up Payment. If
the initial Gross-Up Payment provided under Section 5.2 is insufficient to cover
the amount of the Excise Tax that is ultimately determined pursuant to a Claim
to be owed by Executive with respect to any Payment (an "Underpayment"), the
Company, after exhausting its remedies under Section 5.4, shall promptly pay to
Executive an additional Gross-Up Payment in respect of the Underpayment. If the
initial Gross-Up Payment provided under Section 5.2 is in excess of the amount
necessary to cover the Excise Tax that is ultimately determined pursuant to a
Claim to be owed by Executive with respect to any Payment (an "Overpayment"),
the Executive shall

RETENTION AGREEMENT -- Page 3
<PAGE>

promptly repay to the Company an amount equal to the Overpayment within 10
business days of the Company's request for such repayment.

         5.4  Procedures Relating to Claim. The following procedures shall apply
to the Parties with respect to their respective rights and obligations under
Section 5 of this Agreement in the event of any Claim (as defined in Section
5.1):

               5.4.1  Notice of Claim by Executive. Executive shall notify the
                      ----------------------------
Company of any Claim, irrespective of whether any Gross-Up Payment previously
has been provided by the Company to Executive. Such notice shall be given within
10 days after Executive knows of such Claim, and shall apprise the Company of
the nature of the Claim and the date on which the Claim is requested to be paid,
and shall include complete copies of all notices or communications received by
the Executive from the Internal Revenue Service or its representatives with
respect to the Claim. Executive agrees not to pay the Claim until the expiration
of the 30-day period following the date on which Executive notifies the Company,
or such shorter period ending on the date the Taxes with respect to such Claim
are due (the "Notice Period"). Executive's failure to timely notify the Company
of any claim as required by this Section 5.4.1 shall result in a waiver of
Executive's rights under this Section 5.

               5.4.2  Notice by the Company; Cooperation. If the Company
                      ----------------------------------
notifies Executive prior to the expiration of the Notice Period that it desires
to contest the Claim, Executive shall: (a) provide the Company with any
information reasonably requested by the Company relating to the Claim; (b) take
such action in connection with the Claim as the Company may reasonably request,
including, without limitation, accepting legal representation with respect to
such Claim by attorneys selected by the Company; (c) cooperate with the Company
in good faith in contesting the Claim; and (d) permit the Company to participate
in any proceedings relating to the Claim.

               5.4.3  No Notice by the Company; Payment on Claim. If the
                      ------------------------------------------
Company does not notify Executive prior to the end of the Notice Period of the
Company's desire to contest the Claim, and if the Company previously has not
provided Executive with an initial Gross-Up Payment under Section 5.2, the
Company shall pay to Executive a Gross-Up Payment or an additional Gross-Up
Payment, as the case may be, in respect of any Payment that is subject of the
Claim; provided, however, that Executive shall immediately pay the amount of the
Excise Tax that is the subject of the Claim to the applicable taxing authority
in accordance with applicable law, and Executive shall release, indemnify and
hold the Company harmless from any costs, expenses, penalties, fines, interest
or other liabilities with respect to Executive's failure to pay such Excise Tax
as required under this Section 5.4.3.

               5.4.4  Notice by the Company; Payment and Contest of Claim;
                      ----------------------------------------------------
Payment of Advance. If the Company notifies Executive pursuant to Section 5.4.2
------------------
of the Company's desire to contest the Claim, and if thereafter requested by the
Company, Executive shall either pay the Taxes claimed in respect of the Excise
Tax and timely sue for a refund, or timely contest the Claim in any permissible
manner and prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction, and in one or more appellate
courts as the Company shall determine in its sole discretion; provided, however,
that if the Company directs Executive to pay such Claim and pursue a refund, the
Company shall advance the amount of

RETENTION AGREEMENT -- Page 4
<PAGE>

such payment to Executive on an after-tax and interest-free basis (the
"Advance"), subject to the rights and obligations under Section 5.5.

               5.4.5  Control of Proceedings. Executive shall permit the
                      ----------------------
Company to control all proceedings related to the Claim and, at the Company's
option, permit the Company to pursue or forgo any and all administrative
appeals, proceedings, hearings, and conferences with the taxing authority in
respect of such Claim. The Company's control of the contest and proceedings
related to the Claim shall be limited to the issues related to the Excise Taxes
and Gross-Up Payments, and Executive shall be entitled to settle or contest, as
the case may be, any other unrelated issues raised by the Internal Revenue
Service or other taxing authority.

         5.5  Repayment of Advance on Refund. If, after receipt by Executive of
an Advance under Section 5.4.4 of this Agreement, Executive becomes entitled to
a refund with respect to the Claim to which such Advance relates, Executive
shall pay to the Company the amount of the refund (together with any interest
paid or credited thereon after Taxes applicable thereto). However, if after
receipt by Executive of an Advance, a determination is made that Executive shall
not be entitled to any refund with respect to the Claim and the Company does not
promptly notify Executive of its intent to contest the denial of refund, then
the amount of the Advance shall not be required to be repaid by Executive and
the amount thereof shall offset the amount of any additional Gross-Up Payment
then owing to Executive.

         5.6  Indemnification; Further Assurances. The Company shall indemnify
Executive and hold Executive harmless, on an after-tax basis, from any costs,
expenses, penalties, fines, interest or other liabilities (the "Losses")
incurred by Executive with respect to the exercise by the Company of any of its
rights under this Section 5, including, without limitation, any Losses related
to the Company's decision to contest a Claim or any imputed income to Executive
resulting from any Advance or action taken on Executive's behalf by the Company
pursuant to this Section 5. The Company shall pay all reasonable legal fees and
expenses incurred by the Company under this Section 5, and shall promptly
reimburse Executive for the reasonable expenses incurred by Executive in
connection with any actions taken by the Company or required to be taken
pursuant to this Section 5.

     6.  Definitions. For purposes of this Agreement, the following capitalized
         -----------
words shall have the meanings set forth below:

          "Accounting Firm" means PricewaterhouseCoopers LLP or, if such firm is
unable or unwilling to perform the services contemplated by this Agreement, such
other national accounting firm as the Company and Executive shall designate by
mutual agreement.

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

          "Buyer" means a buyer who is a party to the transaction resulting in a
Change in Control during the Term, or such buyer's successor.

          "Buyer Employment Offer" means a final offer of employment for an
executive position with a Buyer.

RETENTION AGREEMENT -- Page 5
<PAGE>

          "Buyer Hire Date" means the date that Executive is hired pursuant to
Executive's acceptance of a Buyer Employment Offer.

          "Change in Control" means, and shall be deemed to have occurred solely
for the purposes of this Agreement, in the event of (i) a sale, liquidation or
distribution of all or substantially all of the PC Business Assets of the
Company, irrespective of the form of the transaction or series of transactions;
(ii) any person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) or entity becoming the beneficial owner (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) of the total voting power of all of
its then outstanding securities; or (iii) a merger or consolidation of the
Company with or into any other entity, other than a merger or consolidation that
would result in the holders of the voting securities of the Company outstanding
immediately prior thereto holding securities which represent immediately after
such merger or consolidation more than fifty percent (50%) of the total combined
voting power of the entity which survives such merger or consolidation or the
parent of the entity which survives such merger or consolidation. To the extent
that less than all of the PC Business Assets have been sold, liquidated or
distributed, the issue of whether "substantially all" of such assets have been
sold, liquidated or distributed shall be determined by the Committee in its
reasonable discretion.

          "Change in Control Date" means the date of closing with respect to a
transaction, the consummation of which results in a Change in Control.

          "CIC Retention Date" means the date 90 days following the Change in
Control Date, provided Executive is still employed on such date by the Buyer.

          "Code" means the Internal Revenue Code of 1986, as amended, and any
successor provisions thereto.

          "Committee" means the Compensation Committee of the Board.

          "Disability" means (i) Executive's incapacity due to physical or
mental illness that causes Executive to be absent from the full-time or regular
performance of Executive's duties with the Company or the Buyer, as applicable,
for at least 90 consecutive days, and (ii) Executive's failure to return to
full-time or regular performance of Executive's duties for the Company or the
Buyer, as applicable, within 15 days after receiving written notice of
termination of this Agreement due to Disability. Any question as to the
existence of a Disability upon which Executive and the Company cannot agree
shall be determined by a qualified independent physician selected by Executive
(or, if Executive is unable to make such selection, a selection shall be made by
any adult member of Executive's immediate family), and approved by the
Committee. The determination of such physician made in writing to the Company
and to Executive shall be final and conclusive for all purposes of determining
Disability under this Agreement.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor provisions thereto.

RETENTION AGREEMENT -- Page 6
<PAGE>

          "Excise Tax" means the federal excise tax, together with any interest
or penalties thereon, on the type of payment defined under Section 280G(b) of
the Code.

          "Execution Date" means the latest to occur of (i) approval of this
Agreement by the Committee, or (ii) execution of this Agreement by the Parties.

          "Good Reason" means a resignation of Executive's employment because of
one or more of the following reasons: (i) a substantial adverse change without
Executive's consent in Executive's responsibilities from those in effect or
assigned as of the Execution Date, provided that this clause (i) shall not apply
to constitute Good Reason following a Change in Control or the Buyer Hire Date;
(ii) a Company-imposed reduction of Executive's annual base salary below the
level set as of the Execution Date, without Executive's consent; (iii) a
Company-imposed relocation of Executive's principal place of employment with the
Company by more than a 50 mile radius, without Executive's consent; or (iv) the
Board has adopted a Wind Down Resolution during the Company's fiscal year 2001;
provided, however, that any event described in clauses (i) through (iv) shall
not constitute Good Reason unless it is first communicated by Executive to the
Company in writing and such event is not corrected by the Company in a manner
that is reasonably satisfactory to Executive within 10 days of the Company's
receipt of such written notice from Executive. The event described in clause
(iv) also shall not constitute Good Reason for purposes of Involuntary
Termination and the corresponding receipt of any Payments under this Agreement
unless Executive after the occurrence of such event remains continuously
employed by the Company until the earliest to occur of (a) the expiration of the
Company's fiscal year 2001, or (b) the Board determines in its discretion that
the acts required by the Wind Down Resolution are substantially complete.
Executive's transfer to the Buyer or the acceptance by Executive of any terms of
employment with Buyer shall not constitute Good Reason under this Agreement.

          "Involuntary Termination" means: (i) any termination of Executive's
employment with the Company by the Company other than by reason of Disability or
Termination for Cause; (ii) any termination of Executive's employment with the
Buyer by the Buyer other than by reason of Disability or Termination of Cause;
or (iii) any resignation of employment with the Company by Executive that occurs
within 30 days following an event that constitutes Good Reason.

          "Parties" means the Company and Executive.

          "Payment" means (i) any payment or portion thereof with respect to the
retention bonuses under Sections 4.1 or 4.2, (ii) the Transaction Bonus under
Section 4.3, or (iii) any payment that is described in Section 280G(b)(2) of the
Code which is received by Executive during the Term. All Payments shall be made
less applicable federal, state and local tax withholding and payroll deductions.

          "PC Business Assets" means the assets directly and predominantly
attributable to the Company's operations to market, design, develop, supply,
manufacture, distribute, and sell personal computer products, including, without
limitation, inventories, property, plant, equipment, manufacturing and
distribution assets and related systems. "PC Business Assets" shall not include
cash and cash equivalents, liquid investments, or the assets directly and

RETENTION AGREEMENT -- Page 7
<PAGE>

predominantly attributable to the operations of the Company's other reportable
segments, including, without limitation, the HostPro and SpecTek operations, as
referred to in the Company's latest Form 10-K or Form 10-Q filed under the
Exchange Act.

          "PC Systems Business" means that segment of the Company's business
involving the marketing, design, development, supply, manufacturing,
distribution and sales of PC Business Assets.

          "Regulations" means the proposed, temporary and promulgated
regulations under Section 280G of the Code, or any successor provision thereto.

          "Retention Pay and Benefits" means the pay and benefits payable to
Executive under Section 4.

          "Retention Date" means the earliest to occur of (i) the date 6 months
following the Effective Date, provided that Executive is still employed by the
Company on such date; (ii) a Change in Control Date, provided that Executive is
still employed by the Company on such date; or (iii) the date of Executive's
Involuntary Termination, prior to a Change in Control which occurs during the
Term.

          "Sales Price" means the total consideration or present value of the
total consideration received by the Company in connection with a transaction or
series of transactions culminating in a Change in Control.

          "Taxes" means the federal, state and local income taxes to which
Executive is subject at the time of determination, calculated on the basis of
the highest marginal rates then in effect, plus any additional payroll or
withholding taxes to which Executive is then subject.

          "Term" is as defined in Section 2.

          "Termination for Cause" means termination of Executive's employment
during the Term because of (i) any willful, material violation by the Executive
of any law or regulation applicable to the business of the Company or a
subsidiary of the Company or the Buyer, as applicable, the Executive's
conviction for, or guilty plea to, a felony or a crime, or any willful
perpetration by the Executive of a common law fraud, (ii) Executive's commission
of an act of personal dishonesty which involves personal profit in connection
with the Company or the Buyer, as applicable, or any other entity having a
business relationship with the Company, or the Buyer, as applicable, (iii) any
breach by Executive of any material provision of any agreement or understanding
between the Company or the Buyer, as applicable, and Executive regarding
Executive's service as an employee, officer, director or consultant to the
Company or the Buyer, as applicable, which results in loss, damage or injury to
the Company or the Buyer, including, without limitation, the willful and
continued refusal of Executive to perform the material duties reasonably
required of Executive as an employee, officer, director or consultant of the
Company or the Buyer, other than as a result of having a Disability, (iv)
Executive's violation of the policies of the Company or the Buyer, as
applicable, so as to cause loss, damage or injury to the property, reputation or
employees of the Company or the Buyer, or (v) any willful misconduct or
unauthorized actions by Executive which results in loss, damage or injury to the
Company or the Buyer.

RETENTION AGREEMENT -- Page 8
<PAGE>

          "Voluntary Termination" means Executive's resignation or voluntary
termination of employment with the Company other than for Good Reason.

          "Wind Down Resolution" means a resolution adopted by the Board to
liquidate and wind down the PC Systems Business. The term "wind down" is
intended by the Parties to be interchangeable with the term "wind up," and may
include, without limitation, every act necessary by the Company to "wind down"
or "wind up" the business and affairs of the PC Systems Business within the
meaning of applicable law and as determined appropriate by the Board under the
circumstances.

     7.   Other Terms, Conditions and Provisions.
          --------------------------------------

          7.1  Confidentiality. As a condition to Payment of the Retention Pay
and Benefits, Executive agrees not to disclose to any person, agency or court
the terms and provisions of this Agreement, or any of the discussions between
Executive and the Company's representatives relating to this Agreement, unless
Executive is expressly compelled to do so pursuant to legal process (e.g., a
court summons or subpoena), or as otherwise required by law. Executive may
discuss this Agreement and the terms and provisions hereof with Executive's
attorney, financial advisor, certified public accountant or immediate family
members on a confidential basis; provided, however, that Executive understands
and agrees that any material breach of confidentiality by such persons shall be
deemed a material breach by Executive. Executive further understands that the
Company may have a legal obligation to publicly disclose some or all of the
terms and provisions of this Agreement; and, if so, the Company shall disclose
such terms and provisions to the extent required under applicable law or
regulation. This Section 7.1 shall survive the termination of this Agreement.

          7.2  Tax Treatment of Retention Pay and Benefits. All Payments and
Gross-Up Payments payable to Executive under this Agreement are subject to
applicable federal, state and local tax withholding (including, but not limited
to, withholding for applicable Excise Taxes) and payroll deductions, and
constitute taxable income to Executive. Other than as expressly provided in this
Agreement, Executive, and not the Company, is liable for federal, state and
local income taxes and any employee's share of employment taxes on the Retention
Pay and Benefits.

          7.3  Dispute Resolution. Any dispute concerning the interpretation or
construction of this Agreement or relating to any compensation or benefits that
Executive may claim under this Agreement shall first be submitted to
confidential mediation before a mediator mutually selected and agreed to by the
Parties, except as otherwise provided under Section 5.4. If the Parties fail to
resolve such dispute through such mediation, the dispute shall be submitted for
binding arbitration to be conducted in accordance with the Commercial
Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA"). Any decision or award of the arbitral tribunal shall be
final and binding upon the parties to the arbitration proceeding. The Parties
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever the award may be entered in any
court having jurisdiction thereof. The venue for any mediation or arbitration
under this Section 7.3 shall be in Boise, Idaho, unless the Parties mutually
agree to an alternative location. The Parties shall be

RETENTION AGREEMENT -- Page 9
<PAGE>

responsible for their own costs and legal fees in any mediation or arbitration
proceedings under this Section 7.3.

          7.4  Successors; Assignment.

               7.4.1  Successors and Assigns. This Agreement shall be binding on
                      ----------------------
the Company, its successors and assigns, including any person acquiring control
of the Company's business and operations.

               7.4.2  No Assignment by Executive. Executive's rights and
                      --------------------------
benefits under this Agreement are personal to Executive, and may not be
transferred or assigned voluntarily or involuntarily.

          7.5  Effect on Prior Agreements. This Agreement shall not affect in
any manner Executive's rights and obligations under the Employment Agreement
with the Company dated as of February 19, 1997 (the "Employment Agreement"), or
any other agreements with the Company that pertain to confidentiality, invention
assignment or indemnification, and all such agreements shall remain in full
force and effect.

          7.6  Waiver by the Company. In the event that Executive accepts a
Buyer Employment Offer, the Company agrees to waive, and upon occurrence of such
event shall waive subject to this Section 7.6, Executive's covenant and
agreement under Paragraph 2 of the Employment Agreement to "not perform any
service or work that conflicts with interests of the Company;" provided,
however, that nothing in this Section 7.6 or this Agreement shall preclude the
Buyer from entering into any separate employment, noncompete or other agreement
with Executive.

          7.7  Release by Executive. As a condition to receipt of any Payments
under Section 4.2 and Section 4.3, Executive shall execute a waiver and release
of claims against the Company in a form provided by the Company within the
specified consideration or execution periods, and subject to confirmation by the
Company that Executive does not later revoke such waiver and release of claims
within any revocation period allowed by applicable law.

     8.   Miscellaneous.
          -------------

          8.1  Amendments; Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
shall be agreed to in writing. Any modification of this Agreement shall be
effective only if in writing and signed by each party or its duly authorized
representative. The waiver of a condition of benefits on any occasion shall not
constitute a waiver of any other condition on the same occasion or a waiver of
the same or any other condition on any other occasion.

          8.2  Validity. The terms and provisions of this Agreement are
contractual and not mere recitals. If, for any reason, any provision of this
Agreement shall be held invalid in whole or in part, such invalidity shall not
affect the remainder of this Agreement.

RETENTION AGREEMENT -- Page 10
<PAGE>

          8.3  Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.

          8.4  Headings. The headings contained in this Agreement are intended
solely for convenience of reference and shall not affect the rights of the
Parties to this Agreement.

          8.5  Governing Law; Venue. The validity, interpretation, construction,
and performance of this Agreement shall be governed by the laws of the State of
Idaho applicable to contracts entered into and performed in such State.

          8.6  Notice to Parties. All notices required or permitted to be given
under this Agreement shall be in writing. Notices may be served by certified or
registered mail, postage paid with return receipt requested; by private courier,
prepaid; by telex, facsimile, or other telecommunication device capable of
transmitting or creating a written record; or personally. Mailed notices shall
be deemed delivered 5 days after mailing, properly addressed. Couriered notices
shall be deemed delivered when delivered as addressed, or if the addressee
refuses delivery, when delivery is refused. Telex or telecommunicated notices
shall be deemed delivered when receipt is either confirmed by confirming
transmission equipment or acknowledged by the addressee or its office. Personal
delivery shall be effective when accomplished. Unless a party changes its
address by giving notice to the other party as provided herein, notices shall be
delivered to Executive at Executive's last known residential address as found in
the Company's records, and to the Company as follows:

                    Micron Electronics, Inc.
                    900 E. Karcher Road
                    Nampa, Idaho 83687
                    Attn: General Counsel and Board of Directors
                    Facsimile: (208) 898-7411

          8.7  Entire Agreement. This Agreement contains the entire agreement
               ----------------
between the Parties concerning the subject matters discussed herein and
supersedes and replaces any earlier understandings, agreements or summaries,
whether written or oral, except as provided in Section 7.5.

MICRON ELECTRONICS, INC.

By     /s/                                  Date:  1/29/2001
  ----------------------------                   ---------------------
     Joel J. Kocher
     Chairman, President & CEO

Accepted and agreed:

By      /s/                                 Date:  1/25/2001
  ----------------------------                   ---------------------
     Steven P. Arnold

RETENTION AGREEMENT -- Page 11
<PAGE>

                                  Schedule A
                                  ----------

                       Calculation of Transaction Bonus

                    (Pursuant to Section 4.3 of Agreement)


          Sales Price                         Transaction Bonus
          -----------                         -----------------

          Equal to $140,000,000               $250,000

          Equal to $175,000,000               $350,000

          Equal to $200,000,000               $450,000

          Equal to $250,000,000               $750,000

          Equal to $300,000,000               $950,000

          In excess of $350,000,000           $1,150,000

No Transaction Bonus shall be payable in the event the Sales Price is below One
Hundred Forty Million Dollars ($140,000,000). If the Sales Price is between two
values on the above schedule, then the Payment of the Transaction Bonus shall be
calculated based on a straight line interpolation between the next highest and
next lowest corresponding Sales Price values from the schedule above, provided
that in no event shall the Payment of the Transaction Bonusexceed One Million
One Hundred Fifty Thousand Dollars ($1,150,000).

RETENTION AGREEMENT -- Page 12
</TEXT>
</DOCUMENT>
