SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                    FORM 8-K

                                 CURRENT REPORT

                     Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934



Date of Report (Date of earliest event reported)                October 2, 2002


                     Performance Technologies, Incorporated
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


Delaware                              0-27460                     16-1158413
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(State or other jurisdiction         (Commission               (IRS Employer
        of incorporation)             File Number)          Identification No.)


 205 Indigo Creek Drive, Rochester. N.Y.                                14626
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 (Address of principal executive offices)                            (Zip Code)


        Registrant's telephone number, including area code (585) 256-0200
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(Former name or former address, if changed since last report.)







<PAGE>



Item 2.  Acquisition or Disposition of Assets


     On October 2, 2002 the Registrant acquired a portion of Intel Corporation's
Embedded   Communications  Platform  Division.  The  acquisition  was  completed
pursuant to the Stock  Purchase  Agreement,  dated  September 12, 2002,  between
Intel  Corporation  and the Registrant to acquire all the issued and outstanding
shares of  Ziatech  Corporation.  The stock  purchase  was  completed  at a cash
purchase price of $2,966,752,  which was determined by arm's length negotiations
between the parties.  The purchase price was paid in cash by the Registrant from
funds on hand. In connection with the Stock Purchase  Agreement,  the Registrant
entered into certain  arrangements  respecting inventory and the cross-licensing
of  intellectual  property,  all as set  forth in the Stock  Purchase  Agreement
attached hereto as Exhibit 2. Under the terms of the acquisition, the former San
Luis Obispo,  California operation of Intel became a wholly-owned  subsidiary of
the Registrant.

     The  Ziatech  line of  CompactPCI,  PICMG 2.16 and STD  32-based  processor
modules  and  system  platforms  will  become  an  important  extension  to  the
Performance  Technologies product family that management believes can contribute
to the future  growth and expansion of the company.  The combined  products will
allow Performance  Technologies to serve a broader set of embedded  applications
in the data communications, telecommunications, military, industrial automation,
transportation and medical markets.


Item 7.  Financial Statements and Exhibits.

(a)  Financial statements of business acquired.

     As of the date hereof,  it is impractical for the Registrant to provide the
required audited  financial  information.  The Registrant will file the required
audited financial  information under cover of Form 8-K/A as soon as practicable,
but not later than sixty days after the date upon which this report is filed.

(b)  Pro forma financial information.

     As of the date hereof,  it is impractical for the Registrant to provide the
required pro forma financial information.  The Registrant will file the required
pro  forma  financial   information  under  cover  of  Form  8-K/A  as  soon  as
practicable, but not later than sixty days after the date upon which this report
is filed.

(c)  Exhibits.

   (2)   Stock  Purchase  Agreement between  Intel  Corporation  and Performance
         Technologies,  Incorporated,  dated as of September 12, 2002 (Copies of
         omitted Exhibits  and Schedules will be provided to the  Securities and
         Exchange Commission upon written request.)

<PAGE>



                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.


                           PERFORMANCE TECHNOLOGIES, INCORPORATED


October 17, 2002                      By: /s/       Donald L. Turrell
                                      ------------------------------------------
                                                    Donald L. Turrell
                                          President and Chief Executive Officer





October 17, 2002                      By: /s/       Dorrance W. Lamb
                                      ------------------------------------------
                                                    Dorrance W. Lamb
                                          Chief Financial Officer and
                                               Vice President, Finance


<PAGE>

Exhibit 2



                            STOCK PURCHASE AGREEMENT


                                     between


                                INTEL CORPORATION

                                       and

                      PERFORMANCE TECHNOLOGIES INCORPORATED



                         Dated as of September 12, 2002

<PAGE>





                            STOCK PURCHASE AGREEMENT

     THIS  AGREEMENT  is made as of  September  12,  2002 by and  between  INTEL
CORPORATION,  a Delaware corporation  ("Seller"),  and PERFORMANCE  TECHNOLOGIES
INCORPORATED, a Delaware corporation ("Buyer").

     WHEREAS,  Seller owns all of the issued and outstanding  Shares (as defined
below) of Ziatech Corporation,  a California corporation (the "Company") engaged
in the design, manufacture, and sale of the Products (as defined below);

     WHEREAS,  the parties  desire  that  Seller  sell to Buyer,  and that Buyer
purchase from Seller,  all of the issued and outstanding  Shares of the Company,
as more specifically provided herein;

     WHEREAS,  in connection  with the  Transaction  (as defined  below),  Buyer
desires to hire certain  employees of Seller  following  the Closing (as defined
below) who currently provide services to the Company; and

     WHEREAS,  simultaneous with the Closing,  Buyer, Seller and the Company, as
applicable,  will execute and deliver the Intellectual Property Agreement in the
form attached  hereto as Exhibit A, the cPCI 2.16  Development  Agreement in the
form attached hereto as Exhibit B, the Seller and Buyer OEM Letter Agreements in
the forms attached hereto as Exhibit C-1 and C-2,  respectively,  and the Patent
Cross License  Agreement in the form attached hereto as Exhibit D (collectively,
the "Ancillary Agreements").

     NOW,   THEREFORE,   in   consideration  of  the  premises  and  the  mutual
representations,  warranties,  covenants and undertakings  contained herein, and
for other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

                             ARTICLE I. DEFINITIONS

Section 1.1  Certain Definitions.

     In addition  to the other  definitions  contained  in this  Agreement,  the
following terms will, when used in this Agreement, have the following respective
meanings:

     "Accountants"  means a firm of  independent  public  accountants  as may be
mutually agreed upon by Buyer and Seller after the date hereof.

     "Affiliate"  means, with respect to any Person,  any Person who directly or
indirectly  owns or controls,  is owned or controlled  by, or is under direct or
indirect common  ownership or control with such other Person.  Without  limiting
the  generality  of the  foregoing,  a Person  shall be deemed to "own"  another
person if it owns, directly or indirectly, more than 50% of the capital stock or
other equity interest of such other Person.

     "Agreement" means this Stock Purchase Agreement, as the same may be amended
or supplemented from time to time in accordance with the terms hereof,  together
with the Schedules and Exhibits hereto.

     "Books and Records" means books, ledgers,  files, reports,  personnel files
(including,  but not limited to, all personnel  files of the Retained  Employees
(as defined  below)  held or  maintained  by Seller  since  October  10,  2000),
operating  records,   accounting  records,   price  lists,  fixed  asset  lists,
correspondence  and other  forms of  information  relating  in any manner to the
business, operations or financial or statistical history of a Person, whether in
written,  electronic or magnetic form;  provided that this definition  shall not
include Tax Returns which contain any information related to Seller.

     "Claim" means any pending or threatened contest, claim, demand, assessment,
action, cause of action, complaint,  litigation,  proceeding,  hearing or notice
involving any Person.

     "Closing" means the closing and consummation of the Transaction.

     "Closing  Documents"  means:  (a) with respect to Seller,  all  agreements,
documents and instruments  required to be delivered by Seller at Closing, as set
forth in Section 7.2; and (b) with respect to Buyer,  all agreements,  documents
and  instruments  required to be delivered by Buyer at Closing,  as set forth in
Section 7.3.

     "COBRA"" means the Consolidated Omnibus Budget  Reconciliation Act of 1985,
as  amended,  section  4980B of the Code and Title I,  Part 6 of ERISA,  and any
similar state group health plan  continuation Law, together with all regulations
and proposed regulations promulgated thereunder.

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

     "Encumbrances"  means liens,  charges,  encumbrances,  security  interests,
options or any other restrictions or third party rights.

     "Environmental  Law" means any Law relating to (a) the  protection of human
health  or  the  environment   (including  air,  water  vapor,   surface  water,
groundwater,  drinking water supply, and surface or subsurface land), or (b) the
exposure   to,  or  the  use,   storage,   recycling,   treatment,   generation,
transportation,    processing,    handling,   labeling,   management,   release,
investigation, remediation, removal or disposal of, Hazardous Substances.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended.

     "ERISA Affiliate" means any Person that is a member of "controlled group of
corporations"  with,  or is under "common  control"  with, or is a member of the
same  "affiliated  service  group"  with the  Company or  Seller,  as defined in
section 414 of the Code.

     "Financial  Statements"  means the  following:  (a) the  unaudited  balance
sheets  and  income  statements  of the  Company  as of and for the years  ended
December 31, 2000 and 2001,  including the notes and schedules thereto (if any);
and (b) the unaudited  balance sheet and income statement of the Company for the
period of January 1 through June 29,  2002,  including  the notes and  schedules
thereto (if any).

     "GAAP" means U.S.  generally  accepted  accounting  principles applied on a
consistent basis throughout the specified periods.

     "Governmental Authorizations" means all licenses, permits, certificates and
other authorizations and approvals of any Governmental Entity required under any
applicable  Law to carry on the business as currently  conducted in the Ordinary
Course.

     "Governmental  Entity" means any U.S. or non-U.S.  local, state, federal or
other  government,  including each of their  respective  branches,  departments,
agencies, courts, instrumentalities or other subdivisions.

     "Hazardous   Substance"  means  any  matter  or  material   containing  any
substance,  whether  solid,  liquid or  gaseous,  (a) that is  listed,  defined,
designated   or   classified   as  hazardous  or  toxic  under  any   applicable
Environmental  Law,  (b) the  presence  of which may  require  investigation  or
remediation under any  Environmental  Law, or (c) is otherwise legally regulated
by a Governmental Entity which enforces such applicable Environmental Laws.

     "Intellectual Property" means patents, inventions, trade secrets, concepts,
know-how, copyrights (whether registered or unregistered),  works of authorship,
trademarks  (whether   registered  or  unregistered),   service  marks  (whether
registered  or  unregistered),  mask works,  trade names,  trade dress,  product
names,  slogans,  logos and internet domain names,  including  registrations and
applications of any of the foregoing,  software,  firmware,  object code, source
code,  specifications,   processes,  drawings,  designs,  technology,   methods,
techniques, formulae and proprietary information and documents incorporating any
similar rights, including technical reports and laboratory data (in all media).

     "Inventory" means all inventory, raw materials,  work in process,  samples,
supplies, service parts, purchased parts and goods and finished goods.

     "Knowledge" means with respect to any Person,  the actual knowledge of such
Person.  With  respect  to  Seller,  Knowledge  shall  include  only the  actual
knowledge of each of the following individuals: Paul Abbott, Martin Todd Dorris,
Shreesh  Dubey,  Bob Ehlers,  Teana  Fredeen,  Jim  Medeiros,  Mark Novad,  Dave
Parkinson,  Todd Rallison,  Sharon Seitz, Chris Teaford, Bob Tillman,  Mark Tsai
and Todd Underwood.

     "Law" means any law  (including  common  law),  statute,  ordinance,  rule,
regulation,   code,  order,   judgment,   injunction,   decree  or  judicial  or
administrative  doctrine  that is  promulgated  or  issued  by any  Governmental
Entity.

     "Liability" means any direct or indirect  indebtedness,  liability,  Claim,
damage,  deficiency,  obligation or responsibility,  fixed or unfixed, choate or
inchoate,  liquidated or unliquidated,  secured or unsecured, accrued, absolute,
contingent or otherwise.

     "Losses" means Liabilities,  losses, charges,  actions, suits, proceedings,
interest,  penalties  and  reasonable  costs and expenses  associated  therewith
(including reasonable  attorneys' fees,  litigation costs, fines,  penalties and
expenses of investigation),  whether asserted by a party to this Agreement or by
a third party, but in no event includes incidental or consequential damages.

     "Material  Adverse  Effect"  means,  with respect to a Person,  any change,
event or effect that, when taken together with all other adverse changes, events
or effects  that have  occurred,  (a) is  materially  adverse  to the  business,
operations,   properties,   condition  (financial  or  otherwise),   assets,  or
Liabilities  of the  Person,  taken as a whole,  or (b)  prevents  or delays the
Closing, it being understood that any change,  event or effect arising out of or
resulting from any of the following shall not be deemed to constitute a Material
Adverse  Effect:   (i)  the  public   announcement  of  this  Agreement  or  the
Transaction,  (ii) general industry  conditions not specifically  related to, or
having a materially  disproportionate  effect on, the Person,  and (iii) general
economic, market, regulatory or political conditions.

     "Ordinary  Course"  means the ordinary  course of business of the business,
consistent with past practices.

     "Permitted  Encumbrances"  means (a) Encumbrances for Taxes or governmental
assessments,  charges,  or claims  the  payment  of which  are not yet due,  (b)
statutory  liens of landlords  and liens of carriers,  warehousemen,  mechanics,
materialmen  and other similar Persons and other liens imposed by applicable Law
incurred in the Ordinary  Course for sums not yet  delinquent  or  immaterial in
amount and being contested in good faith,  and (c) other  imperfections of title
or  Encumbrances,  if any, which  imperfections  of title or other  Encumbrances
would not result in the creation of a Liability or obligation of Buyer after the
Closing Date.

     "Person" means an  individual,  a  corporation,  a  partnership,  a limited
liability company, an association, a trust or any other entity or organization.

     "Products" means the products listed on Schedule 3.11(b) to this Agreement.

     "Shares" means all of the common stock,  par value $0.01 per share,  of the
Company.

     "Subsidiary"  means  any  Person,  50% or  more of the  outstanding  equity
interests of which are owned, directly or indirectly, by the referenced Person.

     "Taxes"  means all taxes  levied or  imposed  by any  Governmental  Entity,
including  income,  gross receipts,  windfall profits,  value added,  severance,
production, sales, use, license, excise, franchise,  employment,  environmental,
real property,  personal property,  transfer,  alternative  minimum,  estimated,
withholding or other taxes,  together with any interest,  additions or penalties
with respect thereto and any interest in respect of such additions or penalties,
whether or not disputed or contested.

     "Tax Returns" means all U.S. and non-U.S.  reports and returns  required to
be filed with respect to Taxes, including all attachments thereto.

     "Third Party Debt" means  indebtedness that is (a) owed by the Company to a
Person who is neither  Seller nor an Affiliate of the Company or of Seller,  and
(b) payable in multiple installments.

     "Transaction"   means,    collectively,    the   pre-Closing   transactions
contemplated  by Section  2.1,  the  purchase  and sale of the  Shares,  and the
execution and delivery of the Ancillary Agreements, all as herein provided.

     "Treasury Regulations" means the Treasury Regulations promulgated under the
Code.

     "U.S." means the United States of America.

Section 1.2  Interpretation.

         In this Agreement, unless the express context otherwise requires:

     (a) the words  "herein,"  "hereof"  and  "hereunder"  and words of  similar
import refer to this Agreement as a whole and not to any particular provision of
this Agreement;

     (b) references to "Article" or "Section" are to the respective Articles and
Sections of this Agreement, and references to "Exhibit" or "Schedule" are to the
respective Exhibits and Schedules annexed hereto;

     (c)  references  to a "party"  means a party to this  Agreement and include
such party's successors and permitted assigns;

     (d)  references  to a "third  party" means any Person other than a party to
this Agreement or an Affiliate of such party;

     (e) the terms "dollars" and "$" mean U.S. dollars;

     (f) terms  defined in the singular  have a comparable  meaning when used in
the plural, and vice versa;

     (g) the masculine  pronoun  includes the feminine and the neuter,  and vice
versa, as appropriate in the context; and

     (h) wherever the word "include,"  "includes" or "including" is used in this
Agreement, it will be deemed to be followed by the words "without limitation."

Section 1.3  Accounting Conventions.

     Except as expressly  provided  otherwise  herein,  all  references  in this
Agreement to  financial  terms will be deemed to refer to such terms as they are
defined under GAAP.

                         ARTICLE II. PURCHASE AND SALE

Section 2.1  Pre-Closing Transfers and Other Actions.

     (a) Prior to  Closing,  Seller will cause the Company to transfer to Seller
or an Affiliate of Seller the following  assets and  Liabilities,  and Seller or
such  Affiliate of Seller will accept such  transfer and assume the  Liabilities
related  to  such  assets   (collectively,   the  "Seller  Retained  Assets  and
Liabilities"):

(i) the  Intellectual  Property  licenses or  agreements  identified on Schedule
2.1(a)(i);

(ii) that certain  parcel of real  property  located at 600 Tank Farm Road,  San
Luis Obispo,  California,  which is identified on Schedule 2.1(a)(ii),  together
with all  Liabilities  related  thereto,  including,  but not limited to,  those
related to Environmental Law, and any leases or other agreements of occupancy or
use related thereto;

(iii)  certain  Inventory  of the  Company,  which  is  identified  on  Schedule
2.1(a)(iii);

(iv) all Company accounts receivable accrued up to Closing;

(v) all Company accounts payable (including, but not limited to, trade and other
payables) accrued up to Closing to the extent not otherwise  satisfied by Seller
prior to Closing;

(vi)  the  assets  and  Liabilities  of  the  Company   identified  on  Schedule
2.1(a)(vi); and

(vii) all warranty obligations and Liabilities,  including claims for repairs or
replacements  (in each case, to the extent arising  pursuant to the terms of the
purchase order under which the Product was sold) for Products  shipped by Seller
or by the  Company  for its own  account or the  account of Seller  prior to the
Closing Date (as defined below); provided,  however, that such Liabilities shall
be satisfied in accordance with Section 6.11 hereof.

     (b) Prior to Closing, Seller or an Affiliate of Seller and the Company will
enter into, and effect the  transactions  contemplated  by, the Contribution and
Assumption Agreement in the form attached hereto as Exhibit E.

     (c) Seller  shall  cause all  intercompany  accounts  between  Seller or an
Affiliate of Seller, on the one hand, and the Company,  on the other hand, to be
settled  in  full on or  prior  to the  Closing,  and  Seller  shall  cause  all
intercompany  agreements between Seller or an Affiliate Seller, on the one hand,
and the Company, on the other hand, to be terminated on or prior to the Closing.
Seller shall be responsible for all Liabilities associated with all intercompany
accounts and agreements and the satisfaction or termination of the foregoing.

     (d) Seller shall remove all assets, if any, owned by Seller or an Affiliate
of Seller and physically  situated at the Company's  leased facility  located at
1050 Southwood  Drive, San Luis Obispo,  California (the "Lease"),  which assets
are set forth on Schedule 2.1(d), on or prior to Closing.

Section 2.2  Purchase and Sale of Shares.

     (a) On the terms and subject to the conditions set forth herein, at Closing
Seller will sell, convey, transfer,  assign and deliver to Buyer, and Buyer will
purchase from Seller, all right, title and interest in and to all of the Shares.
At  Closing,  Buyer  shall  pay to  Seller as  consideration  for the  Shares an
aggregate amount of Three Million Six Hundred Thirty Three Thousand Five Hundred
Thirty  Dollars   ($3,633,530)  (the  "Purchase  Price")  by  wire  transfer  of
immediately  available funds to such account or accounts as designated by Seller
prior to  Closing;  provided,  however,  that if Seller  elects  to  adjust  the
Purchase  Price  pursuant  to  Section  2.3(a) or  Section  2.4(a)  hereof  upon
completion of the procedures  contemplated  thereby, the Purchase Price shall be
the dollar amount resulting from such adjustments.

     (b)  Through  the  purchase  of the Shares as set forth  above,  Buyer will
thereby  indirectly  acquire  all of the assets and  Liabilities  of the Company
(except  for  the  Seller  Retained  Assets  and  Liabilities  or  as  otherwise
contemplated by this  Agreement),  including,  but not limited to, the Company's
capital  equipment,  fixed  assets,  equipment,  furniture,  and other  personal
property,   the  Lease,  its  right,  title  and  interest  in  and  to  certain
Intellectual  Property  owned by or licensed to the Company and  permitted to be
retained by the Company,  including the Company's patents,  trademarks,  service
marks, the trade name "Ziatech", copyrights,  proprietary information (including
customer and supplier  lists),  Books and Records,  and its contract  rights and
intangibles.   Except  as  otherwise  provided  in  the  Intellectual   Property
Agreement,   the  Patent  Cross  License  Agreement  and  the  Contribution  and
Assumption  Agreement,  Buyer acknowledges that no rights under any Intellectual
Property  licenses  or  agreements  between  Seller  and third  parties  and any
Intellectual  Property  licenses or  agreements  between  Seller and the Company
which do not relate exclusively to the manufacture and sale of the Products will
be extended to Buyer or the Company following Closing.

Section 2.3  Asset Confirmation

     (a) Four (4) days prior to Closing,  Seller shall take a physical inventory
of the Company's  tangible  assets,  at Seller's  sole  expense,  which shall be
observed by Buyer or its representatives (the "Asset Confirmation"). Immediately
following  completion  of the Asset  Confirmation,  Seller shall notify Buyer in
writing regarding the results of the Asset Confirmation (the "Asset Statement").
Buyer shall deliver a certificate setting forth its acceptance of, or objections
to, the Asset  Statement  within one (1) day of receipt of such Asset  Statement
from Seller.  If Buyer accepts the Asset Statement,  the determination of Seller
regarding  the tangible  assets shall be deemed final and binding and no further
actions will be taken or adjustments made by the parties related thereto. In the
event that Buyer objects to the Asset  Statement or any portion  thereof,  Buyer
and  Seller  shall  attempt  in good  faith  to  immediately  resolve  any  such
objections.  If Buyer and Seller resolve such  objections and each party signs a
certificate  to that effect,  the Asset  Statement,  as adjusted by the parties,
shall be deemed  final and binding for  purposes of this  Agreement  and, to the
extent such adjusted Asset Statement identifies any assets missing from the list
of the Company's  tangible  assets set forth on Schedule  3.11(a) as of the date
hereof,  Seller  agrees,  in its sole  discretion,  to take one of the following
actions:

(i)   Seller shall replace such assets by delivering to the Company replacements
      therefor on or prior to Closing; or

(ii)  Seller shall reduce the Purchase  Price by  the  aggregate  value  of  all
      missing assets, such value being based  on  the  net book  value  of  such
      assets set forth next to each asset on Schedule 3.11(a);

provided,  however,  that the parties agree that Seller will not be obligated to
replace any missing  assets or reduce the Purchase  Price  unless the  aggregate
value of all such missing assets exceeds Twenty Five Thousand Dollars ($25,000).

     (b) In the  event  that  Buyer  and  Seller  are  unable  to  resolve  such
objections,  any  dispute  regarding  the Asset  Statement  shall be governed by
Section 9.7 of this  Agreement;  provided,  however,  that if the parties cannot
resolve such dispute  prior to the Closing  Date,  Buyer hereby agrees to effect
the Closing based on the Asset Statement  originally  submitted by Seller and to
defer the resolution of such dispute until after the Closing. The replacement of
assets or  adjustment  to the Purchase  Price  contemplated  by this Section 2.3
shall be the sole remedy of Buyer for any of the Company's  tangible assets that
were  listed on Schedule  3.11(a)  (other  than the Seller  Retained  Assets and
Liabilities) but identified as missing on the Asset  Statement,  and in no event
shall Buyer be entitled to any other  rights to  indemnification  under  Article
VIII of this Agreement for any of such assets not  transferred  and delivered at
Closing; provided, however, that any such replacement or adjustment shall not be
included in any calculation of the limitations on  indemnification  set forth in
Section 8.5 hereof.

Section 2.4  Inventory Confirmation

     (a) Four (4) days prior to Closing, Seller shall undertake a physical count
of the  portion of the  Inventory  set forth on  Schedule  2.4(a)  (the  "Demand
Forecast Inventory"), at Seller's sole expense, which shall be observed by Buyer
or its  representatives  (the "Inventory  Confirmation").  Inventory that is not
Demand  Forecast  Inventory  shall not be counted or included  in the  Inventory
Confirmation.  Immediately  following completion of the Inventory  Confirmation,
Seller  shall  notify Buyer in writing  regarding  the results of the  Inventory
Confirmation  (the  "Inventory  Statement").  The Inventory  Statement shall set
forth the value of the Inventory to be transferred to Seller  immediately  prior
to  Closing  pursuant  to  Section  2.1(a)  hereof  and the value of the  Demand
Forecast  Inventory  that shall remain with the Company at Closing.  Buyer shall
deliver a certificate  setting forth its  acceptance  of, or objections  to, the
Inventory  Statement within one (1) day of receipt of such Inventory  Statement.
If Buyer accepts the Inventory Statement,  the determination of Seller regarding
the Inventory  shall be deemed final and binding and no further  actions will be
taken or  adjustments  made by the parties  related  thereto.  In the event that
Buyer  objects to the  Inventory  Statement  or any portion  thereof,  Buyer and
Seller shall attempt in good faith to immediately  resolve any such  objections.
If Buyer and Seller  resolve such  objections and each party signs a certificate
to that effect, the Inventory  Statement,  as adjusted by the parties,  shall be
deemed final and binding for purposes of this  Agreement  and, to the extent the
value of the Demand  Forecast  Inventory  that will  remain  with the Company at
Closing  reflected on such  Inventory  Statement is less than One Million  Eight
Hundred  Thirty Three Thousand Five Hundred  Thirty  Dollars  ($1,833,530),  the
parties  agree that  Seller will reduce the  Purchase  Price by such  shortfall;
provided,  however,  that the parties agree that Seller will not be obligated to
take the foregoing  action unless the aggregate  value of the shortfall  exceeds
Fifty Thousand Dollars ($50,000).

     (b) In the  event  that  Buyer  and  Seller  are  unable  to  resolve  such
objections,  any dispute regarding the Inventory  Statement shall be governed by
Section 9.7 of this  Agreement;  provided,  however,  that if the parties cannot
resolve such  dispute  prior to the Closing  Date,  Purchaser  hereby  agrees to
effect the Closing  based on the  Inventory  Statement  originally  submitted by
Sellers and to defer the resolution of such dispute until after the Closing. The
adjustments  contemplated  by this Section 2.4 shall be the sole remedy of Buyer
for any  issues  related to the value of the  Inventory  to be  retained  by the
Company at Closing,  and in no event shall Buyer be entitled to any other rights
to indemnification under Article VIII related thereto;  provided,  however, that
any such adjustments shall not be included in any calculation of the limitations
on indemnification set forth in Section 8.5 hereof.

Section 2.5  Retention of Certain Employees.

     (a)  Prior  to  Closing,  and in  conformity  with all  applicable  Law and
Seller's  internal  policies,  Seller and Buyer will cooperate to facilitate for
Buyer or the Company the  post-Closing  employment of certain of those employees
of Seller  who  currently  perform  services  for the  Company  pursuant  to the
Employee  Leasing  Agreement (as defined  below) and who Buyer desires to retain
after  Closing so that they can  continue to perform  similar  services  for the
Company thereafter (the "Retained Employees"). Buyer regards the employment of a
certain  Retained  Employee as being  essential to Buyer's ability to manage the
Company and operate the business  following  Closing (the "Key  Employee").  The
Retained  Employees  and the Key Employee are set forth on Schedule  2.5.  Buyer
will  make  offers  of  employment  to no less than  sixty-seven  (67)  Retained
Employees.  The  aforementioned  cooperation  between  Seller  and  Buyer  shall
include,  but not be limited to, (i) Buyer  extending to the Retained  Employees
employment on terms that are competitive for similarly situated employees in the
prevailing  employment  market  in  San  Luis  Obispo,  California,  (ii)  Buyer
crediting  the  service of the  Retained  Employees  with Seller  under  Buyer's
seniority-based  employment  programs,  paid  time  off  programs  and  employee
benefits  programs,   and  (iii)  Seller  making   information   concerning  its
compensation  and  benefit  programs  and  specific   information   relating  to
individual  Retained Employees available to Buyer for the purpose of formulating
compensation packages for Retained Employees.

     (b) Following  the Closing,  Seller and Buyer agree that Buyer shall not be
responsible  for providing  employment,  compensation or benefits of any sort to
any of Seller's employees in connection with services provided to the Company at
any time prior to Closing,  other than the Retained  Employees who have accepted
Buyer's  offers of employment  with the Company.  Seller and Buyer further agree
that  Seller  shall be  responsible  for all  Liabilities  associated  with such
employees related to the period prior to the Closing Date.

Section 2.6  Closing.

     Closing will take place at the offices of counsel to Buyer, Harter, Secrest
& Emery LLP, 1600 Bausch & Lomb Place,  Rochester,  New York on October 1, 2002,
or such other date mutually  agreed to by Buyer and Seller;  provided,  however,
that all of the  conditions  to  Closing  set  forth in  Article  VII have  been
satisfied or waived. In the alternative,  Closing may take place by the parties'
simultaneous  execution and delivery of the Closing Documents,  with transmittal
of facsimile  signature pages  electronically  and exchange of original executed
documents by overnight courier  delivery.  The date in the U.S. on which Closing
occurs is called the  "Closing  Date," and Closing will be effective as of 11:59
p.m.,  Rochester  time, on the Closing Date. The required  deliveries at Closing
are set forth in Article VII.

             ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER

     As of the date hereof, Seller represents and warrants to Buyer as follows:

Section 3.1  Power and Authority of Seller.

     Seller has all  requisite  corporate  power and  authority  to execute  and
deliver this Agreement and each Ancillary  Agreement to which it is a party,  to
perform  its  obligations  hereunder  and  thereunder,  and  to  consummate  the
Transaction.

Section 3.2  Organization, Power and Capitalization of the Company.

     (a) The Company is a corporation  duly organized,  validly  existing and in
good  standing  under the Laws of the State of  California.  The Company has all
requisite corporate power and authority to own, lease,  operate and transfer its
assets, and to carry on its business as now being conducted. The Company is duly
qualified to do business  and is in good  standing as a foreign  corporation  in
each  jurisdiction  where its ownership or operation of assets or its conduct of
the  business  requires  such  qualification,  except where the failure to be so
qualified would not have a Material Adverse Effect on the Company. Except as set
forth on Schedule 3.2(a), the Company does not have any Subsidiaries.

     (b) The total  authorized  capital  stock of the Company  consists of 1,000
shares of common stock,  par value $0.01 per share.  Schedule  3.2(b) is a true,
correct and complete listing of: (i) all capital stock of the Company issued and
outstanding;  (ii) all rights,  options,  warrants,  conversion rights, exchange
rights or  similar  commitments  or  equivalents,  written  or oral,  to acquire
capital stock of the Company,  whether  vested or unvested,  that are issued and
outstanding;  and (iii) the respective holders of each thereof,  and the amounts
of their respective holdings.  Except as set forth on Schedule 3.2(b), there are
no preemptive or other outstanding rights, options, warrants,  conversion rights
or agreements or commitments  to issue or sell capital stock of the Company,  or
any securities or obligations  convertible  into or exchangeable  for, or giving
any Person a right to subscribe  for or acquire,  capital  stock of the Company,
and no securities or obligations evidencing such rights are outstanding.

     (c) Seller has made available to Buyer true, correct and complete copies of
the  articles of  incorporation  (including  all  amendments  to date),  by-laws
(including  all  amendments to date),  stock book and minute book of the Company
since October 10, 2000.

Section 3.3  Governmental Approvals.

     No consent,  approval,  waiver, or authorization is required to be obtained
by Seller, and no notice or filing is required to be given by Seller to, or made
by Seller  with,  any  Governmental  Entity in  connection  with the  execution,
delivery and performance by Seller of this Agreement,  each Ancillary  Agreement
and the consummation of the Transaction.

Section 3.4  Non-Contravention.

     Except  as  set  forth  on  Schedule  3.4,  the  execution,   delivery  and
performance by Seller of this Agreement and each  Ancillary  Agreement,  and the
consummation of the Transaction,  do not and will not: (a) violate any provision
of the articles of incorporation,  bylaws or other  organizational  documents of
the Company;  (b)  conflict  with,  or result in the breach of, or  constitute a
default  under,  or  result in the  termination,  cancellation  or  acceleration
(whether  after the  filing of notice or the lapse of time or both) of any right
or obligation of Seller or the Company under,  or a loss of any benefit to which
the Company is entitled  under,  any Material  Contract (as defined  below),  or
result in the creation of any Encumbrance upon any of the material assets of the
Company,  other  than a  Permitted  Encumbrance;  or (c)  violate or result in a
material  breach of or constitute a material  default under any applicable  Law,
judgment,  injunction,  order,  decree or other  restriction of any Governmental
Entity to which Seller or the Company is subject.

Section 3.5  Binding Effect.

     This Agreement and each Ancillary Agreement, when executed and delivered by
Seller and Buyer (assuming such agreements  constitute valid and legally binding
obligations of Buyer),  will constitute valid and legally binding obligations of
Seller,  enforceable  against  it in  accordance  with their  respective  terms,
subject to bankruptcy, insolvency,  reorganization,  moratorium and similar Laws
of general  applicability  relating  to or  affecting  creditors'  rights and to
general equity principles.

Section 3.6  Title Matters.

     (a) Seller has, and at Closing will effectively transfer to Buyer, good and
marketable title to all of the Shares, free and clear of all Encumbrances.

     (b) Except as set forth on Schedule  3.6(b),  at Closing,  the Company will
have,  free and clear of all  Encumbrances,  other than Permitted  Encumbrances,
good and marketable title to all of its tangible  personal property used or held
for use in the operation of its business,  other than the Seller Retained Assets
and  Liabilities  and any assets  owned by Seller or an  Affiliate of Seller and
removed from the Company's  premises prior to Closing pursuant to Section 2.1(d)
of this Agreement.

Section 3.7  Financial Statements.

     Attached hereto as Schedule 3.7 are the Financial Statements. The Financial
Statements  fairly present in all material  respects the financial  position and
the results of  operations  of the Company for the  respective  periods  therein
stated,  and reflect  adequate  reserves  for all known  Liabilities,  as of the
respective dates therein stated, in accordance with GAAP.

Section 3.8  Liabilities.

     (a) Except as set forth on Schedule  3.8(a) and the Seller  Retained Assets
and  Liabilities,  the Company has no  Liabilities  other than  Liabilities  (i)
reflected on the Financial Statements or (ii) arising since June 29, 2002 in the
Ordinary Course which individually or in the aggregate are not material.

     (b) Except as set forth on Schedule 3.8(b),  the Company has no Third Party
Debt, and will not have any Third Party Debt outstanding as of the Closing Date.

     (c) Prior to Closing,  Seller will,  or will cause the Company to,  satisfy
all  Liabilities  (including  obligations for royalty  payments)  payable by the
Company to Seller (or to any  Affiliate  of Seller),  and at Closing the Company
will have no Liability whatsoever to Seller (or to any Affiliate of Seller).

Section 3.9  Compliance with Laws.

     (a) The Company is  conducting,  and has conducted  since October 10, 2000,
its business in compliance in all material  respects with all  applicable  Laws,
and the Company has all Governmental Authorizations necessary for the conduct of
the business as currently conducted.

     (b) To Seller's  Knowledge,  the Company's  leased facility located at 1050
Southwood  Road, San Luis Obispo,  California,  conforms to and complies with in
all  material  respects  all  applicable  covenants,  conditions,  restrictions,
reservations, land use, zoning, health, fire, water and building codes and other
similar  Laws,  and no such  Laws  prohibit  or  limit or  condition  the use or
operation  of  such  premises  as  currently  used  and  operated.  To  Seller's
Knowledge, there is no pending,  contemplated,  threatened or anticipated change
in the zoning classification of any of such premises.

Section 3.10  Litigation and Claims.

     Except as set forth on Schedule  3.10:  (a) there is no civil,  criminal or
administrative  Claim  or  investigation  pending  or,  to  Seller's  Knowledge,
threatened, by, on behalf of or against the Company or the Company's assets; and
(b) neither the Company nor its assets are subject to any order, writ, judgment,
award, injunction or decree of any Governmental Entity of competent jurisdiction
or any arbitrator.

Section 3.11  Tangible Assets and Products.

     (a) Schedule  3.11(a) is a true,  correct and complete  listing of: (i) all
material  equipment,  computer  equipment  and  hardware,  furniture,  fixtures,
vehicles, machinery, apparatus, media, tools, appliances,  implements, and other
tangible  personal  property of the Company as of March 31,  2002;  and (ii) all
additions to and  dispositions  of the foregoing made between March 31, 2002 and
the date of this  Agreement,  other than those items  having a cost of less than
Two Thousand Dollars  ($2,000).  Except as set forth in Schedule  3.11(a),  such
assets  are in a good  state of repair  and  condition,  ordinary  wear and tear
excepted.

     (b)  Schedule  3.11(b)  is a true,  correct  and  complete  listing  of the
Products.

     (c) Schedule 3.11(c) is a true,  correct and complete listing,  by category
and volume level as of the date of this Agreement,  of the Company's  Inventory.
All of such Inventory has been costed and valued, and presented in the Financial
Statements,  in accordance with GAAP.  Except as set forth on Schedule  3.11(c),
all of such  Inventory  is of good and  merchantable  quality and  saleable  and
usable in the Ordinary Course.

Section 3.12  Company Intellectual Property.

     (a) The term  "Company  Intellectual  Property"  means all of the following
properties and rights of the Company:

(i) all  schematics,  bills of material,  test programs,  test fixtures,  source
code,  object code,  design  documentation  and written  procedures  for Product
generation and testing of all Products including computer software, hardware and
firmware, including the software rules and algorithms,  flowcharts,  included in
or relating to the same (collectively, the "Technical Documentation");

(ii)  copyrights,  designs,  technical  works,  technical  data,  trade secrets,
know-how and inventions of the Company;

(iii) the  patents  and patent  applications  listed on  Schedule  3.12(a)(iii),
together  with  any  division,  continuation,  continuation-in-part,  continuing
prosecution  application,  continued  examination  application,   reinstatement,
reexamination,  revival, reissue,  extension or substitution of any thereof, and
corresponding  U.S.  and  foreign  applications,   patents  and  rights  thereto
(collectively, the "Patents");

(iv) all trademarks,  service marks, trade names, trade dress, and Product names
used in  connection  with the  manufacture,  promotion  and sale of the Products
which are listed on Schedule  3.12(a)(iv),  and  corresponding  U.S. and foreign
applications, registrations and rights thereto (collectively, the "Trademarks");

(v) all written  material  licenses,  sublicenses  and  agreements  by which the
Company uses Intellectual  Property owned by Seller or a third party, or a third
party uses  Intellectual  Property  owned by the Company,  which  documents  are
listed  on  Schedule  3.12(a)(v),  except  that  any  Seller-wide  cross-license
relationships  into which  Seller has entered  that  pertain to Seller's  patent
portfolio are not listed in Schedule 3.12(a)(v) (the "Licenses"); and

(vi) all internet, intranet and World Wide Web content, sites and pages, and all
HTML and other code related  thereto,  and all domain  names used in  connection
with the manufacture, promotion or sale of the Products and the promotion of the
Company, which sites and domain names are set forth on Schedule 3.12(a)(vi).

     (b) Except as set forth on Schedule  3.12(b),  to Seller's  Knowledge,  the
Company owns or has a license to use, free and clear of all Encumbrances,  other
than Permitted  Encumbrances and non-exclusive licenses in favor of Seller (none
of which would impair the rights granted to Buyer  pursuant to the  Intellectual
Property  Agreement  or  the  Patent  Cross  License  Agreement),   all  Company
Intellectual Property.

     (c) Except as set forth in Schedule  3.12(c),  to Seller's  Knowledge,  the
manufacture  and sale of the Products by the Company or Seller has not infringed
any Intellectual  Property rights of any third party or of Seller (other than as
licensed in the  Intellectual  Property  Agreement  and the Patent Cross License
Agreement), and, to Seller's Knowledge, no Claim has been asserted by any Person
as to the infringement by the Company of any third party  Intellectual  Property
or alleging any such infringement,  and to Seller's Knowledge, there is no valid
basis for any such Claim.  To Seller's  Knowledge,  no third party has infringed
upon  any  rights  of the  Company  with  respect  to the  Company  Intellectual
Property.

     (d) Seller has made  available to Buyer correct and complete  copies of all
of the  tangible  Technical  Documentation,  including  documentation  stored in
electronic  form, in its possession,  as amended to date. To Seller's  Knowledge
and except as set forth in Schedule  3.12(d),  with  respect to each item of the
Technical  Documentation,  Seller or the  Company  is the  author of, or has the
license to, the Technical Documentation and, to Seller's Knowledge,  the Company
has the exclusive right to claim all copyrights in the Technical  Documentation,
except that Seller may have  co-ownership  or license  rights to such  Technical
Documentation.

     (e) The Company has made available to Buyer correct and complete  copies of
all  registered  Patents  listed on  Schedule  3.12(a)(iii)  and all  registered
Trademarks listed on Schedule 3.12(a)(iv), as amended to date.

     (f) Since October 10, 2000 and, to Seller's Knowledge, for any period prior
to October 10, 2000,  except as set forth on Schedule  3.12(f),  all  personnel,
including employees,  agents, consultants and contractors,  who have contributed
to or participated  in the  conception,  reduction to practice or development of
the Technical  Documentation or the Company  Intellectual  Property either:  (i)
have been party to a  "work-for-hire"  arrangement or agreement with the Company
or Seller,  in  accordance  with  applicable  federal  and state  Law,  that has
accorded the Company or Seller original  authorship and exclusive  ownership of,
and all  right,  title and  interest  in and to,  all  tangible  and  intangible
property  thereby  arising;  or (ii) have executed  appropriate  instruments  of
assignment in favor of the Company or Seller,  as assignee that have conveyed to
the Company or Seller exclusive  ownership or co-ownership  with the Company and
Seller of all right,  title and interest in and to all  tangible and  intangible
property  arising  thereby.  In each  case,  where any  rights to the  Technical
Documentation  are in Seller,  Seller will  transfer  such rights to the Company
prior to Closing pursuant to the Contribution and Assignment Agreement.

Section 3.13  Major Vendors and Customers.

     Schedule  3.13  sets  forth  a  true,  correct  and  complete  list  of the
following:  (i) the twenty (20)  largest  customers  of the Company for the year
ended  December 31, 2001;  (ii) the twenty (20) largest  suppliers  for the year
ended December 31, 2001; and (iii) all of the Company's distributors.  Except as
set forth on Schedule  3.13,  neither  Seller nor,  to Seller's  Knowledge,  any
employee of the Seller providing services for the Company,  has been informed in
writing by a third party that the  consummation of the Transaction  would result
in the  loss  of any  significant  customer,  potential  customer,  supplier  or
distributor of the Company.

Section 3.14  Material Contracts; Warranties.

     (a) Schedule  3.14(a) sets forth a list of all of the following  contracts,
agreements,  options, licenses, sales and purchase orders, commitments and other
instruments  (each a  "Contract")  to which the Company is a party or  otherwise
bound (each a "Material Contract" and, collectively,  the "Material Contracts"):
(i) each sales Contract relating to the Company's business pursuant to which the
dollar volume of sales exceeded  Twenty Five Thousand  Dollars  ($25,000) in the
twelve  month  period  ended  December  31,  2001 or  Fifteen  Thousand  Dollars
($15,000) in the seven month period ended July 31, 2002; (ii) each Contract that
requires  payment by or to the Company in respect of its business  subsequent to
the date of this Agreement of more than Twenty Five Thousand Dollars  ($25,000);
(iii) all  Contracts  in  respect of the  Company's  business  relating  to, and
evidences of,  indebtedness  for borrowed  money or deferred  purchase  price of
property;  (iv)  all  partnership,  joint  venture  or other  similar  Contracts
directly affecting the Company's business or assets; and (v) all other Contracts
that are material to the Company;  provided that Schedule  3.14(a) does not list
any Contracts between the Company and Seller.

     (b) Seller has made  available  to Buyer true and  complete  copies of each
Material  Contract  that is in  written  form,  and  true and  complete  written
summaries  of each  Material  Contract  that is  oral.  Except  as set  forth on
Schedule  3.14(b),  each  Material  Contract  is  a  legal,  valid  and  binding
obligation of the Company, and to Seller's Knowledge, each other Person who is a
party  thereto,  enforceable  against  the  Company  and  each  such  Person  in
accordance  with its  terms,  subject  to  subject  to  bankruptcy,  insolvency,
reorganization, moratorium and similar Laws of general applicability relating to
or affecting creditors' rights and to general equity principles, and neither the
Company  nor, to  Seller's  Knowledge,  any other party  thereto is in breach or
default thereunder.

     (c) Seller has made available to Buyer true, correct and complete copies of
the Company's  standard warranty terms.  Schedule 3.14(c) contains a list of any
deviations from the Company's standard warranty terms.

Section 3.15  Tax Matters.

     Except as set forth on Schedule 3.15:

     (a) the Company (and each  affiliated,  unitary or combined  group of which
the  Company is or has been a member)  has timely  filed all  material  federal,
state,  local and  foreign  income  and  franchise  Tax  Returns,  and all other
material  Tax Returns  that are required to be filed by it on or before the date
hereof,  and all Taxes shown on any Tax Return have been paid, and the Financial
Statements  reflect an adequate  accrual,  based on the facts and  circumstances
existing  as of the  respective  dates  thereof,  for all Taxes  payable  by the
Company through the respective dates thereof;

     (b) there are no deficiencies for any Taxes proposed,  asserted or assessed
against the Company, no requests for waivers of the time to assess any Taxes are
pending, and no power of attorney with respect to any Taxes has been executed or
filed with any taxing authority;

     (c) the Company  has  complied  with all  applicable  Laws  relating to the
payment and withholding of material Taxes and has withheld and paid all material
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor or other Person;

     (d) there are no Encumbrances for Taxes (other than Permitted  Encumbrances
set forth on Schedule 3.15) on the assets of the Company;

     (e) the Company is not bound by any  agreement  (either  with any Person or
any taxing authority) with respect to Taxes that will remain in effect following
Closing;

     (f) the Company has not constituted either a "distributing  corporation" or
a "controlled  corporation"  (within the meaning of section  355(a)(1)(A) of the
Code) in a distribution of stock qualifying for tax-free treatment under section
355 of the Code (i) in the two (2) years prior to the date of this  Agreement or
(ii) in a  distribution  which could  otherwise  constitute  part of a "plan" or
"series of related  transactions"  (within the meaning of section  355(e) of the
Code) in conjunction with the Transaction;

     (g) the  Company  has never  been a member  of an  affiliated,  unitary  or
combined group of  corporations  (within the meaning of section 1504 of the Code
and any  analogous  provision  of state,  local or  foreign  Law) other than the
affiliated group of which Seller is the common parent;

     (h) the  Company  has not filed a consent  pursuant  to the  provisions  of
section  341(f) of the Code (or any  corresponding  provision  of state or local
Law) or  agreed  to have  section  341(f)(2)  of the Code (or any  corresponding
provision of state or local Law) apply to any  disposition of any asset owned by
the Company;

     (i) the  Company  has not  agreed to make,  nor is  required  to make,  any
adjustment  under section 481(a) of the Code or any similar  provision of state,
local or foreign Law by reason of a change in accounting methods or otherwise;

     (j) no property owned by the Company is (i) property required to be treated
as being owned by another Person pursuant to the provisions of section 168(f)(8)
of the Internal  Revenue  Code of 1954,  as amended,  and in effect  immediately
prior to the  enactment  of the Tax Reform  Act of 1986,  (ii)  "tax-exempt  use
property" within the meaning of section 168(h)(1) of the Code, (iii) "tax-exempt
bond  financed  property"  within the meaning of section  168(g) of the Code, or
(iv) "limited use property" (as that term is used in Rev. Proc. 76-30);

     (k) no audit or other  administrative or court proceedings are pending with
respect to Taxes of the Company and no notice thereof has been received;  and no
issue has been raised by any taxing authority in any presently  pending or prior
audit that could have a Material  Adverse  Effect on the  Company for any period
after Closing;

     (l) no Claim has been made by a taxing  authority in a  jurisdiction  where
the Company  does not file Tax Returns  that the Company is or may be subject to
taxation in that jurisdiction;

     (m)  the  Company  is not a  party  to any  contract,  agreement  or  other
arrangement  which  provides  for the  payment of any amount  which would not be
deductible by reason of section 280G of the Code; and

     (n) the Company has made available to Buyer true and complete copies of (i)
all federal and California  income Tax Returns of the Company (or the portion of
any affiliated,  unitary or combined Tax Return relating to the Company) for the
preceding  three (3) taxable years,  and (ii) any audit report issued within the
last three (3) years (or  otherwise  with respect to any audit or  proceeding in
progress) relating to Taxes of the Company.

Section 3.16  Employment Matters.

     Except as set forth on Schedule  3.16:  (a) the Retained  Employees are not
the subject  of, and the  Company is not a party to or bound by, any  collective
bargaining, works council or similar agreement; (b) during the three-year period
preceding the date hereof,  there have been no strikes,  grievances or Claims of
unfair  labor  practice  relating to the Retained  Employees;  (c) Seller has no
Knowledge of any organizational  effort presently being made or threatened by or
on behalf of any labor union with respect to the Retained Employees;  (d) during
the three-year  period preceding the date hereof,  there has not been, and there
is not presently pending or existing or, to Seller's Knowledge,  threatened, any
strike,  work  stoppage,  labor  arbitration  or  proceeding  in  respect of the
grievance of any Retained  Employee,  any  application  or complaint  filed by a
Retained  Employee  or union  with the  National  Labor  Relations  Board or any
comparable  Governmental Entity,  organizational activity or other labor dispute
relating to the Retained  Employees;  (e) no application for  certification of a
collective  bargaining  agent is pending or, to Seller's  Knowledge,  threatened
with respect to the Retained Employees;  (f) there is no lockout of any Retained
Employees;  (g) there are no Claims currently pending or, to Seller's Knowledge,
threatened,  against the Company  alleging the violation of any Laws relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours,  benefits,  collective  bargaining,  the payment of social  security  and
similar Taxes,  occupational safety and health and plant closing,  including the
Americans with Disabilities Act, the Immigration Reform and Control Act, and the
Worker  Adjustment and Retraining  Notification Act  (collectively,  "Employment
Laws"), or any other Claim whatsoever,  whether based in tort,  contract or Law,
arising  out of or  relating  in any way to a  Person's  employment  (actual  or
alleged),  application  for  employment or  termination  of employment  with the
Company;  (h) since  October 10,  2000,  with  respect to  employees  performing
services  for the  Company,  Seller  has been in  material  compliance  with all
applicable  Employment  Laws;  (i) the Company and, with respect to the Retained
Employees,  the  Seller,  have not been found  liable for the  payment of Taxes,
fines,  penalties or other amounts,  however  designated,  for failure to comply
with any Employment Laws in connection  with the operation of the business;  (j)
the  jurisdictions  in which the Company or Seller had persons  employed for the
operation of the  Company's  business as of June 29, 2002 are listed on Schedule
3.16; and (k) as a result of the Employee Leasing  Agreement  between Seller and
the Company  dated  October 11, 2000 (the  "Employee  Leasing  Agreement"),  the
Company does not have any employees and, since October 10, 2000, the Company has
not had any employees.

Section 3.17  Benefits Arrangements.

     (a) The Company does not sponsor or maintain any employee benefit plans and
policies,  whether written or oral, under which any employee or former employee,
or any beneficiary of any employee or former employee,  of the Company,  Seller,
or any ERISA Affiliate, has any present or future right to benefits,  including,
without  limitation,  (i) any  "employee  benefit  plan"  (within the meaning of
section 3(3) of ERISA); (ii) any profit-sharing,  deferred compensation,  bonus,
stock  option,  stock  purchase,  pension,  retainer,  consulting,   retirement,
severance,  welfare or incentive plan,  agreement or  arrangement;  or (iii) any
plan, agreement or arrangement providing for "fringe benefits" or perquisites to
employees,  officers,  directors  or  agents,  including  benefits  relating  to
automobiles,  clubs, vacation,  child care, parenting,  sabbatical,  sick leave,
medical, dental,  hospitalization,  life insurance and other types of insurance.
The Company is not a party to any collective bargaining,  employment,  severance
or other similar agreements.

     (b)  Neither  Seller,  the  Company,  nor  any  ERISA  Affiliate  has  ever
sponsored,  maintained,  incurred  any  obligations  with  respect  to,  or made
contributions  to any employee  benefit  plans or policies,  including,  without
limitation,  (i) any "employee benefit plan" (within the meaning of section 3(3)
of ERISA); (ii) any profit-sharing,  deferred compensation, bonus, stock option,
stock purchase, pension, retainer, consulting, retirement, severance, welfare or
incentive  plan,  agreement  or  arrangement;   (iii)  any  plan,  agreement  or
arrangement  providing  for  "fringe  benefits"  or  perquisites  to  employees,
officers,  directors  or agents,  including  benefits  relating to  automobiles,
clubs, vacation, child care, parenting, sabbatical, sick leave, medical, dental,
hospitalization, life insurance and other types of insurance, whether written or
oral, under which the Company has any Liability,  and Seller has no Knowledge of
any event or  condition  that  could  reasonably  be  expected  to result in any
Liability.  Neither Seller, the Company, nor any ERISA Affiliate has ever been a
party to any collective bargaining,  employment or severance agreements or other
similar  arrangements,  whether written or oral, under which the Company has any
Liability,  and Seller has no  Knowledge  of any event or  condition  that could
reasonably be expected to result in any such Liability.

     (c) Without  limiting  the  foregoing,  the Company has no  Liability,  and
Seller has no  Knowledge  of any event or  condition  that could  reasonably  be
expected to result in any such  Liability,  with  respect to any plan subject to
Title IV of ERISA or section 412 of the Code, any  "multiemployer  plan" (within
the meaning of section 3(37) of ERISA), any "multiple employer plan" (within the
meaning of section 3(40) of ERISA or section  413(c) of the Code),  a "voluntary
employees' beneficiary  association" (within the meaning of Section 501(c)(9) of
the Code), or a "multiple employer welfare  arrangement"  (within the meaning of
Section 3(40)(A) of ERISA).

     (d) Without  limiting  the  foregoing,  the Company has no  Liability,  and
Seller has no  Knowledge  of any event or  condition  that could  reasonably  be
expected to result in any such Liability,  relating to COBRA with respect to any
events occurring prior to and including the Closing Date.

     (e) The Company has no assets  subject to (or expected to be subject to) an
Encumbrance under ERISA or the Code.

Section 3.18  Environmental Matters.

     (a) Except with respect to the Seller Retained Assets and Liabilities,  the
Company has complied in all material respects with all  Environmental  Laws, and
no Claim or  investigation  has been  filed or  commenced  against  the  Company
alleging such failure, nor does Seller have any Knowledge of any valid basis for
such a Claim.

     (b) Except as set forth in Schedule 3.18 and for the Seller Retained Assets
and Liabilities,  to Seller's  Knowledge,  the Company has no Liability (and the
Company has not handled,  used,  stored,  recycled or disposed of any  Hazardous
Substance,  arranged for the disposal of any  Hazardous  Substance,  exposed any
employee or other Person to any Hazardous Substance or hazardous  condition,  or
owned or operated  any  property  or  facility in any manner,  in each case that
could  reasonably  be expected to form the basis for any present or future Claim
or investigation giving rise to any such Liability) for damage or remediation to
any  site,  location  or  body of  water  (surface  or  subsurface),  under  any
Environmental Law.

Section 3.19  Insurance.

     Schedule  3.19  lists all  third  party  insurance  policies  covering  the
ownership  and  operations  of the  business  or any  of the  Company's  assets,
reflecting  the identity of  insurers,  amounts and  coverage.  Such third party
policies  are in full force and  effect.  All of such third party  policies,  or
similar  replacement  policies,  will be until  Closing in full force and effect
with no premium arrearages.

Section 3.20  Conduct of Business.

     (a) Since March 31, 2002,  except as set forth on Schedule  3.20(a),  there
has not occurred any event,  condition  or change in the  operations,  condition
(financial  or  otherwise)  or assets of the Company that has had, or could at a
later date have, a Material Adverse Effect on the Company.  Without limiting the
generality  of the  foregoing,  since  March  31,  2002,  except as set forth on
Schedule 3.20(a) or as otherwise contemplated by this Agreement, the Company has
not:

(i) sold,  leased,  transferred,  assigned  or acquired  any assets  outside the
Ordinary Course;

(ii) entered into any Material Contract;

(iii) accelerated,  terminated,  modified or canceled a Material Contract except
in the Ordinary  Course,  or  materially  modified its backlog;  and to Seller's
Knowledge, no other party has done so as a result of any default by the Company;

(iv) made any capital  expenditure (or series of related  capital  expenditures)
involving more than Ten Thousand Dollars ($10,000);

(v) made any  capital  investment  in,  any loan to, or any  acquisition  of the
securities or assets of, any other Person;

(vi) issued any note, bond or other debt security or created,  incurred, assumed
or guaranteed any indebtedness or capitalized lease obligation, other than trade
payables incurred in the Ordinary Course;

(vii)  incurred,  created or assumed any  Encumbrance on any assets,  other than
Permitted Encumbrances or in the Ordinary Course;

(viii) canceled, compromised, waived or released any material right or Claim (or
series of related rights and Claims) outside the Ordinary Course;

(ix) disposed of, licensed or permitted to lapse any rights in material  Company
Intellectual Property outside the Ordinary Course;

(x) experienced any material damage, destruction or loss to its assets, taken as
a whole, not covered by insurance;

(xi) made any change of accounting or accounting practice, procedure or policy;

(xii)  failed to maintain  its assets in as good  working  order and  condition,
ordinary wear and tear excepted;

(xiii)  failed  to keep in full  force and  effect  any  third  party  insurance
policies set forth on Schedule 3.19;

(xiv)  amended its  articles of  incorporation,  by-laws or any other  governing
instrument or document;

(xv) split, combined or reclassified any shares of its capital stock,  declared,
set aside or paid any dividend or other  distribution  (whether in cash,  stock,
property  or any  combination  thereof)  in respect  of its  capital  stock,  or
redeemed, repurchased or otherwise acquired any of its securities;

(xvi)  issued,  granted or sold any shares of its capital  stock or other equity
interest,  or any options,  warrants or other rights to purchase any such shares
or interests or securities convertible into or exchangeable therefor;

(xvii)  acquired (by merger,  consolidation,  or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof;

(xviii)  settled  any  Claims  for  amounts  in excess of Ten  Thousand  Dollars
($10,000) individually or in the aggregate;

(xix) granted any increase in the base  compensation of any employee or made any
other change in the employment terms,  compensation or benefits of any employee,
director, officer or independent contractor, other than in the Ordinary Course;

(xx) made any changes in its general pricing practices or policies or any change
in its credit allowance practice or policies; or

(xxi) entered into any written or oral commitment to do any of the foregoing.

     (b) Since March 31, 2002,  except as contemplated by Section  3.20(a),  the
Company has operated the  business in the  Ordinary  Course,  and Seller and the
Company  have used  commercially  reasonable  efforts to preserve  the  business
intact and to preserve the Company's  relationship  with licensors,  developers,
consultants,  remarketers,  suppliers,  distributors,  customers,  employees and
others having regular business relations with the Company.

Section 3.21  Related-Party Transactions.

     Except as set forth in  Schedule  3.21,  the  Company is not a party to any
Contract  with,  or  any  other  commitment  to,  directly  or  indirectly,  any
shareholder, director or officer of the Company.

Section 3.22  Finders' Fees.

     There is no investment banker, broker, finder or other intermediary who has
been  retained by or is authorized to act on behalf of Seller or the Company who
might be entitled to any fee or  commission  from Buyer in  connection  with the
Transaction.

Section 3.23  Adequacy of Assets of the Company.

     Except for the Seller  Retained  Assets and  Liabilities  and the items set
forth in  Schedule  3.23,  the  properties,  assets and rights of the Company at
Closing,  together with the rights granted to Buyer pursuant to the Intellectual
Property  Agreement  and the Patent Cross  License  Agreement,  will include all
properties,  assets and rights used by the Company to  manufacture  and sell the
Products as of the Closing Date. In the event that this Section 3.23 is breached
because Seller has failed to identify any such  property,  assets or rights used
by the Company to manufacture  and sell the Products,  to the extent Seller owns
and/or is permitted to transfer such property, asset or right, Seller shall cure
such  breach  by  promptly  transferring  such  property,  asset or right to the
Company, and Buyer shall have no further remedy with respect thereto.

Section 3.24  Disclosure.

     To Seller's  Knowledge,  the  provisions of this  Agreement with respect to
Seller and the Company do not include any untrue  statements of material fact or
omit to state any material fact necessary in order to make the  statements  made
herein about Seller and the Company not misleading.

              ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER

     As of the date hereof, Buyer represents and warrants to Seller as follows:

Section 4.1  Organization and Power.

     Buyer  is a  corporation  duly  organized,  validly  existing  and in  good
standing  under  the Laws of the  State of  Delaware.  Buyer  has all  requisite
corporate power and authority to own, lease and operate its assets, and to carry
on its business as now being conducted.

Section 4.2  Authorization.

     Buyer has full  corporate  power and  authority to execute and deliver this
Agreement and each Ancillary Agreement, and to perform its obligations hereunder
and  thereunder.  The  execution,  delivery  and  performance  by  Buyer of this
Agreement and each Ancillary  Agreement have been duly and validly authorized by
all necessary corporate action on the part of Buyer, and no additional corporate
authorization or consent is required in connection therewith.

Section 4.3  Governmental Approvals.

     No consent,  approval,  waiver, or authorization is required to be obtained
by Buyer  from,  and no notice or filing is  required to be given by Buyer to or
made by Buyer with, any  Governmental  Entity in connection  with the execution,
delivery and performance by Buyer of this Agreement and each Ancillary Agreement
and the consummation of the Transaction.

Section 4.4  Non-Contravention.

     Except  as  set  forth  on  Schedule  4.4,  the  execution,   delivery  and
performance  by Buyer of this Agreement and each  Ancillary  Agreement,  and the
consummation of the Transaction,  do not and will not: (a) violate any provision
of the certificate of incorporation, bylaws or other organizational documents of
Buyer;  (b) conflict  with,  or result in the breach of, or constitute a default
under, or result in the termination, cancellation or acceleration (whether after
the filing of notice or the lapse of time or both) of any right or obligation of
Buyer under, any agreement, contract, lease, sublease,  arrangement,  commitment
or license to which Buyer is a party or by which any of its assets is bound;  or
(c)  violate  or result in a breach of or  constitute  a default  under any Law,
judgment,  injunction,  order,  decree or other  restriction of any Governmental
Entity to which Buyer is subject.

Section 4.5  Binding Effect.

     This Agreement and each Ancillary Agreement, when executed and delivered by
Buyer and Seller (assuming such agreements  constitute valid and legally binding
obligations of Seller), will constitute valid and legally binding obligations of
Buyer,  enforceable  against Buyer in accordance  with their  respective  terms,
subject to bankruptcy, insolvency,  reorganization,  moratorium and similar Laws
of general  applicability  relating  to or  affecting  creditors'  rights and to
general equity principles.

Section 4.6  Finders' Fees.

     No broker, investment banker, financial advisor or other person, other than
Harris  Williams  & Co.,  is  entitled  to  any  broker's,  finder's,  financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement.

Section 4.7  Financing.

     On the Closing Date,  Buyer will have  sufficient  funds to consummate  the
Transaction and to perform its obligations hereunder.

Section 4.8  Disclosure.

     To Buyer's  knowledge,  the  provisions of this  Agreement  with respect to
Buyer do not include any untrue  statements  of a material fact or omit to state
any material fact  necessary in order to make the  statements  made herein about
Buyer not misleading.

                     ARTICLE V. COVENANTS AS TO TAX MATTERS

Section 5.1  Transfer Taxes.

     Buyer and Seller  shall each be  responsible  for  one-half  of any excise,
sales, use, value added,  transfer  (including real property transfer or gains),
stamp,  documentary,  filing,  recordation and other similar Taxes and fees that
may be  imposed or  assessed  solely as a result of the  transfer  of the Shares
pursuant to this Agreement,  together with any interest,  additions or penalties
with respect thereto and any interest in respect of such additions or penalties;
provided,  however, that Seller shall be responsible for any excise, sales, use,
value  added,  transfer  (including  real  property  transfer or gains),  stamp,
documentary,  filing,  recordation  and other similar Taxes and fees that may be
imposed or assessed solely as a result of the transfers  contemplated by Section
2.1(a) hereof.

Section 5.2  Liability for Taxes.

     (a) Seller shall be liable for and pay,  and agrees to  indemnify  and hold
harmless  Buyer and the  Company  against  any and all Taxes (i)  imposed on the
Company pursuant to Treasury Regulation Section 1.1502-6 or similar provision of
state or local law solely as the result of the  Company  having been a member of
the Seller's  consolidated  group, or (ii) imposed on the Company,  or for which
the Company may  otherwise  be liable for any taxable year or period (or portion
thereof) that ends on or before the Closing Date (the "Pre-Closing Tax Period"),
other than any Taxes arising on the Closing Date from any actions taken by or at
the request of Buyer following  Closing.  Seller shall be entitled to any refund
of,  or credit  for,  Taxes  allocable  to any  Pre-Closing  Tax  Period  which,
notwithstanding anything to the contrary, shall include Tax refunds or other Tax
benefits  attributable to options to acquire stock of Seller held at any time by
Retained  Employees  (including,  but not  limited  to, Tax refunds or other Tax
benefits  attributable to the  disposition of shares  acquired  pursuant to such
options).

     (b) Buyer  shall be liable for and pay,  and agrees to  indemnify  and hold
harmless  Seller from and against any and all Taxes  imposed on the Company,  or
for which the Company may  otherwise  be liable,  for any taxable year or period
(or portion thereof) that begins after the Closing Date (the  "Post-Closing  Tax
Period").  Except as otherwise  provided in this Agreement  (including,  but not
limited to, Section 5.6(c)), Buyer shall be entitled to any refund of (or credit
for) Taxes allocable to any Post-Closing Tax Period.

     (c) For  purposes of Sections  5.2(a) and (b),  whenever it is necessary to
determine  the  liability  for Taxes (other than the Taxes  described in Section
5.2(d)) of the Company for a taxable year or period that begins  before and ends
after the Closing Date (a "Straddle Period"),  the determination of the Taxes of
the Company for the portion of such Straddle Period ending on and including, and
a portion of such Straddle  Period  beginning  after,  the Closing Date shall be
determined  by assuming  that such period  consisted of two (2) taxable years or
periods, one of which ended at the close of business on the Closing Date and the
other which began at the beginning of the day  following  the Closing Date,  and
items of income, gain, deduction,  loss or credit of the Company for such period
shall be allocated  between such two (2) taxable  years or periods on a "closing
of the books basis" by assuming that the books of the Company were closed at the
close of the Closing Date;  provided,  however,  that exemptions,  allowances or
deductions  that are  calculated on an annual  basis,  such as the deduction for
depreciation, shall be apportioned between such two (2) taxable years or periods
on a daily basis.

     (d) All  personal  and  business  property  Taxes and  similar  ad  valorem
obligations  levied with respect to the Company for any Straddle Period shall be
apportioned  between Seller and Buyer as of the Closing Date based on the number
of days of such Straddle  Period  included in the Pre-Closing Tax Period and the
number of days of such Straddle Period included in the  Post-Closing Tax Period.
Seller  shall be  liable  for the  proportionate  amount of such  Taxes  that is
attributable to the  Pre-Closing  Tax Period,  and Buyer shall be liable for the
proportionate  amount of such Taxes that is attributable to the Post-Closing Tax
Period. Within a reasonable period after Closing, Seller and Buyer shall present
a statement to the other setting forth the amount of reimbursement to which each
is entitled under this Section 5.2(d), together with such supporting evidence as
is reasonably  necessary to calculate the proration amount. The proration amount
shall be paid by the party  owing it to the  other  within  ten (l0) days  after
delivery of such statement.  Thereafter,  Seller shall notify Buyer upon receipt
of any bill for personal property taxes relating to the Company,  part or all of
which are  attributable  to the  Post-Closing  Tax  Period,  and shall  promptly
deliver  such bill to Buyer who  shall  pay the same to the  appropriate  taxing
authority,  provided  that if such bill covers any part of the  Pre-Closing  Tax
Period,  Seller  shall also remit prior to the due date of  assessment  to Buyer
payment for the  proportionate  amount of such bill that is  attributable to the
Pre-Closing  Tax  Period.  In the  event  that  either  Seller  or  Buyer  shall
thereafter make a payment for which it is entitled to  reimbursement  under this
Section 5.2(d), the other party shall make such reimbursement  promptly,  but in
no event later than ten (10) days after the presentation of a statement  setting
forth the amount of  reimbursement  to which the  presenting  party is  entitled
along with such supporting evidence as is reasonably  necessary to calculate the
amount of reimbursement.  Any payment required under this Section 5.2(d) and not
made within ten (10) days after delivery of the statement shall bear interest at
the rate per annum  determined,  from  time to time,  under  the  provisions  of
Section 6621(a)(2) of the Code for each day until paid.

Section 5.3  Tax Returns.

     (a) Seller  will file or cause to be filed when due all Tax  Returns  which
are due to be  filed  on or prior  to the  Closing  Date  and any  consolidated,
unitary  income Tax Returns of the Company  for the  taxable  periods  beginning
before and ending on the Closing  Date,  or otherwise  ending as a result of the
Closing.  Buyer will file or cause to be filed when due all other Tax Returns of
the Company due to be filed after the Closing Date.

     (b) If any party is liable  hereunder  for any portion of the Tax shown due
on any Tax Return  required to be filed by any other party,  the party preparing
such Tax Return will deliver a copy of the relevant  portions of such Tax Return
to the party so liable for its review and  approval  not less than  thirty  (30)
days prior to the date on which such Tax Return is due to be filed  (taking into
account any applicable extensions),  together with a statement showing the other
party's  obligations for Taxes relating to such Tax Return,  which shall be paid
within the times,  and shall accrue  interest if not timely paid, as provided in
Section 5.2(d). If the parties disagree as to any item reflected on any such Tax
Return,  the parties will jointly request  Accountants,  to resolve any issue in
dispute as promptly as possible.  The decision of Accountants  will be final and
binding on the parties,  and the expenses of Accountants  will be shared equally
by Seller and Buyer.

Section 5.4  Information to be Provided by Buyer.

     With respect to Tax Returns to be filed by Seller  pursuant to Section 5.3,
Buyer will within  thirty (30) days prior to the due date  (taking  into account
extensions)  prepare  and  provide  to  Seller  a  package  of  tax  information
materials,  that will be completed in accordance  with past practice,  including
past practice as to providing the information,  schedules and work papers and as
to the  method of  computation  of  separate  taxable  income or other  relevant
measures  of income to the extent  necessary  to  prepare  Tax  Returns  for the
pre-Closing periods.

Section 5.5  Contests.

     Each of Buyer and Seller  will  promptly  notify the other in writing  upon
receipt  of notice of any  pending  or  threatened  audits or  assessments  with
respect  to Taxes of the  Company  for which  such  other  party (or such  other
party's  Affiliates)  may be liable  hereunder.  Seller or Buyer, as applicable,
will be entitled to participate at its own expense in the defense of, and at its
option, take control of the complete defense of, any Tax audit or administrative
or court proceeding  relating to Taxes for which it may be liable, and to employ
counsel  of its  choice at its  expense;  provided,  however,  that the audit or
proceeding  will be  controlled by that party which would bear the burden of the
greater  portion  of the sum of the  adjustment  plus  any  adjustment  that may
reasonably be  anticipated  for one or more future  taxable  periods.  Buyer and
Seller will cooperate on a reasonable  basis to enable the party  controlling an
audit  or  proceeding  to  take  all  actions  with  respect  to such  audit  or
proceeding.  Neither party may agree to settle any Claim for Taxes for which the
other may be liable without the prior written consent of such other party, which
consent will not be unreasonably withheld.

Section 5.6  Post-Closing Events that Affect Seller's Liability for Taxes.

     (a) Except to the extent  required by Law,  Buyer and its  Affiliates  will
not,  without the prior  written  consent of Seller,  which  consent will not be
unreasonably  withheld,  amend any Tax  Return  filed by or with  respect to the
Company for any taxable period, or portion thereof, beginning before the Closing
Date.

     (b) Buyer  shall  undertake  to cause the  Company  to make an  irrevocable
election  under  Section  172(b)(3)  of the Code and,  if  applicable,  Treasury
Regulation  Section  1.1502-21(b)(3)(ii)(B)  to relinquish,  with respect to all
consolidated  net operating losses  attributable to the Company,  the portion of
the carryback  period for which the Company was a member of Seller's  affiliated
group.

     (c) In the event of (i) an  adjustment to any income Tax Return filed prior
to Closing or filed in accordance  with the procedures set forth in this Article
V that (A) changes the Tax Liability of Seller  attributable  to its interest in
the  Company for a  Pre-Closing  Tax  Period,  and (B) results in a  correlative
change  in  the  reasonably  anticipated  Tax  Liability  of the  Company  for a
Post-Closing  Tax Period or (ii) an  adjustment  to the income Tax Return of the
Company that (A) changes the Tax Liability of the Company for a Post-Closing Tax
Period, and (B) results in a correlative  adjustment to the Tax Liability of the
Seller for a Pre-Closing  Tax Period (such  adjustment  in Tax  Liability  being
referred to as a "Pre-Closing Tax Adjustment,"  where related to the Pre-Closing
Tax  Period,  and as a  "Post-Closing  Tax  Adjustment,"  where  related  to the
Post-Closing Tax Period):

     (I) in the case of a  Pre-Closing  Tax  Adjustment  that  increases the Tax
Liability  of the  Seller  and gives rise to a  corresponding  Post-Closing  Tax
Adjustment  that  decreases  the  aggregate  Tax  liability of the Company,  the
Company  shall pay  Seller an amount  equal to the  lesser of (x) the  amount by
which Seller's  aggregate Taxes are increased by such Pre-Closing Tax Adjustment
(taking into account any increase in Taxes  resulting from the payment  pursuant
to this clause  (I)(x)),  and (y) the  after-Tax  amount by which the  Company's
aggregate  Taxes are  decreased or refunded  (plus the  after-Tax  amount of any
interest  received with respect to such decrease or refund) by the corresponding
Post-Closing Tax Adjustment; and

     (II) in the  case of a  Post-Closing  Tax  Adjustment  that  increases  the
aggregate  Tax  Liability  of the  Company  and  gives  rise to a  corresponding
Pre-Closing  Tax Adjustment  that decreases the Tax Liability of Seller,  Seller
shall pay to the  Company  an amount  equal to the  lesser of (x) the  amount by
which the  Company's  aggregate  Taxes are  increased by such  Post-Closing  Tax
Adjustment (taking into account any increase in Taxes resulting from the payment
pursuant to this clause (II)(x)), and (y) the after-Tax amount by which Seller's
Taxes are  decreased  or refunded  (plus the  after-Tax  amount of any  interest
received  with  respect  to  such  decrease  or  refund)  by  the  corresponding
Pre-Closing Tax Adjustment.

     In computing the amounts payable  pursuant to this Section 5.6(c),  (i) the
amount of any  Pre-Closing  Tax Adjustment and the amount  referred to in clause
(I)(x) above shall be computed (A) using the maximum Federal and state corporate
income Tax rate  applicable to the relevant  class of income and period,  taking
into  account  the  deductibility  of such state  Taxes for  Federal  income Tax
purposes,  (B) taking  into  account  any  concomitant  increase  or decrease in
Seller's gain on its disposition of the Shares  pursuant to this Agreement;  and
(ii) the amount of any Post-Closing Tax Adjustment and the amount referred to in
clause (II)(x) above shall be computed (A) using the maximum  corporate  Federal
and state  corporate  income Tax rate (including any excise Tax based on income)
applicable to the relevant  class of income and period,  taking into account the
deductibility  of such state Taxes for Federal  income Tax purposes,  (B) taking
into account any  concomitant  increase or decrease in the income of the Company
arising out of such Post-Closing Tax Adjustment, and (C) by treating the Company
as if it filed a separate  company Tax Return and paid its own  Liabilities  for
Taxes.

     An  obligor  under  this  Section  5.6(c)  shall pay the  amount due to any
obligee  hereunder  within  ten  (10)  days of the date on  which  such  obligee
provides  proof  reasonably  satisfactory  to such obligor that such obligee has
paid the taxes arising from the adjustment. In the event a payment is made based
on facts that  subsequently  are determined to have been incorrect,  the parties
shall  adjust  the  payments  hereunder  in  order  to  reflect  the  subsequent
determination.

Section 5.7  Assistance and Cooperation.

     After the Closing  Date:  (a) each party will assist the other in preparing
any Tax  Returns  of the  Company  which  such other  party is  responsible  for
preparing and filing;  (b) each party will cooperate  fully in preparing for any
audits of, or disputes with taxing  authorities  regarding,  any Tax Returns and
payments in respect thereof; (c) each party will make available to the other and
to any taxing  authority as reasonably  requested all relevant Books and Records
relating  to Taxes;  provided,  however,  that in no event  will any party  have
access to the other party's consolidated,  combined or unitary federal, state or
local income Tax Returns;  (d) each party will provide  timely notice in writing
to the others of any pending or proposed  audits or assessments  with respect to
Taxes for which such other  party or any of its  Affiliates  may have  Liability
under this Agreement;  (e) each party will furnish the others with copies of all
relevant  correspondence  received from any taxing  authority in connection with
any audit or  information  request  with  respect  to any Taxes  referred  to in
Section 5.7(d); and (f) the party requesting assistance or cooperation will bear
the other  party's  reasonable  out-of-pocket  expenses in  complying  with such
request to the extent that those  expenses  are  attributable  to fees and other
costs of unaffiliated third party service providers.

                          ARTICLE VI. OTHER COVENANTS

Section 6.1  Further Assurances.

     From the date hereof to the Closing Date, Buyer and Seller shall, and shall
cause their respective Affiliates to, as applicable, use commercially reasonable
efforts  (including  entering  into all  applicable  Ancillary  Agreements  upon
satisfaction of all conditions  related thereto) to cause the Closing conditions
set forth  herein  to be  satisfied  on or prior to the  Closing  Date.  Without
limiting the  generality  of the  foregoing,  the parties will use  commercially
reasonable efforts, and cooperate with each other, to obtain promptly all of the
approvals set forth on Schedule 6.1 hereto (the  "Required  Approvals").  Seller
will  bear and pay the cost of all  filing,  recordation  and  similar  fees and
Taxes, and any additional fees or charges  (howsoever  denominated)  required by
any  Governmental  Entities or other  Persons in connection  with  obtaining any
Required Approval. Subject to the provisions hereof, from time to time after the
Closing Date,  each party will  promptly  execute,  acknowledge  and deliver any
other  assurances  or  documents  reasonably  requested  by  another  party  and
necessary for the other party to satisfy its obligations  hereunder or to obtain
the benefits contemplated hereby.

Section 6.2  Inability to Obtain Required Approvals.

     To the extent that any Required Approval cannot be obtained or made and, as
a result,  the full  benefits  of use of the  Contract  or other  asset  related
thereto will not be received by the Company  following  Closing,  then Buyer and
Seller will  cooperate  with each other and enter into such mutually  agreeable,
reasonable  and lawful  arrangements  (including  subcontracting,  subleasing or
sublicensing,  if permitted) to provide to the parties the economic (taking into
account  all  burdens  and  benefits,  including  Tax  costs and  benefits)  and
operational  equivalent,  to the extent  permitted,  of obtaining or making such
Required Approval.

Section 6.3  Applied Computing Platform Provider Program.

     Seller shall  invite Buyer to  participate  in Seller's  Applied  Computing
Platform  Provider  program on the terms and  conditions  of that  program,  and
Buyer's  participation therein will be subject to Buyer meeting the requirements
of such program.

Section 6.4  Additional Financial Information.

     As soon as reasonably  practicable after the Closing, but in no event later
than October 15,  2002,  Seller shall  provide  Buyer with an unaudited  balance
sheet as of the Closing Date and income  statement of the Company for the period
from January 1, 2002 to the Closing  Date.  In addition,  as soon as  reasonably
practicable  after Closing,  but in no event later than October 28, 2002, Seller
shall  provide  Buyer  with  audited  balance  sheets,   income  statements  and
statements  of cash flow of the Company as of and for the years  ended  December
31, 1999,  2000 and 2001,  including the notes related  thereto.  Such financial
information  shall fairly  present in all  material  respects the results of the
operations of the Company for the period therein stated.  In connection with the
preparation of the audited  financial  information,  Seller shall engage Ernst &
Young LLP and Deloitte & Touche, LLP to review the financial information for the
periods related to their engagement as the Company's independent  accountant and
Seller  shall be  responsible  for the lesser of (i) the actual  fees of Ernst &
Young LLP and Deloitte & Touche,  LLP for the services performed to prepare such
financial  information or (ii) One Hundred  Thousand Dollars  ($100,000).  In no
event  shall  Seller  be  obligated  to pay any fees in  excess  of One  Hundred
Thousand Dollars ($100,000) in connection with the preparation of such financial
information.  In the event that the fees  exceed  such  amount,  Buyer  shall be
responsible for the payment of the balance of any such fees.

Section 6.5  Confidentiality.

     The  parties  understand  and agree that this  Agreement  is subject to the
terms and conditions of the CNDA #5066040 entered into by and between Seller and
Buyer on May 9, 2002,  as amended by the  parties on August 1, 2002  pursuant to
that  Addendum No. 1 (the  "CNDA");  provided  that,  notwithstanding  any other
provision of the CNDA,  the parties agree that the terms and  conditions of this
Agreement will not be disclosed  without the prior written  consent of the other
parties.  In the event that any party hereto  receives a request to disclose all
or any part of any  confidential  information  under  the  terms of a  subpoena,
order,  civil  investigative  demand  or  similar  process  issued by a court of
competent  jurisdiction or by another Governmental Entity, such party agrees to:
(a) immediately notify the party to whom such confidential  information  relates
of the existence,  terms and circumstances surrounding such request, (b) consult
with such party to whom the  information  relates on the  advisability of taking
legally available steps to resist or narrow such request;  and (c) if disclosure
of such  information is required,  furnish only that portion of the confidential
information  that,  in the opinion of counsel to the party who has  received the
request,  such party is legally  compelled  to disclose  and advise the party to
whom such confidential  information relates as far in advance of such disclosure
as possible so that such party to whom the confidential  information relates may
seek  an  appropriate   protective  order  or  other  reliable   assurance  that
confidential  treatment will be accorded such confidential  information.  In any
event,  the party who receives the request shall not oppose actions by the party
to whom the confidential information relates to obtain an appropriate protective
order or other reliable  assurance that confidential  treatment will be accorded
such confidential information.

Section 6.6  Non-Solicitation.

     For a period of one (1) year after the Closing Date, (a) Seller's  Embedded
IA Division (or any successor  division engaged in a substantially  similar line
of  business)  shall not  encourage,  induce or solicit  for  employment  or any
similar  arrangement  any employee of Buyer or any Retained  Employee  who, as a
result of the transactions contemplated by this Agreement, became an employee of
the Company or the Buyer as of the Closing,  and (b) Buyer shall not  encourage,
induce or solicit for  employment  or any similar  arrangement  any  employee of
Seller's  Embedded  IA  Division  (or  any  successor   division  engaged  in  a
substantially  similar line of  business).  Notwithstanding  the  foregoing  (i)
general solicitations of employment published in a journal,  newspaper,  website
or other  publication of general  circulation shall not be deemed a violation of
this Section  6.6,  (ii) Buyer and  Seller's  Embedded IA Division  shall not be
prohibited  from  employing  any  Person  who  contacts  them  on his or her own
initiative and without any direct  solicitation by Buyer or Seller's Embedded IA
Division,  as the case may be, and (iii) Buyer and Seller's Embedded IA Division
shall not be prohibited  from  employing  any Person who has been  terminated by
Seller's  Embedded IA Division  (in the case of the Buyer) or the Company or the
Buyer (in the case of Seller's Embedded IA Division).

Section 6.7  Transition Services.

     Seller or an Affiliate of Seller shall use commercially  reasonable efforts
to perform the transition  services specified on Schedule 6.7 prior to or within
sixty (60) days after the Closing, upon the terms and conditions mutually agreed
by the  parties  therein,  at no cost to Buyer.  In the event that  Seller or an
Affiliate of Seller  performs  such  services for Buyer after the initial  sixty
(60) day period, Seller shall bill Buyer at its actual cost plus a servicing fee
of ten percent (10%) for such services on a monthly basis, which amount shall be
due and  payable  within  thirty  (30)  days of  receipt  of such bill by Buyer;
provided,  however,  that in no event shall  Seller or an Affiliate of Seller be
required  to  provide  to Buyer  any of the  transition  services  specified  on
Schedule 6.7  following the  expiration of the ninety (90) day period  following
the Closing.

Section 6.8  Notification; Updating Schedules.

     From the date  hereof to the  Closing  Date,  each party  shall give prompt
written  notice to the other Parties with respect to any of the  following:  (a)
the occurrence or  non-occurrence  of any event of which it becomes  aware,  the
occurrence   or   non-occurrence   of  which   would  be  likely  to  cause  any
representation  or  warranty  made  by it  contained  in  this  Agreement  to be
materially  untrue or  inaccurate  or prevent  it from  satisfying  its  Closing
obligations;  and (b) any  failure of such party to  materially  comply  with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder.  The applicable  Schedule(s)  shall be deemed  supplemented by any
such  disclosures  that  relate to  occurrences  subsequent  to the date of this
Agreement  (i.e.,  new occurrences  not previously  disclosed in the Schedules),
other than those related to the  transactions  contemplated by the  Contribution
and  Assumption  Agreement;  the  Schedules  shall not be  otherwise  amended or
supplemented by any such disclosures. Such supplements, however, shall be not be
given effect in determining whether the Closing conditions  contained in Article
VII have been satisfied. The satisfaction of such conditions to Closing shall be
based on the Schedules as delivered on the date of this Agreement without regard
to such  supplements.  In the event such  Closing  conditions  are  satisfied or
waived by Buyer or Seller as the case may be, the right of Buyer or  Seller,  as
the case may be, to recover under the indemnity  provisions appearing in Article
VIII of this  Agreement  shall be  determined  based  upon the  Schedules  as so
supplemented,  which  supplements shall be deemed to cure and correct any breach
of the  representations  and warranties  contained in Article III in the case of
Seller  and  Article  IV in the case of Buyer  that  would  have  existed in the
absence thereof. In the case of any such matters disclosed that do not result in
a supplement of the Schedules as specified  above,  the parties will be entitled
to seek recovery  under the indemnity  provisions of Article VIII for any breach
of the representations  and warranties  contained in Article III and Article IV,
as applicable, related to or arising from such matters so disclosed.

Section 6.9  Retained Marks.

     Buyer agrees and acknowledges that no right, title or interest in or to the
"Intel" name or mark or any derivation thereof  (including,  but not limited to,
the fictitious  business name "Intel San Luis Obispo") (the "Retained Marks") is
being  transferred by Seller to Buyer or the Company pursuant to this Agreement,
and that Buyer will not, and Buyer will cause its  Affiliates not to, use any of
the Retained Marks or any name or mark  confusingly  similar  thereto in any way
following the Closing Date.  Buyer further agrees and  acknowledges  that Seller
shall  take  any  and all  commercially  reasonable  actions  to  terminate  the
fictitious business name of "Intel San Luis Obispo" on or prior to Closing or as
soon as practicable thereafter.

Section 6.10  Access to Books and Records and Employees.

     On and after the Closing Date, Seller and its Affiliates may require access
to the Books and  Records of the  Company  and  certain  Retained  Employees  in
connection with certain audit or accounting  questions  involving or relating to
the  Company  prior to Closing.  In such case,  Buyer and its  Affiliates  shall
provide Seller, its Affiliates and their respective  authorized  representatives
reasonable access during normal business hours to the Retained Employees and the
Books and Records of the Company relating to all applicable  periods,  and Buyer
will reasonably cooperate with regard to such access (including, but not limited
to, permitting Seller and its Affiliates to make copies of relevant documents).

Section 6.11  Warranty Service.

     (a)  Following  the Closing  Date,  the  Company or Buyer will  service all
warranty  claims  for  repairs  or  replacements  pursuant  to the  terms of the
purchase order under which the Product was sold ("Required  Service") related to
Products  shipped by Seller or by the Company for its own account or the account
of Seller  prior to the  Closing  Date.  For all  warranty  claims for which the
Company or Seller remains obligated to provide Required Service,  the Company or
Buyer shall  provide  the  Required  Service and  maintain  true,  accurate  and
complete records of all such Required Service. From the Closing Date through the
first  anniversary of the Closing Date, the Company or Buyer shall charge Seller
for the Required  Service provided at the rate Seventy Five Dollars ($75.00) per
hour plus the Company's cost of materials and shall submit an invoice to Seller,
together with any underlying  records,  on a monthly basis.  Upon receipt of the
invoice and records,  Seller will review the same to determine  whether all such
repairs  invoiced to Seller were reasonably  incurred for Required  Service with
respect to Products  shipped by the Company prior to the Closing Date. If Seller
disputes any of the charges,  Seller and Buyer shall  negotiate in good faith to
resolve  any such  disputes.  Seller  shall  pay the  invoices  by the  later of
forty-five  (45) days after the receipt  thereof or fifteen (15) days  following
the resolution of any disputes.

     (b) No later  than one (1)  month  prior to the  first  anniversary  of the
Closing  Date,  Buyer and Seller  shall  negotiate  in good faith to determine a
final payment for any and all Required  Service  related to Products  shipped by
the Company  for its own  account or the account of Seller  prior to the Closing
Date.  Upon  agreement of such payment and the  remittance  thereof by Seller to
Buyer,  Seller shall have no further  obligations  or Liability for any Required
Service.

Section 6.12  Dissolution of Sales Corporation; Termination of Liens.

     Prior to  Closing,  Seller  shall,  and shall  cause the  Company  to,  use
commercially  reasonable  efforts to (a) dissolve  Ziatech FSC, Ltd. and provide
evidence  of such  dissolution  to  Buyer,  and (b)  terminate  the  Encumbrance
represented  by UCC  Financing  Statement no.  9811961038  set forth on Schedule
3.6(b) hereto and provide  evidence of such  termination to Buyer.  In the event
that Seller  cannot  complete the actions  described in the  preceding  sentence
prior to  Closing,  Seller  shall use its  commercially  reasonable  efforts  to
complete such actions as soon as practicable following Closing.

Section 6.13  1099 Reporting Requirements.

     Following  Closing,  Buyer  and,  as  applicable,   the  Company  shall  be
responsible for all Internal  Revenue Service 1099 reporting  matters related to
the  Company  for  the  calendar  year  ending  December  31,  2002,  and  Buyer
acknowledges that neither Seller nor any of its Affiliates shall be obligated to
make any such filings.

                       ARTICLE VII. CONDITIONS TO CLOSING

Section 7.1  Conditions to the Obligations of Buyer and Seller.

     The  obligations  of Buyer and Seller to effect  Closing are subject to the
satisfaction  or waiver  by Buyer and  Seller  prior to  Closing  of each of the
following conditions:

     (a) No Injunctions,  Etc. No Governmental Entity of competent  jurisdiction
will have enacted, issued,  promulgated,  enforced or entered any statute, rule,
regulation, or non-appealable judgment,  decree, injunction or other final order
that is in effect on the Closing Date and  prohibits or prevents  Closing or the
consummation of the Transaction.

     (b) Ancillary Agreements. The parties shall have executed and delivered, or
caused the Company to execute and deliver if applicable, the following Ancillary
Agreements:

(i)      the Intellectual Property Agreement attached hereto as Exhibit A; and


(ii)     the cPCI 2.16 Development Agreement attached hereto as Exhibit B;


(iii)    the Seller and Buyer OEM Letter Agreements attached hereto as Exhibit
         C-1 and C-2, respectively; and


(iv)     the Patent Cross License Agreement attached hereto as Exhibit D.


Section 7.2  Further Conditions to the Obligation of Buyer.

     The obligation of Buyer to effect Closing is subject to the satisfaction or
waiver by Buyer prior to Closing of each of the following further conditions:

     (a) Representations  and Warranties.  The representations and warranties of
Seller  contained  herein  will be true,  correct and  complete in all  material
respects.

     (b) Required  Approvals.  All Required Approvals will have been obtained or
accomplished, as the case may be, and appropriate evidence of the same will have
been delivered to Buyer, or Buyer and Seller shall have entered into alternative
arrangements  to  provide  Buyer  with  the  necessary   economic   benefits  as
contemplated by Section 6.2.

     (c)   Pre-Closing   Transactions.   Evidence  of   completion,   reasonably
satisfactory  to Buyer, of all of the  transactions  contemplated by Article II,
including,  but not limited to, the execution  and delivery of the  Contribution
and Assumption  Agreement attached hereto as Exhibit E, will have been delivered
to Buyer.

     (d) Consent under the Lease. A duly executed  consent of the landlord under
the Lease to the Transaction,  together with an estoppel certificate,  will have
been delivered to Buyer.

     (e)  Acceptance  by Key  Employee.  The Key Employee will have agreed to be
employed by the Company after Closing;  provided that if Buyer knows at any time
prior to Closing that the Key Employee has rescinded  his  acceptance of Buyer's
offer of employment, such condition shall be deemed waived by Buyer unless Buyer
notifies  Seller within  forty-eight  (48) hours of Buyer's receipt of notice of
such rescission that it will not proceed with the Closing.

     (f) Releases of Retained Employees. Seller will have released each Retained
Employee  who is a party to a  Non-Competition  Agreement  with  Seller from the
non-competition  provisions of such  agreement  and  delivered  evidence of such
release to Buyer; provided, however, that all other terms and provisions of such
agreements will remain in full force and effect.

     (g) Additional Closing  Deliveries.  The following will have been delivered
to Buyer:

(i) stock certificates,  together with stock powers or assignments duly executed
in blank by Seller, representing all of the Shares;

(ii) the  original  minute  book of the  Company,  containing  the  articles  of
incorporation and bylaws of the Company,  including all amendments thereto,  the
stock record book and the corporate seal;

(iii) a recent  certificate  of good standing for the Company from the Secretary
of State of California and a bring down of such certificate  dated on or the day
prior to the Closing Date;

(iv) duly  executed  resignations  of all officers and directors of the Company;
and

(v) such  other  instruments  or  documents,  in form and  substance  reasonably
acceptable to Buyer, as may be necessary to effect Closing.

Section 7.3  Further Conditions to the Obligation of Seller.

     The obligation of Seller to effect  Closing is subject to the  satisfaction
or waiver prior to Closing of each of the following further conditions:

     (a) Representations  and Warranties.  The representations and warranties of
Buyer  contained  herein  will be true,  correct and  complete  in all  material
respects.

     (b) Payment.  Buyer will have caused the Purchase  Price to be delivered at
Closing as provided by Section 2.2.

     (c) Additional Closing  Deliveries.  The following will have been delivered
to Seller:

(i) a duly  executed  consent  to  the  Transaction  from  JPMorgan  Chase  Bank
(formerly known as The Chase Manhattan Bank) ("JPMorgan  Chase") pursuant to the
terms of that certain  Credit  Agreement,  dated as of December 30, 1998, by and
between Buyer and JPMorgan Chase; and

(ii) such other  instruments  or  documents,  in form and  substance  reasonably
acceptable to Seller, as may be necessary to effect Closing.

                         ARTICLE VIII. INDEMNIFICATION

Section 8.1  Survival; Limitation on Representations, Warranties.

     (a) The  parties  agree that the  representations,  warranties,  covenants,
agreements  (in  the  case  of  covenants  and  agreements,  to  the  extent  of
performance or  non-performance  prior to the Closing Date) and  indemnification
obligations of the parties contained in this Agreement shall survive the Closing
and  terminate and expire at 5:00 p.m.,  San Francisco  time, on March 31, 2004;
provided,   however,  that  Buyer  shall  be  permitted  to  assert  Claims  for
indemnification  pursuant to this Article VIII until the second  anniversary  of
the  Closing  Date (to the  extent  Buyer  delivers  written  notice  to  Seller
identifying  such  Claim  and the  basis  thereof  with  reasonable  specificity
pursuant to the  applicable  provisions  of this  Agreement  on or prior to such
date) solely for Losses  relating to or arising from Covered  Third Party Claims
(as  defined  below)  or fraud  on the part of  Seller  in  connection  with the
Transaction.  Notwithstanding  anything  herein to the  contrary,  (i)  Seller's
representations  set  forth in  Section  3.15  hereof  shall  survive  until the
expiration  of the  applicable  statute of  limitations  and (ii)  Seller  shall
indemnify  Buyer for any  Losses  related to or  arising  from the  transactions
contemplated  by Section  2.1(a) and Section  2.1(c) hereof  without regard to a
survival period or other limitations.

     (b) Each of the parties hereto agrees that, except for the  representations
and warranties  contained in Article III and Article IV, none of the parties has
made any  representations or warranties and, except for the  representations and
warranties  contained  in  Article  III and  Article  IV,  each  of the  parties
acknowledges that no representations or warranties have been made by, and it has
not relied upon any  representations  or warranties  made by, any of the parties
hereto  or any of  their  respective  officers,  directors,  employees,  agents,
financial  and legal  advisors  or other  representatives  with  respect to this
Agreement  and the  transactions  contemplated  hereby,  and the  documents  and
instruments  referred to herein,  notwithstanding  the delivery or disclosure to
such party or its representatives of any documentation or other information with
respect to any one or more of the foregoing.

Section 8.2  Indemnification by Seller.

     (a) Subject to the provisions of this Article VIII,  Seller will indemnify,
defend and hold harmless Buyer, its Affiliates,  and their respective directors,
officers,  attorneys,  accountants,  agents  and  employees,  and  their  heirs,
successors and assigns  (collectively,  the "Buyer Indemnified  Parties),  from,
against and in respect of all Losses imposed on, sustained, incurred or suffered
by or asserted  against  any of the Buyer  Indemnified  Parties,  relating to or
arising out of any of the following (collectively, "Buyer Losses):

(i)     any breach of any representation or warranty of Seller contained herein;

(ii)    any breach of any covenant or agreement of Seller contained herein;

(iii)   any Taxes payable by the Company for any period  through  and  including
        the Closing Date to the extent set forth in Section 5.2;

(iv)    the transactions contemplated by Section 2.1(a) and 2.1(c);

(v)     actual  out-of-pocket Losses paid  with respect  to Claims  asserted  by
        third  parties related to or arising from  the operation of the  Company
        prior to the Closing Date  ("Covered  Third  Party  Claims");  provided,
        however, that Seller shall not indemnify, defend  or hold  harmless  the
        Buyer Indemnified Parties for any Covered Third Party Claims related  to
        or  arising from  any  (A) Liabilities listed  on  Schedule  8.2(a)(v),
        (B) items disclosed in the disclosure schedules to this Agreement (other
        than items disclosed in the disclosure schedules related to  Section 2.1
        (a)), or (C) Liabilities relating to or arising from  any  conditions or
        set of facts disclosed  in  the disclosure  schedules to this  Agreement
        (other  than items disclosed in  the  disclosure  schedules  related  to
        Section 2.1(a)); and

(vi)    fraud on the part of Seller in connection with the Transaction.

Section 8.3  Indemnification by Buyer.

     (a) Subject to the provisions of this Article VIII,  Buyer will  indemnify,
defend and hold harmless Seller, its Affiliates, and their respective directors,
officers,  attorneys,  accountants,  agents  and  employees,  and  their  heirs,
successors and assigns (collectively,  the "Seller Indemnified Parties"),  from,
against and in respect of any Losses imposed on, sustained, incurred or suffered
by or asserted  against any of the Seller  Indemnified  Parties,  relating to or
arising out of any of the following (collectively, "Seller Losses"):

(i)      any breach of any representation or warranty of Buyer contained herein;

(ii)     any breach of any covenant or agreement of Buyer contained herein;

(iii)    any Taxes payable by the Company for any period after the Closing  Date
         to the extent set forth in Section 5.2; and

(iv)     any Liability of or related to the  Company  to  the  extent  that such
         Liability is solely  attributable  to  an  occurrence  or  circumstance
         arising  after  the  Closing  Date,  except  for   (A)  any  Liability
         contemplated by Section 8.2(a)(iii), and (B) any Liability with respect
         to which, and to the extent that, there was a failure or  breach of any
         representation or warranty,  or  a  breach  or  nonfulfillment  of  any
         covenant or agreement, of Seller contained herein.

Section 8.4  Indemnification Procedures.

     (a) A party claiming  indemnification under this Agreement (an "Indemnified
Party") for any Claim or Claims  asserted by a third  party,  including,  in the
case of Buyer, a Covered Third Party Claim (collectively,  "Third Party Claims")
shall promptly:

(i) notify  the party from whom  indemnification  is sought  (the  "Indemnifying
Party") of any Third-Party  Claim asserted  against the Indemnified  Party which
could give rise to a right of indemnification under this Agreement; and

(ii) transmit to the  Indemnifying  Party a written  notice  ("Third Party Claim
Notice")  describing in reasonable detail the nature of the Third Party Claim, a
copy of all papers  served with  respect to such claim (if any),  an estimate of
the  amount of Losses  attributable  to the Third  Party  Claim,  if  reasonably
possible,  and the basis of the Indemnified  Party's request for indemnification
under this Agreement.

     (b) Within ten (10) days after receipt of any Third Party Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party:

(i) whether the  Indemnifying  Party  disputes  its  potential  liability to the
Indemnified  Party under this  Agreement with respect to such Third Party Claim;
and

(ii) whether the Indemnifying Party desires, at the sole cost and expense of the
Indemnifying  Party,  to defend the  Indemnified  Party against such Third Party
Claim.

     (c) If the  Indemnifying  Party notifies the  Indemnified  Party within the
Election  Period that the  Indemnifying  Party does not  dispute  its  potential
liability  to  the   Indemnified   Party  under  this  Agreement  and  that  the
Indemnifying  Party elects to assume the defense of the Third Party Claim,  then
the  Indemnifying  Party  shall have the right to  defend,  at its sole cost and
expense,  such  Third  Party  Claim  by  all  appropriate   proceedings,   which
proceedings shall be prosecuted  diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying  Party in accordance
with this Section 8.4.  The  Indemnifying  Party shall have full control of such
defense  and  proceedings   including  any  compromise  or  settlement  thereof;
provided,  however,  that any such  compromise or settlement  involving a dollar
amount in excess of the limitations  set forth in Section  8.5(c),  non-monetary
obligations of the Indemnified  Party, or otherwise  having a direct effect upon
its continuing operations or the business shall be subject to the consent of the
Indemnified Party. If requested by the Indemnifying Party, the Indemnified Party
shall, at the sole cost and expense of the  Indemnifying  Party,  cooperate with
the Indemnifying Party and its counsel in contesting any Third Party Claim which
the Indemnifying Party elects to contest,  including,  without  limitation,  the
making of any related  counterclaim against the Person asserting the Third Party
Claim or any  cross-complaint  against any  Person.  The  Indemnified  Party may
participate  in, but not control,  any defense or  settlement of any Third Party
Claim  controlled by the  Indemnifying  Party  pursuant to this Section 8.4 and,
except as provided  above or pursuant to this  Section  8.4,  shall bear its own
costs and expenses with respect to such participation.

     (d) If the Indemnifying  Party fails to notify the Indemnified Party within
the Election Period that the Indemnifying Party elects to defend the Indemnified
Party  pursuant to this  Section  8.4, or if the  Indemnifying  Party  elects to
defend  the  Indemnified  Party  pursuant  to  this  Section  8.4 but  fails  to
diligently  and promptly  prosecute  or settle the Third Party  Claim,  then the
Indemnified Party shall have the right to defend at the sole cost and expense of
the Indemnifying  Party, the Third Party Claim. The Indemnified Party shall have
full  control  of such  defense  and  proceeding;  provided,  however,  that the
Indemnified Party may not enter into, without the Indemnifying  Party's consent,
which  shall  not  be  unreasonably  withheld  or  delayed,  any  compromise  or
settlement of such Third Party Claim. The Indemnifying Party may participate in,
but not control,  any defense or settlement  controlled by the Indemnified Party
pursuant to this  Section  8.4,  and the  Indemnifying  Party shall bear its own
costs and expenses with respect to such participation.

     (e) In the  event an  Indemnified  Party  should  have a Claim  against  an
Indemnifying  Party  hereunder  which does not involve a Third Party Claim,  the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity  Notice") describing in reasonable detail the nature of the Claim, an
estimate of the amount of Losses  attributable  to such Claim,  the basis of the
Indemnified  Party's  request for  indemnification  under this Agreement and the
amount for which a Claim for  indemnification  is made,  taking into account the
limitations set forth in Section 8.5. If the Indemnifying  Party does not notify
the Indemnified  Party within thirty (30) days from its receipt of the Indemnity
Notice that the  Indemnifying  Party disputes such Claim, the Claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a Liability of the
Indemnifying Party hereunder. If the Indemnifying Party has timely disputed such
Claim, as provided above,  such dispute shall be resolved in accordance with the
dispute resolutions provisions set forth in Section 9.7 of this Agreement.

     (f) The failure to provide  notices  required by this Section 8.4 shall not
excuse any party from its continuing obligations  hereunder;  however, any Claim
shall be reduced by the Losses  resulting  from such party's delay or failure to
provide notice as required by this Section 8.4.

Section 8.5  Indemnification Limitations.

     (a) No Claim for indemnification  under this Article VIII shall be asserted
by  any   Indemnified   Party  after  the  expiration  and  termination  of  the
representations,   warranties,   covenants,   agreements   and   indemnification
obligations as described in, or otherwise contemplated by, Section 8.1.

     (b) No Indemnifying  Party shall have any Liability  hereunder to indemnify
the Indemnified  Party for Buyer Losses or Seller Losses,  as applicable,  until
the aggregate amount of Buyer Losses or Seller Losses, as applicable, exceed One
Hundred Thousand Dollars  ($100,000) in which event the Indemnified  Party shall
be entitled to indemnification for all such Losses.

     (c) The aggregate  indemnification  obligation of Seller or Buyer hereunder
for Buyer Losses (other than Buyer Losses  described in the following  sentence)
or Seller  Losses,  as  applicable,  shall not exceed Two Million  Five  Hundred
Thousand  Dollars  ($2,500,000).  Notwithstanding  the foregoing,  the aggregate
indemnification  obligation of Seller hereunder for actual  out-of-pocket  Buyer
Losses  related to or arising  from  Sections  8.2(a)(v) or  8.2(a)(vi)  hereof,
together with all other Buyer Losses described in the preceding sentence,  shall
not exceed Ten Million Dollars ($10,000,000).

     (d) Such limitations shall not apply to any indemnification for a breach of
Section  3.22 by Seller or  pursuant  to  Sections  8.2(a)(iii),  8.2(a)(iv)  or
8.3(a)(iii).

Section 8.6  Adjustment for Insurance Benefit.

     Any  indemnification  payable in accordance with this Article VIII shall be
net of any  amounts  actually  recovered  (after  deducting  related  costs  and
expenses) by the Indemnified Party for the Losses for which such indemnification
payment is made under any  insurance  policy,  warranty  or  indemnity  from any
Person other than a party hereto.

Section 8.7  Exclusive Remedy.

     Without  limiting any rights of any party to bring an action for injunctive
relief as contemplated  by Section  9.7(b),  the rights of the parties to assert
indemnification  claims and receive  indemnification  payments  pursuant to this
Article  VIII will be the sole and  exclusive  right and remedy  exercisable  by
Buyer  Indemnified  Parties and Seller  Indemnified  Parties with respect to any
Claims arising under this Agreement. Notwithstanding the foregoing, in the event
Seller breaches its representation in Section 3.23 with respect to any property,
assets or rights used by the Company to manufacture  and sell the Products as of
the Closing Date, to the extent Seller owns and/or is permitted to transfer such
property, asset or right, Seller shall cure such breach by promptly transferring
such  property,  asset or right to the Company,  and Buyer shall have no further
remedy with respect thereto.

                           ARTICLE IX. MISCELLANEOUS

Section 9.1  Notices.

     All notices and other communications pursuant to this Agreement shall be in
writing and shall be deemed given if delivered personally,  telecopied,  sent by
nationally-recognized  overnight  courier or mailed by  registered  or certified
mail  (return  receipt  requested),  postage  prepaid,  to  the  parties  at the
addresses  set forth below or to such other  address as the party to whom notice
is to be given may have  furnished  to the other  parties  hereto in  writing in
accordance  herewith.  Any such notice or communication  shall be deemed to have
been delivered and received (a) in the case of personal delivery, on the date of
such delivery,  (b) in the case of telecopier,  on the date sent if confirmation
of receipt is received and such notice is also promptly  mailed by registered or
certified   mail   (return   receipt   requested),   (c)  in  the   case   of  a
nationally-recognized  overnight  courier  in  circumstances  under  which  such
courier  guarantees  next business day delivery,  on the next business day after
the date when sent and (d) in the case of  mailing,  on the third  business  day
following  that on which  the piece of mail  containing  such  communication  is
posted:


If to Buyer:               Performance Technologies Incorporated
                           205 Indigo Creek Drive
                           Rochester, New York 14626
                           Attention:  Chief Financial Officer
                           Fax: (585) 256-3520

with a copy to:            Harter, Secrest & Emery LLP
                           1600 Bausch & Lomb Place
                           Rochester, New York 14604
                           Attention:  Jeffrey H. Bowen, Esq.
                           Fax: (585) 232-2152

If to Seller:              Intel Corporation
                           2200 Mission College Boulevard
                           Santa Clara, California 95052
                           Attention:  Treasurer
                           Fax: (408) 765-8871

and:                       Intel Corporation
                           2200 Mission College Boulevard
                           Santa Clara, California 95052
                           Attention:  General Counsel
                           Fax: (408) 765-1859

with a copy to:            Weil, Gotshal & Manges LLP
                           201 Redwood Shores Parkway
                           Redwood Shores, California 94065
                           Attention:  Richard Millard, Esq.
                           Fax: (650) 802-3100

Section 9.2  Amendment; Waiver.

     Any provision of this  Agreement may be amended or waived if such amendment
or waiver is in writing and signed,  in the case of an  amendment,  by Buyer and
Seller,  or in the case of a waiver,  by the party against whom the waiver is to
be effective. No failure or delay by any party in exercising any right, power or
privilege  hereunder  will  operate as a waiver  thereof  nor will any single or
partial  exercise  thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.

Section 9.3  No Assignment or Benefit to Third Parties.

     No party may assign any of its rights or  delegate  any of its  obligations
under this  Agreement,  by  operation  of Law or  otherwise,  without  the prior
written  consent of the other  party,  and any attempt to assign this  Agreement
without  such  consent  will be void and of no force or effect.  Nothing in this
Agreement,  express or implied, is intended to confer upon any Person other than
Buyer,  Seller or the Indemnified  Parties,  or their  respective  successors or
permitted assigns,  any rights or remedies under or by reason of this Agreement.
Without  limiting the  generality of the  foregoing,  nothing in this  Agreement
creates any rights in any employees or groups of employees.

Section 9.4  Expenses.

     Except as otherwise  expressly  provided by this Agreement,  whether or not
the  Transaction is consummated,  all costs and expenses  incurred in connection
with this Agreement and the Transaction will be borne by the party incurring the
same.

Section 9.5  Schedules and Exhibits, Etc.

     Buyer's rights to  indemnification  or other remedies provided hereby based
on any  breach by  Seller  of its  representations,  warranties,  covenants  and
agreements will not be affected by any investigation  conducted with respect to,
or any knowledge  acquired (or capable of being  acquired) by Buyer at any time,
whether  before or after the  execution  and  delivery of this  Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of or compliance  with,
any such  representation,  warranty,  covenant or  agreement.  The due diligence
review conducted by Buyer and its representatives will not relieve Seller of any
duties  concerning  its  representations,  warranties,  covenants or  agreements
contained in this Agreement or in any Ancillary Agreement.

Section 9.6  Governing Law.

     This  Agreement  will be governed by and construed in  accordance  with the
Laws of the State of Delaware  without  regard to its principles of conflicts of
laws.

Section 9.7  Dispute Resolution.

     (a) All disputes arising directly under the express terms of this Agreement
shall be  resolved  as  follows:  The senior  management  of the  parties to the
dispute shall meet to attempt to resolve such disputes.  If the disputes  cannot
be  resolved  by the  senior  management  of the  parties,  any party may make a
written  demand for formal dispute  resolution and specify  therein the scope of
the  dispute.  Within  thirty  (30) days after such  written  notification,  the
parties  agree to meet for one (1) day with an  impartial  mediator and consider
dispute resolution alternatives other than litigation.  If an alternative method
of dispute  resolution  is not agreed upon within thirty (30) days after the one
(1) day mediation, either party may begin litigation proceedings.

     (b)  Notwithstanding  the  provisions of Section  9.7(a) above,  each party
shall have the right,  without the requirement of first seeking a remedy through
mediation,  to seek  preliminary  injunctive  or other  equitable  relief in any
proper  court in the event  that such party  determines  that  eventual  redress
through mediation will not provide a sufficient remedy for any violation of this
Agreement by any other party.

     (c) In the event a  proceeding  is  brought to  enforce  or  interpret  any
provision of this Agreement,  the prevailing  party shall be entitled to recover
reasonable  attorneys'  fees and  costs in an amount to be fixed by the court or
arbitrator, as applicable.

Section 9.8  Submission to Jurisdiction; Waiver of Jury Trial.

     (a) The parties hereby irrevocably submit to the jurisdiction of the courts
of the State of Delaware and the Federal  courts of the United States of America
located in the State of  Delaware  solely in respect of the  interpretation  and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement,  and in respect of the transactions  contemplated hereby, and
hereby waive,  and agree not to assert,  as a defense in any  proceeding for the
interpretation  or enforcement  hereof or of any such  document,  that it is not
subject  thereto  or  that  such  proceeding  may  not  be  brought  or  is  not
maintainable  in said courts or that the venue thereof may not be appropriate or
that this  Agreement  or any such  document  may not be  enforced  in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such  proceeding  shall be heard  and  determined  in such a  Delaware  state or
Federal  court.  The  parties  hereby  consent  to  and  grant  any  such  court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 9.1 or in such other
manner as may be  permitted by  applicable  Law,  shall be valid and  sufficient
service thereof.

     (b) The  parties  agree  that  irreparable  damage  may  occur and that the
parties  would not have any adequate  remedy at law in the event that any of the
provisions  of this  Agreement  were not  performed  in  accordance  with  their
specific terms or were  otherwise  breached.  It is accordingly  agreed that the
parties  shall be  entitled  to seek an  injunction  or  injunctions  to prevent
breaches of this Agreement and to enforce  specifically the terms and provisions
of this  Agreement in any Federal  court  located in the State of Delaware or in
Delaware  state court,  this being in addition to any other remedy to which they
are entitled at law or in equity.

     (c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE  COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE  EACH SUCH PARTY HEREBY  IRREVOCABLY  AND  UNCONDITIONALLY  WAIVES ANY
RIGHT  SUCH  PARTY  MAY HAVE TO A TRIAL  BY JURY IN  RESPECT  OF ANY  LITIGATION
DIRECTLY OR  INDIRECTLY  ARISING OUT OF OR  RELATING  TO THIS  AGREEMENT  OR THE
TRANSACTIONS   CONTEMPLATED  BY  THIS   AGREEMENT.   EACH  PARTY  CERTIFIES  AND
ACKNOWLEDGES  THAT (i) NO  REPRESENTATIVE,  AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION,  SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER,  (iii) EACH SUCH
PARTY MAKES THIS WAIVER  VOLUNTARILY,  AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO  ENTER  INTO  THIS  AGREEMENT  BY,  AMONG  OTHER  THINGS,   THE  WAIVERS  AND
CERTIFICATIONS IN THIS SECTION 9.8.

Section 9.9  Remedies Cumulative.

     Except as  otherwise  set forth  herein,  the various  rights and  remedies
herein  provided  will be  cumulative  and not  exclusive of any other rights or
remedies herein provided or any rights or remedies provided by Law.

Section 9.10  Inferences.

     Inasmuch  as  this  Agreement  is  the  result  of   negotiations   between
sophisticated  parties of equal  bargaining  power  represented  by counsel,  no
inference  in favor of or against any party will be drawn from the fact that any
portion of this Agreement has been drafted by or on behalf of such party.

Section 9.11  Severability.

     The  provisions  of  this  Agreement  will  be  deemed  severable  and  the
invalidity or  unenforceability of any provision will not affect the validity or
enforceability  of the  other  provisions  hereof.  If  any  provision  of  this
Agreement,  or the  application  thereof to any Person or any  circumstance,  is
invalid  or  unenforceable,  (a) a  suitable  and  equitable  provision  will be
substituted  therefor  in  order  to  carry  out,  so far as  may be  valid  and
enforceable,  the intent and purpose of such invalid or unenforceable provision,
and (b) the remainder of this Agreement and the application of such provision to
other  Persons or  circumstances  will not be  affected  by such  invalidity  or
unenforceability,  nor will  such  invalidity  or  unenforceability  affect  the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.

Section 9.12  Entire Agreement.

     This Agreement,  the CNDA and the Ancillary Agreements together contain the
entire  agreement  between the parties with respect to the subject matter hereof
and supersede all prior  agreements and  understandings,  oral or written,  with
respect to such matters.

Section 9.13  Headings.

     The heading  references  herein are for  convenience  purposes only, do not
constitute  a part of this  Agreement  and will not be deemed to limit or affect
any of the provisions hereof.

Section 9.14  Counterparts.

     This Agreement may be executed in one or more  counterparts,  each of which
will be deemed an original,  and all of which will  constitute  one and the same
Agreement.
                            [Signature page follows]

<PAGE>



     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.



                                  INTEL CORPORATION


                                  By: /s/ Leslie L. Vadasz
                                  ----------------------------------------------
                                  Name:   Leslie L. Vadasz
                                  ----------------------------------------------
                                  Title:  Executive Vice President
                                  ----------------------------------------------




                                  PERFORMANCE TECHNOLOGIES INCORPORATED


                                  By: /s/ Donald L. Turrell
                                  ----------------------------------------------
                                  Name:   Donald L. Turrell
                                  ----------------------------------------------
                                  Title:  President and Chief Executive Officer
                                  ----------------------------------------------





             [SIGNATURE PAGE TO INTEL/PTI STOCK PURCHASE AGREEMENT]

<PAGE>


                                TABLE OF CONTENTS

                                                                            Page
ARTICLE I.  DEFINITIONS........................................................1

         Section 1.1  Certain Definitions......................................1

         Section 1.2  Interpretation...........................................5

         Section 1.3  Accounting Conventions...................................5

ARTICLE II.  PURCHASE AND SALE.................................................5

         Section 2.1  Pre-Closing Transfers and Other Actions..................5

         Section 2.2  Purchase and Sale of Shares..............................6

         Section 2.3  Asset Confirmation.......................................7

         Section 2.4  Inventory Confirmation...................................8

         Section 2.5  Retention of Certain Employees...........................9

         Section 2.6 Closing...................................................9

ARTICLE III.  REPRESENTATIONS AND WARRANTIES OF SELLER.........................9

         Section 3.1  Power and Authority of Seller...........................10

         Section 3.2  Organization, Power and Capitalization of the Company...10

         Section 3.3  Governmental Approvals..................................10

         Section 3.4  Non-Contravention.......................................10

         Section 3.5  Binding Effect..........................................11

         Section 3.6  Title Matters...........................................11

         Section 3.7  Financial Statements....................................11

         Section 3.8  Liabilities.............................................11

         Section 3.9  Compliance with Laws....................................12

         Section 3.10  Litigation and Claims..................................12

         Section 3.11  Tangible Assets and Products...........................12

         Section 3.12  Company Intellectual Property..........................12

         Section 3.13  Major Vendors and Customers............................14

         Section 3.14  Material Contracts; Warranties.........................14

         Section 3.15  Tax Matters............................................15

         Section 3.16  Employment Matters.....................................16

         Section 3.17  Benefits Arrangements..................................17

         Section 3.18  Environmental Matters..................................18

         Section 3.19  Insurance..............................................19

         Section 3.20  Conduct of Business....................................19

<PAGE>


                                TABLE OF CONTENTS
                                   (continued)
                                                                            Page
         Section 3.21  Related-Party Transactions.............................20

         Section 3.22  Finders' Fees..........................................21

         Section 3.23  Adequacy of Assets of the Company......................21

         Section 3.24  Disclosure.............................................21

ARTICLE IV.  REPRESENTATIONS AND WARRANTIES OF BUYER..........................21

         Section 4.1  Organization and Power..................................21

         Section 4.2  Authorization...........................................21

         Section 4.3  Governmental Approvals..................................21

         Section 4.4  Non-Contravention.......................................22

         Section 4.5  Binding Effect..........................................22

         Section 4.6  Finders' Fees...........................................22

         Section 4.7  Financing...............................................22

         Section 4.8  Disclosure..............................................22

ARTICLE V.  COVENANTS AS TO TAX MATTERS.......................................23

         Section 5.1  Transfer Taxes..........................................23

         Section 5.2  Liability for Taxes.....................................23

         Section 5.3  Tax Returns.............................................24

         Section 5.4  Information to be Provided by Buyer.....................25

         Section 5.5  Contests................................................25

         Section 5.6  Post-Closing Events that Affect Seller's Liability for
                      Taxes...................................................25

         Section 5.7  Assistance and Cooperation..............................27

ARTICLE VI.  OTHER COVENANTS..................................................27

         Section 6.1  Further Assurances......................................27

         Section 6.2  Inability to Obtain Required Approvals..................27

         Section 6.3  Applied Computing Platform Provider Program.............28

         Section 6.4  Additional Financial Information........................28

         Section 6.5  Confidentiality.........................................28

         Section 6.6  Non-Solicitation........................................29

         Section 6.7  Transition Services.....................................29

         Section 6.8  Notification; Updating Schedules........................29

         Section 6.9  Retained Marks..........................................30

         Section 6.10  Access to Books and Records and Employees..............30

         Section 6.11  Warranty Service.......................................30

         Section 6.12  Dissolution of Sales Corporation; Termination
                       of Liens...............................................31

         Section 6.13  1099 Reporting Requirements............................31

ARTICLE VII.  CONDITIONS TO CLOSING...........................................31

         Section 7.1  Conditions to the Obligations of Buyer and Seller.......31

         Section 7.2  Further Conditions to the Obligation of Buyer...........32

         Section 7.3  Further Conditions to the Obligation of Seller..........33

ARTICLE VIII.  INDEMNIFICATION................................................33

         Section 8.1  Survival; Limitation on Representations, Warranties.....33

         Section 8.2  Indemnification by Seller...............................34

         Section 8.3  Indemnification by Buyer................................35

         Section 8.4  Indemnification Procedures..............................35

         Section 8.5  Indemnification Limitations.............................37

         Section 8.6  Adjustment for Insurance Benefit........................37

         Section 8.7  Exclusive Remedy........................................37

ARTICLE IX.  MISCELLANEOUS....................................................38

         Section 9.1 Notices..................................................38

         Section 9.2  Amendment; Waiver.......................................39

         Section 9.3  No Assignment or Benefit to Third Parties...............39

         Section 9.4  Expenses................................................39

         Section 9.5  Schedules and Exhibits, Etc.............................39

         Section 9.6  Governing Law...........................................39

         Section 9.7  Dispute Resolution......................................40

         Section 9.8  Submission to Jurisdiction; Waiver of Jury Trial........40

         Section 9.9  Remedies Cumulative.....................................41

         Section 9.10  Inferences.............................................41

         Section 9.11  Severability...........................................41

         Section 9.12  Entire Agreement.......................................42

         Section 9.13  Headings...............................................42

         Section 9.14  Counterparts...........................................42



<PAGE>



                             TABLE OF DEFINED TERMS


 Defined Term                                                  Section
 ------------                                                  -------

 Accountants ..................................................ss. 1.1
 Affiliate ....................................................ss. 1.1
 Agreement ....................................................ss. 1.1
 Ancillary Agreements..........................................Recitals
 Article ......................................................ss. 1.2(b)
 Asset Confirmation ...........................................ss. 2.3(a)
 Asset Statement ..............................................ss. 2.3(a)
 Books and Records ............................................ss. 1.1
 Buyer ........................................................Introduction
 Buyer Indemnified Parties.....................................8.2(a)
 Buyer Losses..................................................8.2(a)
 Claim ........................................................ss. 1.1
 Closing ......................................................ss. 1.1
 Closing Date .................................................ss. 2.6
 Closing Documents ............................................ss. 1.1
 CNDA .........................................................ss. 6.5
 COBRA ........................................................ss. 1.1
 Code .........................................................ss. 1.1
 Company ......................................................Recitals
 Company Intellectual Property ................................ss. 3.12(a)
 Contract .....................................................ss. 3.14(a)
 Covered Third Party Claim ....................................ss. 8.2(a)(v)
 Demand Forecast Inventory.....................................ss. 2.4(a)
 dollars ......................................................ss. 1.2(e)
 Election Period ..............................................ss. 8.4(b)
 Employee Leasing Agreement ...................................ss. 3.16
 Employment Laws ..............................................ss. 3.16
 Encumbrances .................................................ss. 1.1
 Environmental Law ............................................ss. 1.1
 ERISA ........................................................ss. 1.1
 ERISA Affiliate ..............................................ss. 1.1
 Exhibit ......................................................ss. 1.2(b)
 Financial Statements .........................................ss. 1.1
 GAAP .........................................................ss. 1.1
 Governmental Authorizations ..................................ss. 1.1
 Governmental Entity ..........................................ss. 1.1
 Hazardous Substance ..........................................ss. 1.1
 herein .......................................................ss. 1.2(a)
 hereof .......................................................ss. 1.2(a)
 hereunder.....................................................ss. 1.2(a)
 include ......................................................ss. 1.2(h)
 includes .....................................................ss. 1.2(h)
 including ....................................................ss. 1.2(h)
 Indemnified Party ............................................ss. 8.4(a)
 Indemnifying Party ...........................................ss. 8.4(a)(i)
 Indemnity Notice .............................................ss. 8.4(e)
 Intel San Luis Obispo.........................................6.9
 Intellectual Property ........................................ss. 1.1
 Inventory ....................................................ss. 1.1
 Inventory Confirmation .......................................ss. 2.4(a)
 Inventory Statement ..........................................ss. 2.4(a)
 JPMorgan Chase................................................7.3(c)(i)
 Key Employee .................................................ss. 2.5(a)
 Knowledge ....................................................ss. 1.1
 Law ..........................................................ss. 1.1
 Lease ........................................................ss. 2.1(d)
 Liability ....................................................ss. 1.1
 Licenses .....................................................ss. 3.12(a)(v)
 Losses .......................................................ss. 1.1
 Material Adverse Effect ......................................ss. 1.1
 Material Contract ............................................ss. 3.14(a)
 Material Contracts ...........................................ss. 3.14(a)
 Ordinary Course ..............................................ss. 1.1
 party ........................................................ss. 1.2(c)
 Patents ......................................................ss. 3.12(a)(iii)
 Permitted Encumbrances .......................................ss. 1.1
 Person .......................................................ss. 1.1
 Post-Closing Tax Adjustment ..................................ss. 5.6(c)(ii)(B)
 Post-Closing Tax Period ......................................ss. 5.2(b)
 Pre-Closing Tax Adjustment ...................................ss. 5.6(c)(ii)(B)
 Pre-Closing Tax Period .......................................ss. 5.2(a)(ii)
 Products .....................................................ss. 1.1
 Purchase Price ...............................................ss. 2.2(a)
 Required Approvals ...........................................ss. 6.1
 Required Service..............................................6.11(a)
 Retained Employees ...........................................ss. 2.5(a)
 Retained Marks ...............................................ss. 6.9
 Schedule .....................................................ss. 1.2(b)
 Section ......................................................ss. 1.2(b)
 Seller .......................................................Introduction
 Seller Indemnified Parties ...................................ss. 8.3(a)
 Seller Losses ................................................ss. 8.3(a)
 Seller Retained Assets and Liabilities .......................ss. 2.1(a)
 Shares .......................................................ss. 1.1
 Straddle Period ..............................................ss. 5.2(c)
 Subsidiary ...................................................ss. 1.1
 Taxes ........................................................ss. 1.1
 Tax Returns ..................................................ss. 1.1
 Technical Documentation ......................................ss. 3.12(a)(i)
 third party ..................................................ss. 1.2(d)
 Third Party Claims ...........................................ss. 8.4(a)
 Third Party Claim Notice .....................................ss. 8.4(a)(ii)
 Third Party Debt .............................................ss. 1.1
 Trademarks ...................................................ss. 3.12(a)(iv)
 Transaction ..................................................ss. 1.1
 Treasury Regulations .........................................ss. 1.1
 U.S...........................................................ss. 1.1



<PAGE>

     Omitted  exhibits and  schedules to the stock  purchase  agreement  will be
provided to the Securities and Exchange Commission upon written request.

                         TABLE OF EXHIBITS AND SCHEDULES

Exhibits
Exhibit A.........         Form of Intellectual Property Agreement
Exhibit B.........         Form of cPCI 2.16 Development Agreement
Exhibit C-1.......         Form of Seller OEM Letter Agreement
Exhibit C-2.......         Form of Buyer OEM Letter Agreement
Exhibit D.........         Form of Patent Cross License Agreement
Exhibit E.........         Form of Contribution and Assumption Agreement

Schedules
Schedule 2.1(a)(i):        Seller Retained IP Licenses and Agreements
Schedule 2.1(a)(ii):       Seller Retained Real Property
Schedule 2.1(a)(iii):      Seller Retained Inventory
Schedule 2.1(a)(vi):       Seller Retained Miscellaneous Assets
Schedule 2.1(d):           Assets to be Removed Prior to Closing
Schedule 2.4(a):           Demand Forecast Inventory
Schedule 2.5:              Key Employee and Retained Employees
Schedule 3.2(a):           Subsidiaries
Schedule 3.2(b):           Capital Stock
Schedule 3.4:              Non-Contravention
Schedule 3.6(b):           Title Matters
Schedule 3.7:              Financial Statements
Schedule 3.8(a):           Liabilities
Schedule 3.8(b):           Third Party Debt
Schedule 3.10:             Litigation and Claims
Schedule 3.11(a):          Tangible Assets
Schedule 3.11(b):          List of Products
Schedule 3.11(c):          Inventory
Schedule 3.12(a)(iii):     Patents and Patent Applications
Schedule 3.12(a)(iv):      Trademarks
Schedule 3.12(a)(v):       Licenses
Schedule 3.12(a)(vi):      World Wide Web Content and Domain Names
Schedule 3.12(b):          Encumbrances
Schedule 3.12(c):          Infringement
Schedule 3.12(d):          Technical Documentation
Schedule 3.12(f):          Invention Assignment Agreements
Schedule 3.13:             Customers, Suppliers and Distributors
Schedule 3.14(a):          Material Contracts
Schedule 3.14(b):          Enforceability of Material Contracts
Schedule 3.14(c)           Deviations from Standard Warranty
Schedule 3.15:             Tax Matters
Schedule 3.16:             Employment Matters
Schedule 3.18:             Environmental Matters
Schedule 3.19:             Insurance
Schedule 3.20(a):          Conduct of Business
Schedule 3.21:             Related-Party Transactions
Schedule 3.23:             Exceptions to Adequacy of Assets
Schedule 4.4:              Buyer Non-Contravention
Schedule 6.1:              Required Approvals
Schedule 6.7:  ...         Transition Services
Schedule 8.5(a)(v):        Buyer Liabilities
[{"type": "8-K", "sequence": "1", "filename": "ziatech8k02final.txt", "secsgml_size_bytes": 157643}]
{"company-data": {"conformed-name": "PERFORMANCE TECHNOLOGIES INC \\DE\\", "cik": "0001003950", "assigned-sic": "3672", "irs-number": "161158413", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-27460", "film-number": "02790962"}, "business-address": {"street1": "205 INDIGO CREEK DRIVE", "city": "ROCHESTER", "state": "NY", "zip": "14626", "phone": "5852560200"}, "mail-address": {"street1": "205 INDIGO CREEK DRIVE", "street2": "205 INDIGO CREEK DRIVE", "city": "ROCHESTER", "state": "NY", "zip": "14626"}}
SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                     Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)                October 2, 2002

                     Performance Technologies, Incorporated
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

Delaware                              0-27460                     16-1158413
--------------------------------------------------------------------------------
(State or other jurisdiction         (Commission               (IRS Employer
        of incorporation)             File Number)          Identification No.)

 205 Indigo Creek Drive, Rochester. N.Y.                                14626
--------------------------------------------------------------------------------
 (Address of principal executive offices)                            (Zip Code)

        Registrant's telephone number, including area code (585) 256-0200
--------------------------------------------------------------------------------

(Former name or former address, if changed since last report.)
Item 2.  Acquisition or Disposition of Assets

     On October 2, 2002 the Registrant acquired a portion of Intel Corporation's
Embedded   Communications  Platform  Division.  The  acquisition  was  completed
pursuant to the Stock  Purchase  Agreement,  dated  September 12, 2002,  between
Intel  Corporation  and the Registrant to acquire all the issued and outstanding
shares of  Ziatech  Corporation.  The stock  purchase  was  completed  at a cash
purchase price of $2,966,752,  which was determined by arm's length negotiations
between the parties.  The purchase price was paid in cash by the Registrant from
funds on hand. In connection with the Stock Purchase  Agreement,  the Registrant
entered into certain  arrangements  respecting inventory and the cross-licensing
of  intellectual  property,  all as set  forth in the Stock  Purchase  Agreement
attached hereto as Exhibit 2. Under the terms of the acquisition, the former San
Luis Obispo,  California operation of Intel became a wholly-owned  subsidiary of
the Registrant.

     The  Ziatech  line of  CompactPCI,  PICMG 2.16 and STD  32-based  processor
modules  and  system  platforms  will  become  an  important  extension  to  the
Performance  Technologies product family that management believes can contribute
to the future  growth and expansion of the company.  The combined  products will
allow Performance  Technologies to serve a broader set of embedded  applications
in the data communications, telecommunications, military, industrial automation,
transportation and medical markets.

Item 7.  Financial Statements and Exhibits.

(a)  Financial statements of business acquired.

     As of the date hereof,  it is impractical for the Registrant to provide the
required audited  financial  information.  The Registrant will file the required
audited financial  information under cover of Form 8-K/A as soon as practicable,
but not later than sixty days after the date upon which this report is filed.

(b)  Pro forma financial information.

     As of the date hereof,  it is impractical for the Registrant to provide the
required pro forma financial information.  The Registrant will file the required
pro  forma  financial   information  under  cover  of  Form  8-K/A  as  soon  as
practicable, but not later than sixty days after the date upon which this report
is filed.

(c)  Exhibits.

   (2)   Stock  Purchase  Agreement between  Intel  Corporation  and Performance
         Technologies,  Incorporated,  dated as of September 12, 2002 (Copies of
         omitted Exhibits  and Schedules will be provided to the  Securities and
         Exchange Commission upon written request.)
SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                           PERFORMANCE TECHNOLOGIES, INCORPORATED

October 17, 2002                      By: /s/       Donald L. Turrell
                                      ------------------------------------------
                                                    Donald L. Turrell
                                          President and Chief Executive Officer

October 17, 2002                      By: /s/       Dorrance W. Lamb
                                      ------------------------------------------
                                                    Dorrance W. Lamb
                                          Chief Financial Officer and
                                               Vice President, Finance
Exhibit 2

                            STOCK PURCHASE AGREEMENT

                                     between

                                INTEL CORPORATION

                                       and

                      PERFORMANCE TECHNOLOGIES INCORPORATED

                         Dated as of September 12, 2002
STOCK PURCHASE AGREEMENT

     THIS  AGREEMENT  is made as of  September  12,  2002 by and  between  INTEL
CORPORATION,  a Delaware corporation  ("Seller"),  and PERFORMANCE  TECHNOLOGIES
INCORPORATED, a Delaware corporation ("Buyer").

     WHEREAS,  Seller owns all of the issued and outstanding  Shares (as defined
below) of Ziatech Corporation,  a California corporation (the "Company") engaged
in the design, manufacture, and sale of the Products (as defined below);

     WHEREAS,  the parties  desire  that  Seller  sell to Buyer,  and that Buyer
purchase from Seller,  all of the issued and outstanding  Shares of the Company,
as more specifically provided herein;

     WHEREAS,  in connection  with the  Transaction  (as defined  below),  Buyer
desires to hire certain  employees of Seller  following  the Closing (as defined
below) who currently provide services to the Company; and

     WHEREAS,  simultaneous with the Closing,  Buyer, Seller and the Company, as
applicable,  will execute and deliver the Intellectual Property Agreement in the
form attached  hereto as Exhibit A, the cPCI 2.16  Development  Agreement in the
form attached hereto as Exhibit B, the Seller and Buyer OEM Letter Agreements in
the forms attached hereto as Exhibit C-1 and C-2,  respectively,  and the Patent
Cross License  Agreement in the form attached hereto as Exhibit D (collectively,
the "Ancillary Agreements").

     NOW,   THEREFORE,   in   consideration  of  the  premises  and  the  mutual
representations,  warranties,  covenants and undertakings  contained herein, and
for other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

                             ARTICLE I. DEFINITIONS

Section 1.1  Certain Definitions.

     In addition  to the other  definitions  contained  in this  Agreement,  the
following terms will, when used in this Agreement, have the following respective
meanings:

     "Accountants"  means a firm of  independent  public  accountants  as may be
mutually agreed upon by Buyer and Seller after the date hereof.

     "Affiliate"  means, with respect to any Person,  any Person who directly or
indirectly  owns or controls,  is owned or controlled  by, or is under direct or
indirect common  ownership or control with such other Person.  Without  limiting
the  generality  of the  foregoing,  a Person  shall be deemed to "own"  another
person if it owns, directly or indirectly, more than 50% of the capital stock or
other equity interest of such other Person.

     "Agreement" means this Stock Purchase Agreement, as the same may be amended
or supplemented from time to time in accordance with the terms hereof,  together
with the Schedules and Exhibits hereto.

     "Books and Records" means books, ledgers,  files, reports,  personnel files
(including,  but not limited to, all personnel  files of the Retained  Employees
(as defined  below)  held or  maintained  by Seller  since  October  10,  2000),
operating  records,   accounting  records,   price  lists,  fixed  asset  lists,
correspondence  and other  forms of  information  relating  in any manner to the
business, operations or financial or statistical history of a Person, whether in
written,  electronic or magnetic form;  provided that this definition  shall not
include Tax Returns which contain any information related to Seller.

     "Claim" means any pending or threatened contest, claim, demand, assessment,
action, cause of action, complaint,  litigation,  proceeding,  hearing or notice
involving any Person.

     "Closing" means the closing and consummation of the Transaction.

     "Closing  Documents"  means:  (a) with respect to Seller,  all  agreements,
documents and instruments  required to be delivered by Seller at Closing, as set
forth in Section 7.2; and (b) with respect to Buyer,  all agreements,  documents
and  instruments  required to be delivered by Buyer at Closing,  as set forth in
Section 7.3.

     "COBRA"" means the Consolidated Omnibus Budget  Reconciliation Act of 1985,
as  amended,  section  4980B of the Code and Title I,  Part 6 of ERISA,  and any
similar state group health plan  continuation Law, together with all regulations
and proposed regulations promulgated thereunder.

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

     "Encumbrances"  means liens,  charges,  encumbrances,  security  interests,
options or any other restrictions or third party rights.

     "Environmental  Law" means any Law relating to (a) the  protection of human
health  or  the  environment   (including  air,  water  vapor,   surface  water,
groundwater,  drinking water supply, and surface or subsurface land), or (b) the
exposure   to,  or  the  use,   storage,   recycling,   treatment,   generation,
transportation,    processing,    handling,   labeling,   management,   release,
investigation, remediation, removal or disposal of, Hazardous Substances.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended.

     "ERISA Affiliate" means any Person that is a member of "controlled group of
corporations"  with,  or is under "common  control"  with, or is a member of the
same  "affiliated  service  group"  with the  Company or  Seller,  as defined in
section 414 of the Code.

     "Financial  Statements"  means the  following:  (a) the  unaudited  balance
sheets  and  income  statements  of the  Company  as of and for the years  ended
December 31, 2000 and 2001,  including the notes and schedules thereto (if any);
and (b) the unaudited  balance sheet and income statement of the Company for the
period of January 1 through June 29,  2002,  including  the notes and  schedules
thereto (if any).

     "GAAP" means U.S.  generally  accepted  accounting  principles applied on a
consistent basis throughout the specified periods.

     "Governmental Authorizations" means all licenses, permits, certificates and
other authorizations and approvals of any Governmental Entity required under any
applicable  Law to carry on the business as currently  conducted in the Ordinary
Course.

     "Governmental  Entity" means any U.S. or non-U.S.  local, state, federal or
other  government,  including each of their  respective  branches,  departments,
agencies, courts, instrumentalities or other subdivisions.

     "Hazardous   Substance"  means  any  matter  or  material   containing  any
substance,  whether  solid,  liquid or  gaseous,  (a) that is  listed,  defined,
designated   or   classified   as  hazardous  or  toxic  under  any   applicable
Environmental  Law,  (b) the  presence  of which may  require  investigation  or
remediation under any  Environmental  Law, or (c) is otherwise legally regulated
by a Governmental Entity which enforces such applicable Environmental Laws.

     "Intellectual Property" means patents, inventions, trade secrets, concepts,
know-how, copyrights (whether registered or unregistered),  works of authorship,
trademarks  (whether   registered  or  unregistered),   service  marks  (whether
registered  or  unregistered),  mask works,  trade names,  trade dress,  product
names,  slogans,  logos and internet domain names,  including  registrations and
applications of any of the foregoing,  software,  firmware,  object code, source
code,  specifications,   processes,  drawings,  designs,  technology,   methods,
techniques, formulae and proprietary information and documents incorporating any
similar rights, including technical reports and laboratory data (in all media).

     "Inventory" means all inventory, raw materials,  work in process,  samples,
supplies, service parts, purchased parts and goods and finished goods.

     "Knowledge" means with respect to any Person,  the actual knowledge of such
Person.  With  respect  to  Seller,  Knowledge  shall  include  only the  actual
knowledge of each of the following individuals: Paul Abbott, Martin Todd Dorris,
Shreesh  Dubey,  Bob Ehlers,  Teana  Fredeen,  Jim  Medeiros,  Mark Novad,  Dave
Parkinson,  Todd Rallison,  Sharon Seitz, Chris Teaford, Bob Tillman,  Mark Tsai
and Todd Underwood.

     "Law" means any law  (including  common  law),  statute,  ordinance,  rule,
regulation,   code,  order,   judgment,   injunction,   decree  or  judicial  or
administrative  doctrine  that is  promulgated  or  issued  by any  Governmental
Entity.

     "Liability" means any direct or indirect  indebtedness,  liability,  Claim,
damage,  deficiency,  obligation or responsibility,  fixed or unfixed, choate or
inchoate,  liquidated or unliquidated,  secured or unsecured, accrued, absolute,
contingent or otherwise.

     "Losses" means Liabilities,  losses, charges,  actions, suits, proceedings,
interest,  penalties  and  reasonable  costs and expenses  associated  therewith
(including reasonable  attorneys' fees,  litigation costs, fines,  penalties and
expenses of investigation),  whether asserted by a party to this Agreement or by
a third party, but in no event includes incidental or consequential damages.

     "Material  Adverse  Effect"  means,  with respect to a Person,  any change,
event or effect that, when taken together with all other adverse changes, events
or effects  that have  occurred,  (a) is  materially  adverse  to the  business,
operations,   properties,   condition  (financial  or  otherwise),   assets,  or
Liabilities  of the  Person,  taken as a whole,  or (b)  prevents  or delays the
Closing, it being understood that any change,  event or effect arising out of or
resulting from any of the following shall not be deemed to constitute a Material
Adverse  Effect:   (i)  the  public   announcement  of  this  Agreement  or  the
Transaction,  (ii) general industry  conditions not specifically  related to, or
having a materially  disproportionate  effect on, the Person,  and (iii) general
economic, market, regulatory or political conditions.

     "Ordinary  Course"  means the ordinary  course of business of the business,
consistent with past practices.

     "Permitted  Encumbrances"  means (a) Encumbrances for Taxes or governmental
assessments,  charges,  or claims  the  payment  of which  are not yet due,  (b)
statutory  liens of landlords  and liens of carriers,  warehousemen,  mechanics,
materialmen  and other similar Persons and other liens imposed by applicable Law
incurred in the Ordinary  Course for sums not yet  delinquent  or  immaterial in
amount and being contested in good faith,  and (c) other  imperfections of title
or  Encumbrances,  if any, which  imperfections  of title or other  Encumbrances
would not result in the creation of a Liability or obligation of Buyer after the
Closing Date.

     "Person" means an  individual,  a  corporation,  a  partnership,  a limited
liability company, an association, a trust or any other entity or organization.

     "Products" means the products listed on Schedule 3.11(b) to this Agreement.

     "Shares" means all of the common stock,  par value $0.01 per share,  of the
Company.

     "Subsidiary"  means  any  Person,  50% or  more of the  outstanding  equity
interests of which are owned, directly or indirectly, by the referenced Person.

     "Taxes"  means all taxes  levied or  imposed  by any  Governmental  Entity,
including  income,  gross receipts,  windfall profits,  value added,  severance,
production, sales, use, license, excise, franchise,  employment,  environmental,
real property,  personal property,  transfer,  alternative  minimum,  estimated,
withholding or other taxes,  together with any interest,  additions or penalties
with respect thereto and any interest in respect of such additions or penalties,
whether or not disputed or contested.

     "Tax Returns" means all U.S. and non-U.S.  reports and returns  required to
be filed with respect to Taxes, including all attachments thereto.

     "Third Party Debt" means  indebtedness that is (a) owed by the Company to a
Person who is neither  Seller nor an Affiliate of the Company or of Seller,  and
(b) payable in multiple installments.

     "Transaction"   means,    collectively,    the   pre-Closing   transactions
contemplated  by Section  2.1,  the  purchase  and sale of the  Shares,  and the
execution and delivery of the Ancillary Agreements, all as herein provided.

     "Treasury Regulations" means the Treasury Regulations promulgated under the
Code.

     "U.S." means the United States of America.

Section 1.2  Interpretation.

         In this Agreement, unless the express context otherwise requires:

     (a) the words  "herein,"  "hereof"  and  "hereunder"  and words of  similar
import refer to this Agreement as a whole and not to any particular provision of
this Agreement;

     (b) references to "Article" or "Section" are to the respective Articles and
Sections of this Agreement, and references to "Exhibit" or "Schedule" are to the
respective Exhibits and Schedules annexed hereto;

     (c)  references  to a "party"  means a party to this  Agreement and include
such party's successors and permitted assigns;

     (d)  references  to a "third  party" means any Person other than a party to
this Agreement or an Affiliate of such party;

     (e) the terms "dollars" and "$" mean U.S. dollars;

     (f) terms  defined in the singular  have a comparable  meaning when used in
the plural, and vice versa;

     (g) the masculine  pronoun  includes the feminine and the neuter,  and vice
versa, as appropriate in the context; and

     (h) wherever the word "include,"  "includes" or "including" is used in this
Agreement, it will be deemed to be followed by the words "without limitation."

Section 1.3  Accounting Conventions.

     Except as expressly  provided  otherwise  herein,  all  references  in this
Agreement to  financial  terms will be deemed to refer to such terms as they are
defined under GAAP.

                         ARTICLE II. PURCHASE AND SALE

Section 2.1  Pre-Closing Transfers and Other Actions.

     (a) Prior to  Closing,  Seller will cause the Company to transfer to Seller
or an Affiliate of Seller the following  assets and  Liabilities,  and Seller or
such  Affiliate of Seller will accept such  transfer and assume the  Liabilities
related  to  such  assets   (collectively,   the  "Seller  Retained  Assets  and
Liabilities"):

(i) the  Intellectual  Property  licenses or  agreements  identified on Schedule
2.1(a)(i);

(ii) that certain  parcel of real  property  located at 600 Tank Farm Road,  San
Luis Obispo,  California,  which is identified on Schedule 2.1(a)(ii),  together
with all  Liabilities  related  thereto,  including,  but not limited to,  those
related to Environmental Law, and any leases or other agreements of occupancy or
use related thereto;

(iii)  certain  Inventory  of the  Company,  which  is  identified  on  Schedule
2.1(a)(iii);

(iv) all Company accounts receivable accrued up to Closing;

(v) all Company accounts payable (including, but not limited to, trade and other
payables) accrued up to Closing to the extent not otherwise  satisfied by Seller
prior to Closing;

(vi)  the  assets  and  Liabilities  of  the  Company   identified  on  Schedule
2.1(a)(vi); and

(vii) all warranty obligations and Liabilities,  including claims for repairs or
replacements  (in each case, to the extent arising  pursuant to the terms of the
purchase order under which the Product was sold) for Products  shipped by Seller
or by the  Company  for its own  account or the  account of Seller  prior to the
Closing Date (as defined below); provided,  however, that such Liabilities shall
be satisfied in accordance with Section 6.11 hereof.

     (b) Prior to Closing, Seller or an Affiliate of Seller and the Company will
enter into, and effect the  transactions  contemplated  by, the Contribution and
Assumption Agreement in the form attached hereto as Exhibit E.

     (c) Seller  shall  cause all  intercompany  accounts  between  Seller or an
Affiliate of Seller, on the one hand, and the Company,  on the other hand, to be
settled  in  full on or  prior  to the  Closing,  and  Seller  shall  cause  all
intercompany  agreements between Seller or an Affiliate Seller, on the one hand,
and the Company, on the other hand, to be terminated on or prior to the Closing.
Seller shall be responsible for all Liabilities associated with all intercompany
accounts and agreements and the satisfaction or termination of the foregoing.

     (d) Seller shall remove all assets, if any, owned by Seller or an Affiliate
of Seller and physically  situated at the Company's  leased facility  located at
1050 Southwood  Drive, San Luis Obispo,  California (the "Lease"),  which assets
are set forth on Schedule 2.1(d), on or prior to Closing.

Section 2.2  Purchase and Sale of Shares.

     (a) On the terms and subject to the conditions set forth herein, at Closing
Seller will sell, convey, transfer,  assign and deliver to Buyer, and Buyer will
purchase from Seller, all right, title and interest in and to all of the Shares.
At  Closing,  Buyer  shall  pay to  Seller as  consideration  for the  Shares an
aggregate amount of Three Million Six Hundred Thirty Three Thousand Five Hundred
Thirty  Dollars   ($3,633,530)  (the  "Purchase  Price")  by  wire  transfer  of
immediately  available funds to such account or accounts as designated by Seller
prior to  Closing;  provided,  however,  that if Seller  elects  to  adjust  the
Purchase  Price  pursuant  to  Section  2.3(a) or  Section  2.4(a)  hereof  upon
completion of the procedures  contemplated  thereby, the Purchase Price shall be
the dollar amount resulting from such adjustments.

     (b)  Through  the  purchase  of the Shares as set forth  above,  Buyer will
thereby  indirectly  acquire  all of the assets and  Liabilities  of the Company
(except  for  the  Seller  Retained  Assets  and  Liabilities  or  as  otherwise
contemplated by this  Agreement),  including,  but not limited to, the Company's
capital  equipment,  fixed  assets,  equipment,  furniture,  and other  personal
property,   the  Lease,  its  right,  title  and  interest  in  and  to  certain
Intellectual  Property  owned by or licensed to the Company and  permitted to be
retained by the Company,  including the Company's patents,  trademarks,  service
marks, the trade name "Ziatech", copyrights,  proprietary information (including
customer and supplier  lists),  Books and Records,  and its contract  rights and
intangibles.   Except  as  otherwise  provided  in  the  Intellectual   Property
Agreement,   the  Patent  Cross  License  Agreement  and  the  Contribution  and
Assumption  Agreement,  Buyer acknowledges that no rights under any Intellectual
Property  licenses  or  agreements  between  Seller  and third  parties  and any
Intellectual  Property  licenses or  agreements  between  Seller and the Company
which do not relate exclusively to the manufacture and sale of the Products will
be extended to Buyer or the Company following Closing.

Section 2.3  Asset Confirmation

     (a) Four (4) days prior to Closing,  Seller shall take a physical inventory
of the Company's  tangible  assets,  at Seller's  sole  expense,  which shall be
observed by Buyer or its representatives (the "Asset Confirmation"). Immediately
following  completion  of the Asset  Confirmation,  Seller shall notify Buyer in
writing regarding the results of the Asset Confirmation (the "Asset Statement").
Buyer shall deliver a certificate setting forth its acceptance of, or objections
to, the Asset  Statement  within one (1) day of receipt of such Asset  Statement
from Seller.  If Buyer accepts the Asset Statement,  the determination of Seller
regarding  the tangible  assets shall be deemed final and binding and no further
actions will be taken or adjustments made by the parties related thereto. In the
event that Buyer objects to the Asset  Statement or any portion  thereof,  Buyer
and  Seller  shall  attempt  in good  faith  to  immediately  resolve  any  such
objections.  If Buyer and Seller resolve such  objections and each party signs a
certificate  to that effect,  the Asset  Statement,  as adjusted by the parties,
shall be deemed  final and binding for  purposes of this  Agreement  and, to the
extent such adjusted Asset Statement identifies any assets missing from the list
of the Company's  tangible  assets set forth on Schedule  3.11(a) as of the date
hereof,  Seller  agrees,  in its sole  discretion,  to take one of the following
actions:

(i)   Seller shall replace such assets by delivering to the Company replacements
      therefor on or prior to Closing; or

(ii)  Seller shall reduce the Purchase  Price by  the  aggregate  value  of  all
      missing assets, such value being based  on  the  net book  value  of  such
      assets set forth next to each asset on Schedule 3.11(a);

provided,  however,  that the parties agree that Seller will not be obligated to
replace any missing  assets or reduce the Purchase  Price  unless the  aggregate
value of all such missing assets exceeds Twenty Five Thousand Dollars ($25,000).

     (b) In the  event  that  Buyer  and  Seller  are  unable  to  resolve  such
objections,  any  dispute  regarding  the Asset  Statement  shall be governed by
Section 9.7 of this  Agreement;  provided,  however,  that if the parties cannot
resolve such dispute  prior to the Closing  Date,  Buyer hereby agrees to effect
the Closing based on the Asset Statement  originally  submitted by Seller and to
defer the resolution of such dispute until after the Closing. The replacement of
assets or  adjustment  to the Purchase  Price  contemplated  by this Section 2.3
shall be the sole remedy of Buyer for any of the Company's  tangible assets that
were  listed on Schedule  3.11(a)  (other  than the Seller  Retained  Assets and
Liabilities) but identified as missing on the Asset  Statement,  and in no event
shall Buyer be entitled to any other  rights to  indemnification  under  Article
VIII of this Agreement for any of such assets not  transferred  and delivered at
Closing; provided, however, that any such replacement or adjustment shall not be
included in any calculation of the limitations on  indemnification  set forth in
Section 8.5 hereof.

Section 2.4  Inventory Confirmation

     (a) Four (4) days prior to Closing, Seller shall undertake a physical count
of the  portion of the  Inventory  set forth on  Schedule  2.4(a)  (the  "Demand
Forecast Inventory"), at Seller's sole expense, which shall be observed by Buyer
or its  representatives  (the "Inventory  Confirmation").  Inventory that is not
Demand  Forecast  Inventory  shall not be counted or included  in the  Inventory
Confirmation.  Immediately  following completion of the Inventory  Confirmation,
Seller  shall  notify Buyer in writing  regarding  the results of the  Inventory
Confirmation  (the  "Inventory  Statement").  The Inventory  Statement shall set
forth the value of the Inventory to be transferred to Seller  immediately  prior
to  Closing  pursuant  to  Section  2.1(a)  hereof  and the value of the  Demand
Forecast  Inventory  that shall remain with the Company at Closing.  Buyer shall
deliver a certificate  setting forth its  acceptance  of, or objections  to, the
Inventory  Statement within one (1) day of receipt of such Inventory  Statement.
If Buyer accepts the Inventory Statement,  the determination of Seller regarding
the Inventory  shall be deemed final and binding and no further  actions will be
taken or  adjustments  made by the parties  related  thereto.  In the event that
Buyer  objects to the  Inventory  Statement  or any portion  thereof,  Buyer and
Seller shall attempt in good faith to immediately  resolve any such  objections.
If Buyer and Seller  resolve such  objections and each party signs a certificate
to that effect, the Inventory  Statement,  as adjusted by the parties,  shall be
deemed final and binding for purposes of this  Agreement  and, to the extent the
value of the Demand  Forecast  Inventory  that will  remain  with the Company at
Closing  reflected on such  Inventory  Statement is less than One Million  Eight
Hundred  Thirty Three Thousand Five Hundred  Thirty  Dollars  ($1,833,530),  the
parties  agree that  Seller will reduce the  Purchase  Price by such  shortfall;
provided,  however,  that the parties agree that Seller will not be obligated to
take the foregoing  action unless the aggregate  value of the shortfall  exceeds
Fifty Thousand Dollars ($50,000).

     (b) In the  event  that  Buyer  and  Seller  are  unable  to  resolve  such
objections,  any dispute regarding the Inventory  Statement shall be governed by
Section 9.7 of this  Agreement;  provided,  however,  that if the parties cannot
resolve such  dispute  prior to the Closing  Date,  Purchaser  hereby  agrees to
effect the Closing  based on the  Inventory  Statement  originally  submitted by
Sellers and to defer the resolution of such dispute until after the Closing. The
adjustments  contemplated  by this Section 2.4 shall be the sole remedy of Buyer
for any  issues  related to the value of the  Inventory  to be  retained  by the
Company at Closing,  and in no event shall Buyer be entitled to any other rights
to indemnification under Article VIII related thereto;  provided,  however, that
any such adjustments shall not be included in any calculation of the limitations
on indemnification set forth in Section 8.5 hereof.

Section 2.5  Retention of Certain Employees.

     (a)  Prior  to  Closing,  and in  conformity  with all  applicable  Law and
Seller's  internal  policies,  Seller and Buyer will cooperate to facilitate for
Buyer or the Company the  post-Closing  employment of certain of those employees
of Seller  who  currently  perform  services  for the  Company  pursuant  to the
Employee  Leasing  Agreement (as defined  below) and who Buyer desires to retain
after  Closing so that they can  continue to perform  similar  services  for the
Company thereafter (the "Retained Employees"). Buyer regards the employment of a
certain  Retained  Employee as being  essential to Buyer's ability to manage the
Company and operate the business  following  Closing (the "Key  Employee").  The
Retained  Employees  and the Key Employee are set forth on Schedule  2.5.  Buyer
will  make  offers  of  employment  to no less than  sixty-seven  (67)  Retained
Employees.  The  aforementioned  cooperation  between  Seller  and  Buyer  shall
include,  but not be limited to, (i) Buyer  extending to the Retained  Employees
employment on terms that are competitive for similarly situated employees in the
prevailing  employment  market  in  San  Luis  Obispo,  California,  (ii)  Buyer
crediting  the  service of the  Retained  Employees  with Seller  under  Buyer's
seniority-based  employment  programs,  paid  time  off  programs  and  employee
benefits  programs,   and  (iii)  Seller  making   information   concerning  its
compensation  and  benefit  programs  and  specific   information   relating  to
individual  Retained Employees available to Buyer for the purpose of formulating
compensation packages for Retained Employees.

     (b) Following  the Closing,  Seller and Buyer agree that Buyer shall not be
responsible  for providing  employment,  compensation or benefits of any sort to
any of Seller's employees in connection with services provided to the Company at
any time prior to Closing,  other than the Retained  Employees who have accepted
Buyer's  offers of employment  with the Company.  Seller and Buyer further agree
that  Seller  shall be  responsible  for all  Liabilities  associated  with such
employees related to the period prior to the Closing Date.

Section 2.6  Closing.

     Closing will take place at the offices of counsel to Buyer, Harter, Secrest
& Emery LLP, 1600 Bausch & Lomb Place,  Rochester,  New York on October 1, 2002,
or such other date mutually  agreed to by Buyer and Seller;  provided,  however,
that all of the  conditions  to  Closing  set  forth in  Article  VII have  been
satisfied or waived. In the alternative,  Closing may take place by the parties'
simultaneous  execution and delivery of the Closing Documents,  with transmittal
of facsimile  signature pages  electronically  and exchange of original executed
documents by overnight courier  delivery.  The date in the U.S. on which Closing
occurs is called the  "Closing  Date," and Closing will be effective as of 11:59
p.m.,  Rochester  time, on the Closing Date. The required  deliveries at Closing
are set forth in Article VII.

             ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER

     As of the date hereof, Seller represents and warrants to Buyer as follows:

Section 3.1  Power and Authority of Seller.

     Seller has all  requisite  corporate  power and  authority  to execute  and
deliver this Agreement and each Ancillary  Agreement to which it is a party,  to
perform  its  obligations  hereunder  and  thereunder,  and  to  consummate  the
Transaction.

Section 3.2  Organization, Power and Capitalization of the Company.

     (a) The Company is a corporation  duly organized,  validly  existing and in
good  standing  under the Laws of the State of  California.  The Company has all
requisite corporate power and authority to own, lease,  operate and transfer its
assets, and to carry on its business as now being conducted. The Company is duly
qualified to do business  and is in good  standing as a foreign  corporation  in
each  jurisdiction  where its ownership or operation of assets or its conduct of
the  business  requires  such  qualification,  except where the failure to be so
qualified would not have a Material Adverse Effect on the Company. Except as set
forth on Schedule 3.2(a), the Company does not have any Subsidiaries.

     (b) The total  authorized  capital  stock of the Company  consists of 1,000
shares of common stock,  par value $0.01 per share.  Schedule  3.2(b) is a true,
correct and complete listing of: (i) all capital stock of the Company issued and
outstanding;  (ii) all rights,  options,  warrants,  conversion rights, exchange
rights or  similar  commitments  or  equivalents,  written  or oral,  to acquire
capital stock of the Company,  whether  vested or unvested,  that are issued and
outstanding;  and (iii) the respective holders of each thereof,  and the amounts
of their respective holdings.  Except as set forth on Schedule 3.2(b), there are
no preemptive or other outstanding rights, options, warrants,  conversion rights
or agreements or commitments  to issue or sell capital stock of the Company,  or
any securities or obligations  convertible  into or exchangeable  for, or giving
any Person a right to subscribe  for or acquire,  capital  stock of the Company,
and no securities or obligations evidencing such rights are outstanding.

     (c) Seller has made available to Buyer true, correct and complete copies of
the  articles of  incorporation  (including  all  amendments  to date),  by-laws
(including  all  amendments to date),  stock book and minute book of the Company
since October 10, 2000.

Section 3.3  Governmental Approvals.

     No consent,  approval,  waiver, or authorization is required to be obtained
by Seller, and no notice or filing is required to be given by Seller to, or made
by Seller  with,  any  Governmental  Entity in  connection  with the  execution,
delivery and performance by Seller of this Agreement,  each Ancillary  Agreement
and the consummation of the Transaction.

Section 3.4  Non-Contravention.

     Except  as  set  forth  on  Schedule  3.4,  the  execution,   delivery  and
performance by Seller of this Agreement and each  Ancillary  Agreement,  and the
consummation of the Transaction,  do not and will not: (a) violate any provision
of the articles of incorporation,  bylaws or other  organizational  documents of
the Company;  (b)  conflict  with,  or result in the breach of, or  constitute a
default  under,  or  result in the  termination,  cancellation  or  acceleration
(whether  after the  filing of notice or the lapse of time or both) of any right
or obligation of Seller or the Company under,  or a loss of any benefit to which
the Company is entitled  under,  any Material  Contract (as defined  below),  or
result in the creation of any Encumbrance upon any of the material assets of the
Company,  other  than a  Permitted  Encumbrance;  or (c)  violate or result in a
material  breach of or constitute a material  default under any applicable  Law,
judgment,  injunction,  order,  decree or other  restriction of any Governmental
Entity to which Seller or the Company is subject.

Section 3.5  Binding Effect.

     This Agreement and each Ancillary Agreement, when executed and delivered by
Seller and Buyer (assuming such agreements  constitute valid and legally binding
obligations of Buyer),  will constitute valid and legally binding obligations of
Seller,  enforceable  against  it in  accordance  with their  respective  terms,
subject to bankruptcy, insolvency,  reorganization,  moratorium and similar Laws
of general  applicability  relating  to or  affecting  creditors'  rights and to
general equity principles.

Section 3.6  Title Matters.

     (a) Seller has, and at Closing will effectively transfer to Buyer, good and
marketable title to all of the Shares, free and clear of all Encumbrances.

     (b) Except as set forth on Schedule  3.6(b),  at Closing,  the Company will
have,  free and clear of all  Encumbrances,  other than Permitted  Encumbrances,
good and marketable title to all of its tangible  personal property used or held
for use in the operation of its business,  other than the Seller Retained Assets
and  Liabilities  and any assets  owned by Seller or an  Affiliate of Seller and
removed from the Company's  premises prior to Closing pursuant to Section 2.1(d)
of this Agreement.

Section 3.7  Financial Statements.

     Attached hereto as Schedule 3.7 are the Financial Statements. The Financial
Statements  fairly present in all material  respects the financial  position and
the results of  operations  of the Company for the  respective  periods  therein
stated,  and reflect  adequate  reserves  for all known  Liabilities,  as of the
respective dates therein stated, in accordance with GAAP.

Section 3.8  Liabilities.

     (a) Except as set forth on Schedule  3.8(a) and the Seller  Retained Assets
and  Liabilities,  the Company has no  Liabilities  other than  Liabilities  (i)
reflected on the Financial Statements or (ii) arising since June 29, 2002 in the
Ordinary Course which individually or in the aggregate are not material.

     (b) Except as set forth on Schedule 3.8(b),  the Company has no Third Party
Debt, and will not have any Third Party Debt outstanding as of the Closing Date.

     (c) Prior to Closing,  Seller will,  or will cause the Company to,  satisfy
all  Liabilities  (including  obligations for royalty  payments)  payable by the
Company to Seller (or to any  Affiliate  of Seller),  and at Closing the Company
will have no Liability whatsoever to Seller (or to any Affiliate of Seller).

Section 3.9  Compliance with Laws.

     (a) The Company is  conducting,  and has conducted  since October 10, 2000,
its business in compliance in all material  respects with all  applicable  Laws,
and the Company has all Governmental Authorizations necessary for the conduct of
the business as currently conducted.

     (b) To Seller's  Knowledge,  the Company's  leased facility located at 1050
Southwood  Road, San Luis Obispo,  California,  conforms to and complies with in
all  material  respects  all  applicable  covenants,  conditions,  restrictions,
reservations, land use, zoning, health, fire, water and building codes and other
similar  Laws,  and no such  Laws  prohibit  or  limit or  condition  the use or
operation  of  such  premises  as  currently  used  and  operated.  To  Seller's
Knowledge, there is no pending,  contemplated,  threatened or anticipated change
in the zoning classification of any of such premises.

Section 3.10  Litigation and Claims.

     Except as set forth on Schedule  3.10:  (a) there is no civil,  criminal or
administrative  Claim  or  investigation  pending  or,  to  Seller's  Knowledge,
threatened, by, on behalf of or against the Company or the Company's assets; and
(b) neither the Company nor its assets are subject to any order, writ, judgment,
award, injunction or decree of any Governmental Entity of competent jurisdiction
or any arbitrator.

Section 3.11  Tangible Assets and Products.

     (a) Schedule  3.11(a) is a true,  correct and complete  listing of: (i) all
material  equipment,  computer  equipment  and  hardware,  furniture,  fixtures,
vehicles, machinery, apparatus, media, tools, appliances,  implements, and other
tangible  personal  property of the Company as of March 31,  2002;  and (ii) all
additions to and  dispositions  of the foregoing made between March 31, 2002 and
the date of this  Agreement,  other than those items  having a cost of less than
Two Thousand Dollars  ($2,000).  Except as set forth in Schedule  3.11(a),  such
assets  are in a good  state of repair  and  condition,  ordinary  wear and tear
excepted.

     (b)  Schedule  3.11(b)  is a true,  correct  and  complete  listing  of the
Products.

     (c) Schedule 3.11(c) is a true,  correct and complete listing,  by category
and volume level as of the date of this Agreement,  of the Company's  Inventory.
All of such Inventory has been costed and valued, and presented in the Financial
Statements,  in accordance with GAAP.  Except as set forth on Schedule  3.11(c),
all of such  Inventory  is of good and  merchantable  quality and  saleable  and
usable in the Ordinary Course.

Section 3.12  Company Intellectual Property.

     (a) The term  "Company  Intellectual  Property"  means all of the following
properties and rights of the Company:

(i) all  schematics,  bills of material,  test programs,  test fixtures,  source
code,  object code,  design  documentation  and written  procedures  for Product
generation and testing of all Products including computer software, hardware and
firmware, including the software rules and algorithms,  flowcharts,  included in
or relating to the same (collectively, the "Technical Documentation");

(ii)  copyrights,  designs,  technical  works,  technical  data,  trade secrets,
know-how and inventions of the Company;

(iii) the  patents  and patent  applications  listed on  Schedule  3.12(a)(iii),
together  with  any  division,  continuation,  continuation-in-part,  continuing
prosecution  application,  continued  examination  application,   reinstatement,
reexamination,  revival, reissue,  extension or substitution of any thereof, and
corresponding  U.S.  and  foreign  applications,   patents  and  rights  thereto
(collectively, the "Patents");

(iv) all trademarks,  service marks, trade names, trade dress, and Product names
used in  connection  with the  manufacture,  promotion  and sale of the Products
which are listed on Schedule  3.12(a)(iv),  and  corresponding  U.S. and foreign
applications, registrations and rights thereto (collectively, the "Trademarks");

(v) all written  material  licenses,  sublicenses  and  agreements  by which the
Company uses Intellectual  Property owned by Seller or a third party, or a third
party uses  Intellectual  Property  owned by the Company,  which  documents  are
listed  on  Schedule  3.12(a)(v),  except  that  any  Seller-wide  cross-license
relationships  into which  Seller has entered  that  pertain to Seller's  patent
portfolio are not listed in Schedule 3.12(a)(v) (the "Licenses"); and

(vi) all internet, intranet and World Wide Web content, sites and pages, and all
HTML and other code related  thereto,  and all domain  names used in  connection
with the manufacture, promotion or sale of the Products and the promotion of the
Company, which sites and domain names are set forth on Schedule 3.12(a)(vi).

     (b) Except as set forth on Schedule  3.12(b),  to Seller's  Knowledge,  the
Company owns or has a license to use, free and clear of all Encumbrances,  other
than Permitted  Encumbrances and non-exclusive licenses in favor of Seller (none
of which would impair the rights granted to Buyer  pursuant to the  Intellectual
Property  Agreement  or  the  Patent  Cross  License  Agreement),   all  Company
Intellectual Property.

     (c) Except as set forth in Schedule  3.12(c),  to Seller's  Knowledge,  the
manufacture  and sale of the Products by the Company or Seller has not infringed
any Intellectual  Property rights of any third party or of Seller (other than as
licensed in the  Intellectual  Property  Agreement  and the Patent Cross License
Agreement), and, to Seller's Knowledge, no Claim has been asserted by any Person
as to the infringement by the Company of any third party  Intellectual  Property
or alleging any such infringement,  and to Seller's Knowledge, there is no valid
basis for any such Claim.  To Seller's  Knowledge,  no third party has infringed
upon  any  rights  of the  Company  with  respect  to the  Company  Intellectual
Property.

     (d) Seller has made  available to Buyer correct and complete  copies of all
of the  tangible  Technical  Documentation,  including  documentation  stored in
electronic  form, in its possession,  as amended to date. To Seller's  Knowledge
and except as set forth in Schedule  3.12(d),  with  respect to each item of the
Technical  Documentation,  Seller or the  Company  is the  author of, or has the
license to, the Technical Documentation and, to Seller's Knowledge,  the Company
has the exclusive right to claim all copyrights in the Technical  Documentation,
except that Seller may have  co-ownership  or license  rights to such  Technical
Documentation.

     (e) The Company has made available to Buyer correct and complete  copies of
all  registered  Patents  listed on  Schedule  3.12(a)(iii)  and all  registered
Trademarks listed on Schedule 3.12(a)(iv), as amended to date.

     (f) Since October 10, 2000 and, to Seller's Knowledge, for any period prior
to October 10, 2000,  except as set forth on Schedule  3.12(f),  all  personnel,
including employees,  agents, consultants and contractors,  who have contributed
to or participated  in the  conception,  reduction to practice or development of
the Technical  Documentation or the Company  Intellectual  Property either:  (i)
have been party to a  "work-for-hire"  arrangement or agreement with the Company
or Seller,  in  accordance  with  applicable  federal  and state  Law,  that has
accorded the Company or Seller original  authorship and exclusive  ownership of,
and all  right,  title and  interest  in and to,  all  tangible  and  intangible
property  thereby  arising;  or (ii) have executed  appropriate  instruments  of
assignment in favor of the Company or Seller,  as assignee that have conveyed to
the Company or Seller exclusive  ownership or co-ownership  with the Company and
Seller of all right,  title and interest in and to all  tangible and  intangible
property  arising  thereby.  In each  case,  where any  rights to the  Technical
Documentation  are in Seller,  Seller will  transfer  such rights to the Company
prior to Closing pursuant to the Contribution and Assignment Agreement.

Section 3.13  Major Vendors and Customers.

     Schedule  3.13  sets  forth  a  true,  correct  and  complete  list  of the
following:  (i) the twenty (20)  largest  customers  of the Company for the year
ended  December 31, 2001;  (ii) the twenty (20) largest  suppliers  for the year
ended December 31, 2001; and (iii) all of the Company's distributors.  Except as
set forth on Schedule  3.13,  neither  Seller nor,  to Seller's  Knowledge,  any
employee of the Seller providing services for the Company,  has been informed in
writing by a third party that the  consummation of the Transaction  would result
in the  loss  of any  significant  customer,  potential  customer,  supplier  or
distributor of the Company.

Section 3.14  Material Contracts; Warranties.

     (a) Schedule  3.14(a) sets forth a list of all of the following  contracts,
agreements,  options, licenses, sales and purchase orders, commitments and other
instruments  (each a  "Contract")  to which the Company is a party or  otherwise
bound (each a "Material Contract" and, collectively,  the "Material Contracts"):
(i) each sales Contract relating to the Company's business pursuant to which the
dollar volume of sales exceeded  Twenty Five Thousand  Dollars  ($25,000) in the
twelve  month  period  ended  December  31,  2001 or  Fifteen  Thousand  Dollars
($15,000) in the seven month period ended July 31, 2002; (ii) each Contract that
requires  payment by or to the Company in respect of its business  subsequent to
the date of this Agreement of more than Twenty Five Thousand Dollars  ($25,000);
(iii) all  Contracts  in  respect of the  Company's  business  relating  to, and
evidences of,  indebtedness  for borrowed  money or deferred  purchase  price of
property;  (iv)  all  partnership,  joint  venture  or other  similar  Contracts
directly affecting the Company's business or assets; and (v) all other Contracts
that are material to the Company;  provided that Schedule  3.14(a) does not list
any Contracts between the Company and Seller.

     (b) Seller has made  available  to Buyer true and  complete  copies of each
Material  Contract  that is in  written  form,  and  true and  complete  written
summaries  of each  Material  Contract  that is  oral.  Except  as set  forth on
Schedule  3.14(b),  each  Material  Contract  is  a  legal,  valid  and  binding
obligation of the Company, and to Seller's Knowledge, each other Person who is a
party  thereto,  enforceable  against  the  Company  and  each  such  Person  in
accordance  with its  terms,  subject  to  subject  to  bankruptcy,  insolvency,
reorganization, moratorium and similar Laws of general applicability relating to
or affecting creditors' rights and to general equity principles, and neither the
Company  nor, to  Seller's  Knowledge,  any other party  thereto is in breach or
default thereunder.

     (c) Seller has made available to Buyer true, correct and complete copies of
the Company's  standard warranty terms.  Schedule 3.14(c) contains a list of any
deviations from the Company's standard warranty terms.

Section 3.15  Tax Matters.

     Except as set forth on Schedule 3.15:

     (a) the Company (and each  affiliated,  unitary or combined  group of which
the  Company is or has been a member)  has timely  filed all  material  federal,
state,  local and  foreign  income  and  franchise  Tax  Returns,  and all other
material  Tax Returns  that are required to be filed by it on or before the date
hereof,  and all Taxes shown on any Tax Return have been paid, and the Financial
Statements  reflect an adequate  accrual,  based on the facts and  circumstances
existing  as of the  respective  dates  thereof,  for all Taxes  payable  by the
Company through the respective dates thereof;

     (b) there are no deficiencies for any Taxes proposed,  asserted or assessed
against the Company, no requests for waivers of the time to assess any Taxes are
pending, and no power of attorney with respect to any Taxes has been executed or
filed with any taxing authority;

     (c) the Company  has  complied  with all  applicable  Laws  relating to the
payment and withholding of material Taxes and has withheld and paid all material
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor or other Person;

     (d) there are no Encumbrances for Taxes (other than Permitted  Encumbrances
set forth on Schedule 3.15) on the assets of the Company;

     (e) the Company is not bound by any  agreement  (either  with any Person or
any taxing authority) with respect to Taxes that will remain in effect following
Closing;

     (f) the Company has not constituted either a "distributing  corporation" or
a "controlled  corporation"  (within the meaning of section  355(a)(1)(A) of the
Code) in a distribution of stock qualifying for tax-free treatment under section
355 of the Code (i) in the two (2) years prior to the date of this  Agreement or
(ii) in a  distribution  which could  otherwise  constitute  part of a "plan" or
"series of related  transactions"  (within the meaning of section  355(e) of the
Code) in conjunction with the Transaction;

     (g) the  Company  has never  been a member  of an  affiliated,  unitary  or
combined group of  corporations  (within the meaning of section 1504 of the Code
and any  analogous  provision  of state,  local or  foreign  Law) other than the
affiliated group of which Seller is the common parent;

     (h) the  Company  has not filed a consent  pursuant  to the  provisions  of
section  341(f) of the Code (or any  corresponding  provision  of state or local
Law) or  agreed  to have  section  341(f)(2)  of the Code (or any  corresponding
provision of state or local Law) apply to any  disposition of any asset owned by
the Company;

     (i) the  Company  has not  agreed to make,  nor is  required  to make,  any
adjustment  under section 481(a) of the Code or any similar  provision of state,
local or foreign Law by reason of a change in accounting methods or otherwise;

     (j) no property owned by the Company is (i) property required to be treated
as being owned by another Person pursuant to the provisions of section 168(f)(8)
of the Internal  Revenue  Code of 1954,  as amended,  and in effect  immediately
prior to the  enactment  of the Tax Reform  Act of 1986,  (ii)  "tax-exempt  use
property" within the meaning of section 168(h)(1) of the Code, (iii) "tax-exempt
bond  financed  property"  within the meaning of section  168(g) of the Code, or
(iv) "limited use property" (as that term is used in Rev. Proc. 76-30);

     (k) no audit or other  administrative or court proceedings are pending with
respect to Taxes of the Company and no notice thereof has been received;  and no
issue has been raised by any taxing authority in any presently  pending or prior
audit that could have a Material  Adverse  Effect on the  Company for any period
after Closing;

     (l) no Claim has been made by a taxing  authority in a  jurisdiction  where
the Company  does not file Tax Returns  that the Company is or may be subject to
taxation in that jurisdiction;

     (m)  the  Company  is not a  party  to any  contract,  agreement  or  other
arrangement  which  provides  for the  payment of any amount  which would not be
deductible by reason of section 280G of the Code; and

     (n) the Company has made available to Buyer true and complete copies of (i)
all federal and California  income Tax Returns of the Company (or the portion of
any affiliated,  unitary or combined Tax Return relating to the Company) for the
preceding  three (3) taxable years,  and (ii) any audit report issued within the
last three (3) years (or  otherwise  with respect to any audit or  proceeding in
progress) relating to Taxes of the Company.

Section 3.16  Employment Matters.

     Except as set forth on Schedule  3.16:  (a) the Retained  Employees are not
the subject  of, and the  Company is not a party to or bound by, any  collective
bargaining, works council or similar agreement; (b) during the three-year period
preceding the date hereof,  there have been no strikes,  grievances or Claims of
unfair  labor  practice  relating to the Retained  Employees;  (c) Seller has no
Knowledge of any organizational  effort presently being made or threatened by or
on behalf of any labor union with respect to the Retained Employees;  (d) during
the three-year  period preceding the date hereof,  there has not been, and there
is not presently pending or existing or, to Seller's Knowledge,  threatened, any
strike,  work  stoppage,  labor  arbitration  or  proceeding  in  respect of the
grievance of any Retained  Employee,  any  application  or complaint  filed by a
Retained  Employee  or union  with the  National  Labor  Relations  Board or any
comparable  Governmental Entity,  organizational activity or other labor dispute
relating to the Retained  Employees;  (e) no application for  certification of a
collective  bargaining  agent is pending or, to Seller's  Knowledge,  threatened
with respect to the Retained Employees;  (f) there is no lockout of any Retained
Employees;  (g) there are no Claims currently pending or, to Seller's Knowledge,
threatened,  against the Company  alleging the violation of any Laws relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours,  benefits,  collective  bargaining,  the payment of social  security  and
similar Taxes,  occupational safety and health and plant closing,  including the
Americans with Disabilities Act, the Immigration Reform and Control Act, and the
Worker  Adjustment and Retraining  Notification Act  (collectively,  "Employment
Laws"), or any other Claim whatsoever,  whether based in tort,  contract or Law,
arising  out of or  relating  in any way to a  Person's  employment  (actual  or
alleged),  application  for  employment or  termination  of employment  with the
Company;  (h) since  October 10,  2000,  with  respect to  employees  performing
services  for the  Company,  Seller  has been in  material  compliance  with all
applicable  Employment  Laws;  (i) the Company and, with respect to the Retained
Employees,  the  Seller,  have not been found  liable for the  payment of Taxes,
fines,  penalties or other amounts,  however  designated,  for failure to comply
with any Employment Laws in connection  with the operation of the business;  (j)
the  jurisdictions  in which the Company or Seller had persons  employed for the
operation of the  Company's  business as of June 29, 2002 are listed on Schedule
3.16; and (k) as a result of the Employee Leasing  Agreement  between Seller and
the Company  dated  October 11, 2000 (the  "Employee  Leasing  Agreement"),  the
Company does not have any employees and, since October 10, 2000, the Company has
not had any employees.

Section 3.17  Benefits Arrangements.

     (a) The Company does not sponsor or maintain any employee benefit plans and
policies,  whether written or oral, under which any employee or former employee,
or any beneficiary of any employee or former employee,  of the Company,  Seller,
or any ERISA Affiliate, has any present or future right to benefits,  including,
without  limitation,  (i) any  "employee  benefit  plan"  (within the meaning of
section 3(3) of ERISA); (ii) any profit-sharing,  deferred compensation,  bonus,
stock  option,  stock  purchase,  pension,  retainer,  consulting,   retirement,
severance,  welfare or incentive plan,  agreement or  arrangement;  or (iii) any
plan, agreement or arrangement providing for "fringe benefits" or perquisites to
employees,  officers,  directors  or  agents,  including  benefits  relating  to
automobiles,  clubs, vacation,  child care, parenting,  sabbatical,  sick leave,
medical, dental,  hospitalization,  life insurance and other types of insurance.
The Company is not a party to any collective bargaining,  employment,  severance
or other similar agreements.

     (b)  Neither  Seller,  the  Company,  nor  any  ERISA  Affiliate  has  ever
sponsored,  maintained,  incurred  any  obligations  with  respect  to,  or made
contributions  to any employee  benefit  plans or policies,  including,  without
limitation,  (i) any "employee benefit plan" (within the meaning of section 3(3)
of ERISA); (ii) any profit-sharing,  deferred compensation, bonus, stock option,
stock purchase, pension, retainer, consulting, retirement, severance, welfare or
incentive  plan,  agreement  or  arrangement;   (iii)  any  plan,  agreement  or
arrangement  providing  for  "fringe  benefits"  or  perquisites  to  employees,
officers,  directors  or agents,  including  benefits  relating to  automobiles,
clubs, vacation, child care, parenting, sabbatical, sick leave, medical, dental,
hospitalization, life insurance and other types of insurance, whether written or
oral, under which the Company has any Liability,  and Seller has no Knowledge of
any event or  condition  that  could  reasonably  be  expected  to result in any
Liability.  Neither Seller, the Company, nor any ERISA Affiliate has ever been a
party to any collective bargaining,  employment or severance agreements or other
similar  arrangements,  whether written or oral, under which the Company has any
Liability,  and Seller has no  Knowledge  of any event or  condition  that could
reasonably be expected to result in any such Liability.

     (c) Without  limiting  the  foregoing,  the Company has no  Liability,  and
Seller has no  Knowledge  of any event or  condition  that could  reasonably  be
expected to result in any such  Liability,  with  respect to any plan subject to
Title IV of ERISA or section 412 of the Code, any  "multiemployer  plan" (within
the meaning of section 3(37) of ERISA), any "multiple employer plan" (within the
meaning of section 3(40) of ERISA or section  413(c) of the Code),  a "voluntary
employees' beneficiary  association" (within the meaning of Section 501(c)(9) of
the Code), or a "multiple employer welfare  arrangement"  (within the meaning of
Section 3(40)(A) of ERISA).

     (d) Without  limiting  the  foregoing,  the Company has no  Liability,  and
Seller has no  Knowledge  of any event or  condition  that could  reasonably  be
expected to result in any such Liability,  relating to COBRA with respect to any
events occurring prior to and including the Closing Date.

     (e) The Company has no assets  subject to (or expected to be subject to) an
Encumbrance under ERISA or the Code.

Section 3.18  Environmental Matters.

     (a) Except with respect to the Seller Retained Assets and Liabilities,  the
Company has complied in all material respects with all  Environmental  Laws, and
no Claim or  investigation  has been  filed or  commenced  against  the  Company
alleging such failure, nor does Seller have any Knowledge of any valid basis for
such a Claim.

     (b) Except as set forth in Schedule 3.18 and for the Seller Retained Assets
and Liabilities,  to Seller's  Knowledge,  the Company has no Liability (and the
Company has not handled,  used,  stored,  recycled or disposed of any  Hazardous
Substance,  arranged for the disposal of any  Hazardous  Substance,  exposed any
employee or other Person to any Hazardous Substance or hazardous  condition,  or
owned or operated  any  property  or  facility in any manner,  in each case that
could  reasonably  be expected to form the basis for any present or future Claim
or investigation giving rise to any such Liability) for damage or remediation to
any  site,  location  or  body of  water  (surface  or  subsurface),  under  any
Environmental Law.

Section 3.19  Insurance.

     Schedule  3.19  lists all  third  party  insurance  policies  covering  the
ownership  and  operations  of the  business  or any  of the  Company's  assets,
reflecting  the identity of  insurers,  amounts and  coverage.  Such third party
policies  are in full force and  effect.  All of such third party  policies,  or
similar  replacement  policies,  will be until  Closing in full force and effect
with no premium arrearages.

Section 3.20  Conduct of Business.

     (a) Since March 31, 2002,  except as set forth on Schedule  3.20(a),  there
has not occurred any event,  condition  or change in the  operations,  condition
(financial  or  otherwise)  or assets of the Company that has had, or could at a
later date have, a Material Adverse Effect on the Company.  Without limiting the
generality  of the  foregoing,  since  March  31,  2002,  except as set forth on
Schedule 3.20(a) or as otherwise contemplated by this Agreement, the Company has
not:

(i) sold,  leased,  transferred,  assigned  or acquired  any assets  outside the
Ordinary Course;

(ii) entered into any Material Contract;

(iii) accelerated,  terminated,  modified or canceled a Material Contract except
in the Ordinary  Course,  or  materially  modified its backlog;  and to Seller's
Knowledge, no other party has done so as a result of any default by the Company;

(iv) made any capital  expenditure (or series of related  capital  expenditures)
involving more than Ten Thousand Dollars ($10,000);

(v) made any  capital  investment  in,  any loan to, or any  acquisition  of the
securities or assets of, any other Person;

(vi) issued any note, bond or other debt security or created,  incurred, assumed
or guaranteed any indebtedness or capitalized lease obligation, other than trade
payables incurred in the Ordinary Course;

(vii)  incurred,  created or assumed any  Encumbrance on any assets,  other than
Permitted Encumbrances or in the Ordinary Course;

(viii) canceled, compromised, waived or released any material right or Claim (or
series of related rights and Claims) outside the Ordinary Course;

(ix) disposed of, licensed or permitted to lapse any rights in material  Company
Intellectual Property outside the Ordinary Course;

(x) experienced any material damage, destruction or loss to its assets, taken as
a whole, not covered by insurance;

(xi) made any change of accounting or accounting practice, procedure or policy;

(xii)  failed to maintain  its assets in as good  working  order and  condition,
ordinary wear and tear excepted;

(xiii)  failed  to keep in full  force and  effect  any  third  party  insurance
policies set forth on Schedule 3.19;

(xiv)  amended its  articles of  incorporation,  by-laws or any other  governing
instrument or document;

(xv) split, combined or reclassified any shares of its capital stock,  declared,
set aside or paid any dividend or other  distribution  (whether in cash,  stock,
property  or any  combination  thereof)  in respect  of its  capital  stock,  or
redeemed, repurchased or otherwise acquired any of its securities;

(xvi)  issued,  granted or sold any shares of its capital  stock or other equity
interest,  or any options,  warrants or other rights to purchase any such shares
or interests or securities convertible into or exchangeable therefor;

(xvii)  acquired (by merger,  consolidation,  or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof;

(xviii)  settled  any  Claims  for  amounts  in excess of Ten  Thousand  Dollars
($10,000) individually or in the aggregate;

(xix) granted any increase in the base  compensation of any employee or made any
other change in the employment terms,  compensation or benefits of any employee,
director, officer or independent contractor, other than in the Ordinary Course;

(xx) made any changes in its general pricing practices or policies or any change
in its credit allowance practice or policies; or

(xxi) entered into any written or oral commitment to do any of the foregoing.

     (b) Since March 31, 2002,  except as contemplated by Section  3.20(a),  the
Company has operated the  business in the  Ordinary  Course,  and Seller and the
Company  have used  commercially  reasonable  efforts to preserve  the  business
intact and to preserve the Company's  relationship  with licensors,  developers,
consultants,  remarketers,  suppliers,  distributors,  customers,  employees and
others having regular business relations with the Company.

Section 3.21  Related-Party Transactions.

     Except as set forth in  Schedule  3.21,  the  Company is not a party to any
Contract  with,  or  any  other  commitment  to,  directly  or  indirectly,  any
shareholder, director or officer of the Company.

Section 3.22  Finders' Fees.

     There is no investment banker, broker, finder or other intermediary who has
been  retained by or is authorized to act on behalf of Seller or the Company who
might be entitled to any fee or  commission  from Buyer in  connection  with the
Transaction.

Section 3.23  Adequacy of Assets of the Company.

     Except for the Seller  Retained  Assets and  Liabilities  and the items set
forth in  Schedule  3.23,  the  properties,  assets and rights of the Company at
Closing,  together with the rights granted to Buyer pursuant to the Intellectual
Property  Agreement  and the Patent Cross  License  Agreement,  will include all
properties,  assets and rights used by the Company to  manufacture  and sell the
Products as of the Closing Date. In the event that this Section 3.23 is breached
because Seller has failed to identify any such  property,  assets or rights used
by the Company to manufacture  and sell the Products,  to the extent Seller owns
and/or is permitted to transfer such property, asset or right, Seller shall cure
such  breach  by  promptly  transferring  such  property,  asset or right to the
Company, and Buyer shall have no further remedy with respect thereto.

Section 3.24  Disclosure.

     To Seller's  Knowledge,  the  provisions of this  Agreement with respect to
Seller and the Company do not include any untrue  statements of material fact or
omit to state any material fact necessary in order to make the  statements  made
herein about Seller and the Company not misleading.

              ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER

     As of the date hereof, Buyer represents and warrants to Seller as follows:

Section 4.1  Organization and Power.

     Buyer  is a  corporation  duly  organized,  validly  existing  and in  good
standing  under  the Laws of the  State of  Delaware.  Buyer  has all  requisite
corporate power and authority to own, lease and operate its assets, and to carry
on its business as now being conducted.

Section 4.2  Authorization.

     Buyer has full  corporate  power and  authority to execute and deliver this
Agreement and each Ancillary Agreement, and to perform its obligations hereunder
and  thereunder.  The  execution,  delivery  and  performance  by  Buyer of this
Agreement and each Ancillary  Agreement have been duly and validly authorized by
all necessary corporate action on the part of Buyer, and no additional corporate
authorization or consent is required in connection therewith.

Section 4.3  Governmental Approvals.

     No consent,  approval,  waiver, or authorization is required to be obtained
by Buyer  from,  and no notice or filing is  required to be given by Buyer to or
made by Buyer with, any  Governmental  Entity in connection  with the execution,
delivery and performance by Buyer of this Agreement and each Ancillary Agreement
and the consummation of the Transaction.

Section 4.4  Non-Contravention.

     Except  as  set  forth  on  Schedule  4.4,  the  execution,   delivery  and
performance  by Buyer of this Agreement and each  Ancillary  Agreement,  and the
consummation of the Transaction,  do not and will not: (a) violate any provision
of the certificate of incorporation, bylaws or other organizational documents of
Buyer;  (b) conflict  with,  or result in the breach of, or constitute a default
under, or result in the termination, cancellation or acceleration (whether after
the filing of notice or the lapse of time or both) of any right or obligation of
Buyer under, any agreement, contract, lease, sublease,  arrangement,  commitment
or license to which Buyer is a party or by which any of its assets is bound;  or
(c)  violate  or result in a breach of or  constitute  a default  under any Law,
judgment,  injunction,  order,  decree or other  restriction of any Governmental
Entity to which Buyer is subject.

Section 4.5  Binding Effect.

     This Agreement and each Ancillary Agreement, when executed and delivered by
Buyer and Seller (assuming such agreements  constitute valid and legally binding
obligations of Seller), will constitute valid and legally binding obligations of
Buyer,  enforceable  against Buyer in accordance  with their  respective  terms,
subject to bankruptcy, insolvency,  reorganization,  moratorium and similar Laws
of general  applicability  relating  to or  affecting  creditors'  rights and to
general equity principles.

Section 4.6  Finders' Fees.

     No broker, investment banker, financial advisor or other person, other than
Harris  Williams  & Co.,  is  entitled  to  any  broker's,  finder's,  financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement.

Section 4.7  Financing.

     On the Closing Date,  Buyer will have  sufficient  funds to consummate  the
Transaction and to perform its obligations hereunder.

Section 4.8  Disclosure.

     To Buyer's  knowledge,  the  provisions of this  Agreement  with respect to
Buyer do not include any untrue  statements  of a material fact or omit to state
any material fact  necessary in order to make the  statements  made herein about
Buyer not misleading.

                     ARTICLE V. COVENANTS AS TO TAX MATTERS

Section 5.1  Transfer Taxes.

     Buyer and Seller  shall each be  responsible  for  one-half  of any excise,
sales, use, value added,  transfer  (including real property transfer or gains),
stamp,  documentary,  filing,  recordation and other similar Taxes and fees that
may be  imposed or  assessed  solely as a result of the  transfer  of the Shares
pursuant to this Agreement,  together with any interest,  additions or penalties
with respect thereto and any interest in respect of such additions or penalties;
provided,  however, that Seller shall be responsible for any excise, sales, use,
value  added,  transfer  (including  real  property  transfer or gains),  stamp,
documentary,  filing,  recordation  and other similar Taxes and fees that may be
imposed or assessed solely as a result of the transfers  contemplated by Section
2.1(a) hereof.

Section 5.2  Liability for Taxes.

     (a) Seller shall be liable for and pay,  and agrees to  indemnify  and hold
harmless  Buyer and the  Company  against  any and all Taxes (i)  imposed on the
Company pursuant to Treasury Regulation Section 1.1502-6 or similar provision of
state or local law solely as the result of the  Company  having been a member of
the Seller's  consolidated  group, or (ii) imposed on the Company,  or for which
the Company may  otherwise  be liable for any taxable year or period (or portion
thereof) that ends on or before the Closing Date (the "Pre-Closing Tax Period"),
other than any Taxes arising on the Closing Date from any actions taken by or at
the request of Buyer following  Closing.  Seller shall be entitled to any refund
of,  or credit  for,  Taxes  allocable  to any  Pre-Closing  Tax  Period  which,
notwithstanding anything to the contrary, shall include Tax refunds or other Tax
benefits  attributable to options to acquire stock of Seller held at any time by
Retained  Employees  (including,  but not  limited  to, Tax refunds or other Tax
benefits  attributable to the  disposition of shares  acquired  pursuant to such
options).

     (b) Buyer  shall be liable for and pay,  and agrees to  indemnify  and hold
harmless  Seller from and against any and all Taxes  imposed on the Company,  or
for which the Company may  otherwise  be liable,  for any taxable year or period
(or portion thereof) that begins after the Closing Date (the  "Post-Closing  Tax
Period").  Except as otherwise  provided in this Agreement  (including,  but not
limited to, Section 5.6(c)), Buyer shall be entitled to any refund of (or credit
for) Taxes allocable to any Post-Closing Tax Period.

     (c) For  purposes of Sections  5.2(a) and (b),  whenever it is necessary to
determine  the  liability  for Taxes (other than the Taxes  described in Section
5.2(d)) of the Company for a taxable year or period that begins  before and ends
after the Closing Date (a "Straddle Period"),  the determination of the Taxes of
the Company for the portion of such Straddle Period ending on and including, and
a portion of such Straddle  Period  beginning  after,  the Closing Date shall be
determined  by assuming  that such period  consisted of two (2) taxable years or
periods, one of which ended at the close of business on the Closing Date and the
other which began at the beginning of the day  following  the Closing Date,  and
items of income, gain, deduction,  loss or credit of the Company for such period
shall be allocated  between such two (2) taxable  years or periods on a "closing
of the books basis" by assuming that the books of the Company were closed at the
close of the Closing Date;  provided,  however,  that exemptions,  allowances or
deductions  that are  calculated on an annual  basis,  such as the deduction for
depreciation, shall be apportioned between such two (2) taxable years or periods
on a daily basis.

     (d) All  personal  and  business  property  Taxes and  similar  ad  valorem
obligations  levied with respect to the Company for any Straddle Period shall be
apportioned  between Seller and Buyer as of the Closing Date based on the number
of days of such Straddle  Period  included in the Pre-Closing Tax Period and the
number of days of such Straddle Period included in the  Post-Closing Tax Period.
Seller  shall be  liable  for the  proportionate  amount of such  Taxes  that is
attributable to the  Pre-Closing  Tax Period,  and Buyer shall be liable for the
proportionate  amount of such Taxes that is attributable to the Post-Closing Tax
Period. Within a reasonable period after Closing, Seller and Buyer shall present
a statement to the other setting forth the amount of reimbursement to which each
is entitled under this Section 5.2(d), together with such supporting evidence as
is reasonably  necessary to calculate the proration amount. The proration amount
shall be paid by the party  owing it to the  other  within  ten (l0) days  after
delivery of such statement.  Thereafter,  Seller shall notify Buyer upon receipt
of any bill for personal property taxes relating to the Company,  part or all of
which are  attributable  to the  Post-Closing  Tax  Period,  and shall  promptly
deliver  such bill to Buyer who  shall  pay the same to the  appropriate  taxing
authority,  provided  that if such bill covers any part of the  Pre-Closing  Tax
Period,  Seller  shall also remit prior to the due date of  assessment  to Buyer
payment for the  proportionate  amount of such bill that is  attributable to the
Pre-Closing  Tax  Period.  In the  event  that  either  Seller  or  Buyer  shall
thereafter make a payment for which it is entitled to  reimbursement  under this
Section 5.2(d), the other party shall make such reimbursement  promptly,  but in
no event later than ten (10) days after the presentation of a statement  setting
forth the amount of  reimbursement  to which the  presenting  party is  entitled
along with such supporting evidence as is reasonably  necessary to calculate the
amount of reimbursement.  Any payment required under this Section 5.2(d) and not
made within ten (10) days after delivery of the statement shall bear interest at
the rate per annum  determined,  from  time to time,  under  the  provisions  of
Section 6621(a)(2) of the Code for each day until paid.

Section 5.3  Tax Returns.

     (a) Seller  will file or cause to be filed when due all Tax  Returns  which
are due to be  filed  on or prior  to the  Closing  Date  and any  consolidated,
unitary  income Tax Returns of the Company  for the  taxable  periods  beginning
before and ending on the Closing  Date,  or otherwise  ending as a result of the
Closing.  Buyer will file or cause to be filed when due all other Tax Returns of
the Company due to be filed after the Closing Date.

     (b) If any party is liable  hereunder  for any portion of the Tax shown due
on any Tax Return  required to be filed by any other party,  the party preparing
such Tax Return will deliver a copy of the relevant  portions of such Tax Return
to the party so liable for its review and  approval  not less than  thirty  (30)
days prior to the date on which such Tax Return is due to be filed  (taking into
account any applicable extensions),  together with a statement showing the other
party's  obligations for Taxes relating to such Tax Return,  which shall be paid
within the times,  and shall accrue  interest if not timely paid, as provided in
Section 5.2(d). If the parties disagree as to any item reflected on any such Tax
Return,  the parties will jointly request  Accountants,  to resolve any issue in
dispute as promptly as possible.  The decision of Accountants  will be final and
binding on the parties,  and the expenses of Accountants  will be shared equally
by Seller and Buyer.

Section 5.4  Information to be Provided by Buyer.

     With respect to Tax Returns to be filed by Seller  pursuant to Section 5.3,
Buyer will within  thirty (30) days prior to the due date  (taking  into account
extensions)  prepare  and  provide  to  Seller  a  package  of  tax  information
materials,  that will be completed in accordance  with past practice,  including
past practice as to providing the information,  schedules and work papers and as
to the  method of  computation  of  separate  taxable  income or other  relevant
measures  of income to the extent  necessary  to  prepare  Tax  Returns  for the
pre-Closing periods.

Section 5.5  Contests.

     Each of Buyer and Seller  will  promptly  notify the other in writing  upon
receipt  of notice of any  pending  or  threatened  audits or  assessments  with
respect  to Taxes of the  Company  for which  such  other  party (or such  other
party's  Affiliates)  may be liable  hereunder.  Seller or Buyer, as applicable,
will be entitled to participate at its own expense in the defense of, and at its
option, take control of the complete defense of, any Tax audit or administrative
or court proceeding  relating to Taxes for which it may be liable, and to employ
counsel  of its  choice at its  expense;  provided,  however,  that the audit or
proceeding  will be  controlled by that party which would bear the burden of the
greater  portion  of the sum of the  adjustment  plus  any  adjustment  that may
reasonably be  anticipated  for one or more future  taxable  periods.  Buyer and
Seller will cooperate on a reasonable  basis to enable the party  controlling an
audit  or  proceeding  to  take  all  actions  with  respect  to such  audit  or
proceeding.  Neither party may agree to settle any Claim for Taxes for which the
other may be liable without the prior written consent of such other party, which
consent will not be unreasonably withheld.

Section 5.6  Post-Closing Events that Affect Seller's Liability for Taxes.

     (a) Except to the extent  required by Law,  Buyer and its  Affiliates  will
not,  without the prior  written  consent of Seller,  which  consent will not be
unreasonably  withheld,  amend any Tax  Return  filed by or with  respect to the
Company for any taxable period, or portion thereof, beginning before the Closing
Date.

     (b) Buyer  shall  undertake  to cause the  Company  to make an  irrevocable
election  under  Section  172(b)(3)  of the Code and,  if  applicable,  Treasury
Regulation  Section  1.1502-21(b)(3)(ii)(B)  to relinquish,  with respect to all
consolidated  net operating losses  attributable to the Company,  the portion of
the carryback  period for which the Company was a member of Seller's  affiliated
group.

     (c) In the event of (i) an  adjustment to any income Tax Return filed prior
to Closing or filed in accordance  with the procedures set forth in this Article
V that (A) changes the Tax Liability of Seller  attributable  to its interest in
the  Company for a  Pre-Closing  Tax  Period,  and (B) results in a  correlative
change  in  the  reasonably  anticipated  Tax  Liability  of the  Company  for a
Post-Closing  Tax Period or (ii) an  adjustment  to the income Tax Return of the
Company that (A) changes the Tax Liability of the Company for a Post-Closing Tax
Period, and (B) results in a correlative  adjustment to the Tax Liability of the
Seller for a Pre-Closing  Tax Period (such  adjustment  in Tax  Liability  being
referred to as a "Pre-Closing Tax Adjustment,"  where related to the Pre-Closing
Tax  Period,  and as a  "Post-Closing  Tax  Adjustment,"  where  related  to the
Post-Closing Tax Period):

     (I) in the case of a  Pre-Closing  Tax  Adjustment  that  increases the Tax
Liability  of the  Seller  and gives rise to a  corresponding  Post-Closing  Tax
Adjustment  that  decreases  the  aggregate  Tax  liability of the Company,  the
Company  shall pay  Seller an amount  equal to the  lesser of (x) the  amount by
which Seller's  aggregate Taxes are increased by such Pre-Closing Tax Adjustment
(taking into account any increase in Taxes  resulting from the payment  pursuant
to this clause  (I)(x)),  and (y) the  after-Tax  amount by which the  Company's
aggregate  Taxes are  decreased or refunded  (plus the  after-Tax  amount of any
interest  received with respect to such decrease or refund) by the corresponding
Post-Closing Tax Adjustment; and

     (II) in the  case of a  Post-Closing  Tax  Adjustment  that  increases  the
aggregate  Tax  Liability  of the  Company  and  gives  rise to a  corresponding
Pre-Closing  Tax Adjustment  that decreases the Tax Liability of Seller,  Seller
shall pay to the  Company  an amount  equal to the  lesser of (x) the  amount by
which the  Company's  aggregate  Taxes are  increased by such  Post-Closing  Tax
Adjustment (taking into account any increase in Taxes resulting from the payment
pursuant to this clause (II)(x)), and (y) the after-Tax amount by which Seller's
Taxes are  decreased  or refunded  (plus the  after-Tax  amount of any  interest
received  with  respect  to  such  decrease  or  refund)  by  the  corresponding
Pre-Closing Tax Adjustment.

     In computing the amounts payable  pursuant to this Section 5.6(c),  (i) the
amount of any  Pre-Closing  Tax Adjustment and the amount  referred to in clause
(I)(x) above shall be computed (A) using the maximum Federal and state corporate
income Tax rate  applicable to the relevant  class of income and period,  taking
into  account  the  deductibility  of such state  Taxes for  Federal  income Tax
purposes,  (B) taking  into  account  any  concomitant  increase  or decrease in
Seller's gain on its disposition of the Shares  pursuant to this Agreement;  and
(ii) the amount of any Post-Closing Tax Adjustment and the amount referred to in
clause (II)(x) above shall be computed (A) using the maximum  corporate  Federal
and state  corporate  income Tax rate (including any excise Tax based on income)
applicable to the relevant  class of income and period,  taking into account the
deductibility  of such state Taxes for Federal  income Tax purposes,  (B) taking
into account any  concomitant  increase or decrease in the income of the Company
arising out of such Post-Closing Tax Adjustment, and (C) by treating the Company
as if it filed a separate  company Tax Return and paid its own  Liabilities  for
Taxes.

     An  obligor  under  this  Section  5.6(c)  shall pay the  amount due to any
obligee  hereunder  within  ten  (10)  days of the date on  which  such  obligee
provides  proof  reasonably  satisfactory  to such obligor that such obligee has
paid the taxes arising from the adjustment. In the event a payment is made based
on facts that  subsequently  are determined to have been incorrect,  the parties
shall  adjust  the  payments  hereunder  in  order  to  reflect  the  subsequent
determination.

Section 5.7  Assistance and Cooperation.

     After the Closing  Date:  (a) each party will assist the other in preparing
any Tax  Returns  of the  Company  which  such other  party is  responsible  for
preparing and filing;  (b) each party will cooperate  fully in preparing for any
audits of, or disputes with taxing  authorities  regarding,  any Tax Returns and
payments in respect thereof; (c) each party will make available to the other and
to any taxing  authority as reasonably  requested all relevant Books and Records
relating  to Taxes;  provided,  however,  that in no event  will any party  have
access to the other party's consolidated,  combined or unitary federal, state or
local income Tax Returns;  (d) each party will provide  timely notice in writing
to the others of any pending or proposed  audits or assessments  with respect to
Taxes for which such other  party or any of its  Affiliates  may have  Liability
under this Agreement;  (e) each party will furnish the others with copies of all
relevant  correspondence  received from any taxing  authority in connection with
any audit or  information  request  with  respect  to any Taxes  referred  to in
Section 5.7(d); and (f) the party requesting assistance or cooperation will bear
the other  party's  reasonable  out-of-pocket  expenses in  complying  with such
request to the extent that those  expenses  are  attributable  to fees and other
costs of unaffiliated third party service providers.

                          ARTICLE VI. OTHER COVENANTS

Section 6.1  Further Assurances.

     From the date hereof to the Closing Date, Buyer and Seller shall, and shall
cause their respective Affiliates to, as applicable, use commercially reasonable
efforts  (including  entering  into all  applicable  Ancillary  Agreements  upon
satisfaction of all conditions  related thereto) to cause the Closing conditions
set forth  herein  to be  satisfied  on or prior to the  Closing  Date.  Without
limiting the  generality  of the  foregoing,  the parties will use  commercially
reasonable efforts, and cooperate with each other, to obtain promptly all of the
approvals set forth on Schedule 6.1 hereto (the  "Required  Approvals").  Seller
will  bear and pay the cost of all  filing,  recordation  and  similar  fees and
Taxes, and any additional fees or charges  (howsoever  denominated)  required by
any  Governmental  Entities or other  Persons in connection  with  obtaining any
Required Approval. Subject to the provisions hereof, from time to time after the
Closing Date,  each party will  promptly  execute,  acknowledge  and deliver any
other  assurances  or  documents  reasonably  requested  by  another  party  and
necessary for the other party to satisfy its obligations  hereunder or to obtain
the benefits contemplated hereby.

Section 6.2  Inability to Obtain Required Approvals.

     To the extent that any Required Approval cannot be obtained or made and, as
a result,  the full  benefits  of use of the  Contract  or other  asset  related
thereto will not be received by the Company  following  Closing,  then Buyer and
Seller will  cooperate  with each other and enter into such mutually  agreeable,
reasonable  and lawful  arrangements  (including  subcontracting,  subleasing or
sublicensing,  if permitted) to provide to the parties the economic (taking into
account  all  burdens  and  benefits,  including  Tax  costs and  benefits)  and
operational  equivalent,  to the extent  permitted,  of obtaining or making such
Required Approval.

Section 6.3  Applied Computing Platform Provider Program.

     Seller shall  invite Buyer to  participate  in Seller's  Applied  Computing
Platform  Provider  program on the terms and  conditions  of that  program,  and
Buyer's  participation therein will be subject to Buyer meeting the requirements
of such program.

Section 6.4  Additional Financial Information.

     As soon as reasonably  practicable after the Closing, but in no event later
than October 15,  2002,  Seller shall  provide  Buyer with an unaudited  balance
sheet as of the Closing Date and income  statement of the Company for the period
from January 1, 2002 to the Closing  Date.  In addition,  as soon as  reasonably
practicable  after Closing,  but in no event later than October 28, 2002, Seller
shall  provide  Buyer  with  audited  balance  sheets,   income  statements  and
statements  of cash flow of the Company as of and for the years  ended  December
31, 1999,  2000 and 2001,  including the notes related  thereto.  Such financial
information  shall fairly  present in all  material  respects the results of the
operations of the Company for the period therein stated.  In connection with the
preparation of the audited  financial  information,  Seller shall engage Ernst &
Young LLP and Deloitte & Touche, LLP to review the financial information for the
periods related to their engagement as the Company's independent  accountant and
Seller  shall be  responsible  for the lesser of (i) the actual  fees of Ernst &
Young LLP and Deloitte & Touche,  LLP for the services performed to prepare such
financial  information or (ii) One Hundred  Thousand Dollars  ($100,000).  In no
event  shall  Seller  be  obligated  to pay any fees in  excess  of One  Hundred
Thousand Dollars ($100,000) in connection with the preparation of such financial
information.  In the event that the fees  exceed  such  amount,  Buyer  shall be
responsible for the payment of the balance of any such fees.

Section 6.5  Confidentiality.

     The  parties  understand  and agree that this  Agreement  is subject to the
terms and conditions of the CNDA #5066040 entered into by and between Seller and
Buyer on May 9, 2002,  as amended by the  parties on August 1, 2002  pursuant to
that  Addendum No. 1 (the  "CNDA");  provided  that,  notwithstanding  any other
provision of the CNDA,  the parties agree that the terms and  conditions of this
Agreement will not be disclosed  without the prior written  consent of the other
parties.  In the event that any party hereto  receives a request to disclose all
or any part of any  confidential  information  under  the  terms of a  subpoena,
order,  civil  investigative  demand  or  similar  process  issued by a court of
competent  jurisdiction or by another Governmental Entity, such party agrees to:
(a) immediately notify the party to whom such confidential  information  relates
of the existence,  terms and circumstances surrounding such request, (b) consult
with such party to whom the  information  relates on the  advisability of taking
legally available steps to resist or narrow such request;  and (c) if disclosure
of such  information is required,  furnish only that portion of the confidential
information  that,  in the opinion of counsel to the party who has  received the
request,  such party is legally  compelled  to disclose  and advise the party to
whom such confidential  information relates as far in advance of such disclosure
as possible so that such party to whom the confidential  information relates may
seek  an  appropriate   protective  order  or  other  reliable   assurance  that
confidential  treatment will be accorded such confidential  information.  In any
event,  the party who receives the request shall not oppose actions by the party
to whom the confidential information relates to obtain an appropriate protective
order or other reliable  assurance that confidential  treatment will be accorded
such confidential information.

Section 6.6  Non-Solicitation.

     For a period of one (1) year after the Closing Date, (a) Seller's  Embedded
IA Division (or any successor  division engaged in a substantially  similar line
of  business)  shall not  encourage,  induce or solicit  for  employment  or any
similar  arrangement  any employee of Buyer or any Retained  Employee  who, as a
result of the transactions contemplated by this Agreement, became an employee of
the Company or the Buyer as of the Closing,  and (b) Buyer shall not  encourage,
induce or solicit for  employment  or any similar  arrangement  any  employee of
Seller's  Embedded  IA  Division  (or  any  successor   division  engaged  in  a
substantially  similar line of  business).  Notwithstanding  the  foregoing  (i)
general solicitations of employment published in a journal,  newspaper,  website
or other  publication of general  circulation shall not be deemed a violation of
this Section  6.6,  (ii) Buyer and  Seller's  Embedded IA Division  shall not be
prohibited  from  employing  any  Person  who  contacts  them  on his or her own
initiative and without any direct  solicitation by Buyer or Seller's Embedded IA
Division,  as the case may be, and (iii) Buyer and Seller's Embedded IA Division
shall not be prohibited  from  employing  any Person who has been  terminated by
Seller's  Embedded IA Division  (in the case of the Buyer) or the Company or the
Buyer (in the case of Seller's Embedded IA Division).

Section 6.7  Transition Services.

     Seller or an Affiliate of Seller shall use commercially  reasonable efforts
to perform the transition  services specified on Schedule 6.7 prior to or within
sixty (60) days after the Closing, upon the terms and conditions mutually agreed
by the  parties  therein,  at no cost to Buyer.  In the event that  Seller or an
Affiliate of Seller  performs  such  services for Buyer after the initial  sixty
(60) day period, Seller shall bill Buyer at its actual cost plus a servicing fee
of ten percent (10%) for such services on a monthly basis, which amount shall be
due and  payable  within  thirty  (30)  days of  receipt  of such bill by Buyer;
provided,  however,  that in no event shall  Seller or an Affiliate of Seller be
required  to  provide  to Buyer  any of the  transition  services  specified  on
Schedule 6.7  following the  expiration of the ninety (90) day period  following
the Closing.

Section 6.8  Notification; Updating Schedules.

     From the date  hereof to the  Closing  Date,  each party  shall give prompt
written  notice to the other Parties with respect to any of the  following:  (a)
the occurrence or  non-occurrence  of any event of which it becomes  aware,  the
occurrence   or   non-occurrence   of  which   would  be  likely  to  cause  any
representation  or  warranty  made  by it  contained  in  this  Agreement  to be
materially  untrue or  inaccurate  or prevent  it from  satisfying  its  Closing
obligations;  and (b) any  failure of such party to  materially  comply  with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder.  The applicable  Schedule(s)  shall be deemed  supplemented by any
such  disclosures  that  relate to  occurrences  subsequent  to the date of this
Agreement  (i.e.,  new occurrences  not previously  disclosed in the Schedules),
other than those related to the  transactions  contemplated by the  Contribution
and  Assumption  Agreement;  the  Schedules  shall not be  otherwise  amended or
supplemented by any such disclosures. Such supplements, however, shall be not be
given effect in determining whether the Closing conditions  contained in Article
VII have been satisfied. The satisfaction of such conditions to Closing shall be
based on the Schedules as delivered on the date of this Agreement without regard
to such  supplements.  In the event such  Closing  conditions  are  satisfied or
waived by Buyer or Seller as the case may be, the right of Buyer or  Seller,  as
the case may be, to recover under the indemnity  provisions appearing in Article
VIII of this  Agreement  shall be  determined  based  upon the  Schedules  as so
supplemented,  which  supplements shall be deemed to cure and correct any breach
of the  representations  and warranties  contained in Article III in the case of
Seller  and  Article  IV in the case of Buyer  that  would  have  existed in the
absence thereof. In the case of any such matters disclosed that do not result in
a supplement of the Schedules as specified  above,  the parties will be entitled
to seek recovery  under the indemnity  provisions of Article VIII for any breach
of the representations  and warranties  contained in Article III and Article IV,
as applicable, related to or arising from such matters so disclosed.

Section 6.9  Retained Marks.

     Buyer agrees and acknowledges that no right, title or interest in or to the
"Intel" name or mark or any derivation thereof  (including,  but not limited to,
the fictitious  business name "Intel San Luis Obispo") (the "Retained Marks") is
being  transferred by Seller to Buyer or the Company pursuant to this Agreement,
and that Buyer will not, and Buyer will cause its  Affiliates not to, use any of
the Retained Marks or any name or mark  confusingly  similar  thereto in any way
following the Closing Date.  Buyer further agrees and  acknowledges  that Seller
shall  take  any  and all  commercially  reasonable  actions  to  terminate  the
fictitious business name of "Intel San Luis Obispo" on or prior to Closing or as
soon as practicable thereafter.

Section 6.10  Access to Books and Records and Employees.

     On and after the Closing Date, Seller and its Affiliates may require access
to the Books and  Records of the  Company  and  certain  Retained  Employees  in
connection with certain audit or accounting  questions  involving or relating to
the  Company  prior to Closing.  In such case,  Buyer and its  Affiliates  shall
provide Seller, its Affiliates and their respective  authorized  representatives
reasonable access during normal business hours to the Retained Employees and the
Books and Records of the Company relating to all applicable  periods,  and Buyer
will reasonably cooperate with regard to such access (including, but not limited
to, permitting Seller and its Affiliates to make copies of relevant documents).

Section 6.11  Warranty Service.

     (a)  Following  the Closing  Date,  the  Company or Buyer will  service all
warranty  claims  for  repairs  or  replacements  pursuant  to the  terms of the
purchase order under which the Product was sold ("Required  Service") related to
Products  shipped by Seller or by the Company for its own account or the account
of Seller  prior to the  Closing  Date.  For all  warranty  claims for which the
Company or Seller remains obligated to provide Required Service,  the Company or
Buyer shall  provide  the  Required  Service and  maintain  true,  accurate  and
complete records of all such Required Service. From the Closing Date through the
first  anniversary of the Closing Date, the Company or Buyer shall charge Seller
for the Required  Service provided at the rate Seventy Five Dollars ($75.00) per
hour plus the Company's cost of materials and shall submit an invoice to Seller,
together with any underlying  records,  on a monthly basis.  Upon receipt of the
invoice and records,  Seller will review the same to determine  whether all such
repairs  invoiced to Seller were reasonably  incurred for Required  Service with
respect to Products  shipped by the Company prior to the Closing Date. If Seller
disputes any of the charges,  Seller and Buyer shall  negotiate in good faith to
resolve  any such  disputes.  Seller  shall  pay the  invoices  by the  later of
forty-five  (45) days after the receipt  thereof or fifteen (15) days  following
the resolution of any disputes.

     (b) No later  than one (1)  month  prior to the  first  anniversary  of the
Closing  Date,  Buyer and Seller  shall  negotiate  in good faith to determine a
final payment for any and all Required  Service  related to Products  shipped by
the Company  for its own  account or the account of Seller  prior to the Closing
Date.  Upon  agreement of such payment and the  remittance  thereof by Seller to
Buyer,  Seller shall have no further  obligations  or Liability for any Required
Service.

Section 6.12  Dissolution of Sales Corporation; Termination of Liens.

     Prior to  Closing,  Seller  shall,  and shall  cause the  Company  to,  use
commercially  reasonable  efforts to (a) dissolve  Ziatech FSC, Ltd. and provide
evidence  of such  dissolution  to  Buyer,  and (b)  terminate  the  Encumbrance
represented  by UCC  Financing  Statement no.  9811961038  set forth on Schedule
3.6(b) hereto and provide  evidence of such  termination to Buyer.  In the event
that Seller  cannot  complete the actions  described in the  preceding  sentence
prior to  Closing,  Seller  shall use its  commercially  reasonable  efforts  to
complete such actions as soon as practicable following Closing.

Section 6.13  1099 Reporting Requirements.

     Following  Closing,  Buyer  and,  as  applicable,   the  Company  shall  be
responsible for all Internal  Revenue Service 1099 reporting  matters related to
the  Company  for  the  calendar  year  ending  December  31,  2002,  and  Buyer
acknowledges that neither Seller nor any of its Affiliates shall be obligated to
make any such filings.

                       ARTICLE VII. CONDITIONS TO CLOSING

Section 7.1  Conditions to the Obligations of Buyer and Seller.

     The  obligations  of Buyer and Seller to effect  Closing are subject to the
satisfaction  or waiver  by Buyer and  Seller  prior to  Closing  of each of the
following conditions:

     (a) No Injunctions,  Etc. No Governmental Entity of competent  jurisdiction
will have enacted, issued,  promulgated,  enforced or entered any statute, rule,
regulation, or non-appealable judgment,  decree, injunction or other final order
that is in effect on the Closing Date and  prohibits or prevents  Closing or the
consummation of the Transaction.

     (b) Ancillary Agreements. The parties shall have executed and delivered, or
caused the Company to execute and deliver if applicable, the following Ancillary
Agreements:

(i)      the Intellectual Property Agreement attached hereto as Exhibit A; and

(ii)     the cPCI 2.16 Development Agreement attached hereto as Exhibit B;

(iii)    the Seller and Buyer OEM Letter Agreements attached hereto as Exhibit
         C-1 and C-2, respectively; and

(iv)     the Patent Cross License Agreement attached hereto as Exhibit D.

Section 7.2  Further Conditions to the Obligation of Buyer.

     The obligation of Buyer to effect Closing is subject to the satisfaction or
waiver by Buyer prior to Closing of each of the following further conditions:

     (a) Representations  and Warranties.  The representations and warranties of
Seller  contained  herein  will be true,  correct and  complete in all  material
respects.

     (b) Required  Approvals.  All Required Approvals will have been obtained or
accomplished, as the case may be, and appropriate evidence of the same will have
been delivered to Buyer, or Buyer and Seller shall have entered into alternative
arrangements  to  provide  Buyer  with  the  necessary   economic   benefits  as
contemplated by Section 6.2.

     (c)   Pre-Closing   Transactions.   Evidence  of   completion,   reasonably
satisfactory  to Buyer, of all of the  transactions  contemplated by Article II,
including,  but not limited to, the execution  and delivery of the  Contribution
and Assumption  Agreement attached hereto as Exhibit E, will have been delivered
to Buyer.

     (d) Consent under the Lease. A duly executed  consent of the landlord under
the Lease to the Transaction,  together with an estoppel certificate,  will have
been delivered to Buyer.

     (e)  Acceptance  by Key  Employee.  The Key Employee will have agreed to be
employed by the Company after Closing;  provided that if Buyer knows at any time
prior to Closing that the Key Employee has rescinded  his  acceptance of Buyer's
offer of employment, such condition shall be deemed waived by Buyer unless Buyer
notifies  Seller within  forty-eight  (48) hours of Buyer's receipt of notice of
such rescission that it will not proceed with the Closing.

     (f) Releases of Retained Employees. Seller will have released each Retained
Employee  who is a party to a  Non-Competition  Agreement  with  Seller from the
non-competition  provisions of such  agreement  and  delivered  evidence of such
release to Buyer; provided, however, that all other terms and provisions of such
agreements will remain in full force and effect.

     (g) Additional Closing  Deliveries.  The following will have been delivered
to Buyer:

(i) stock certificates,  together with stock powers or assignments duly executed
in blank by Seller, representing all of the Shares;

(ii) the  original  minute  book of the  Company,  containing  the  articles  of
incorporation and bylaws of the Company,  including all amendments thereto,  the
stock record book and the corporate seal;

(iii) a recent  certificate  of good standing for the Company from the Secretary
of State of California and a bring down of such certificate  dated on or the day
prior to the Closing Date;

(iv) duly  executed  resignations  of all officers and directors of the Company;
and

(v) such  other  instruments  or  documents,  in form and  substance  reasonably
acceptable to Buyer, as may be necessary to effect Closing.

Section 7.3  Further Conditions to the Obligation of Seller.

     The obligation of Seller to effect  Closing is subject to the  satisfaction
or waiver prior to Closing of each of the following further conditions:

     (a) Representations  and Warranties.  The representations and warranties of
Buyer  contained  herein  will be true,  correct and  complete  in all  material
respects.

     (b) Payment.  Buyer will have caused the Purchase  Price to be delivered at
Closing as provided by Section 2.2.

     (c) Additional Closing  Deliveries.  The following will have been delivered
to Seller:

(i) a duly  executed  consent  to  the  Transaction  from  JPMorgan  Chase  Bank
(formerly known as The Chase Manhattan Bank) ("JPMorgan  Chase") pursuant to the
terms of that certain  Credit  Agreement,  dated as of December 30, 1998, by and
between Buyer and JPMorgan Chase; and

(ii) such other  instruments  or  documents,  in form and  substance  reasonably
acceptable to Seller, as may be necessary to effect Closing.

                         ARTICLE VIII. INDEMNIFICATION

Section 8.1  Survival; Limitation on Representations, Warranties.

     (a) The  parties  agree that the  representations,  warranties,  covenants,
agreements  (in  the  case  of  covenants  and  agreements,  to  the  extent  of
performance or  non-performance  prior to the Closing Date) and  indemnification
obligations of the parties contained in this Agreement shall survive the Closing
and  terminate and expire at 5:00 p.m.,  San Francisco  time, on March 31, 2004;
provided,   however,  that  Buyer  shall  be  permitted  to  assert  Claims  for
indemnification  pursuant to this Article VIII until the second  anniversary  of
the  Closing  Date (to the  extent  Buyer  delivers  written  notice  to  Seller
identifying  such  Claim  and the  basis  thereof  with  reasonable  specificity
pursuant to the  applicable  provisions  of this  Agreement  on or prior to such
date) solely for Losses  relating to or arising from Covered  Third Party Claims
(as  defined  below)  or fraud  on the part of  Seller  in  connection  with the
Transaction.  Notwithstanding  anything  herein to the  contrary,  (i)  Seller's
representations  set  forth in  Section  3.15  hereof  shall  survive  until the
expiration  of the  applicable  statute of  limitations  and (ii)  Seller  shall
indemnify  Buyer for any  Losses  related to or  arising  from the  transactions
contemplated  by Section  2.1(a) and Section  2.1(c) hereof  without regard to a
survival period or other limitations.

     (b) Each of the parties hereto agrees that, except for the  representations
and warranties  contained in Article III and Article IV, none of the parties has
made any  representations or warranties and, except for the  representations and
warranties  contained  in  Article  III and  Article  IV,  each  of the  parties
acknowledges that no representations or warranties have been made by, and it has
not relied upon any  representations  or warranties  made by, any of the parties
hereto  or any of  their  respective  officers,  directors,  employees,  agents,
financial  and legal  advisors  or other  representatives  with  respect to this
Agreement  and the  transactions  contemplated  hereby,  and the  documents  and
instruments  referred to herein,  notwithstanding  the delivery or disclosure to
such party or its representatives of any documentation or other information with
respect to any one or more of the foregoing.

Section 8.2  Indemnification by Seller.

     (a) Subject to the provisions of this Article VIII,  Seller will indemnify,
defend and hold harmless Buyer, its Affiliates,  and their respective directors,
officers,  attorneys,  accountants,  agents  and  employees,  and  their  heirs,
successors and assigns  (collectively,  the "Buyer Indemnified  Parties),  from,
against and in respect of all Losses imposed on, sustained, incurred or suffered
by or asserted  against  any of the Buyer  Indemnified  Parties,  relating to or
arising out of any of the following (collectively, "Buyer Losses):

(i)     any breach of any representation or warranty of Seller contained herein;

(ii)    any breach of any covenant or agreement of Seller contained herein;

(iii)   any Taxes payable by the Company for any period  through  and  including
        the Closing Date to the extent set forth in Section 5.2;

(iv)    the transactions contemplated by Section 2.1(a) and 2.1(c);

(v)     actual  out-of-pocket Losses paid  with respect  to Claims  asserted  by
        third  parties related to or arising from  the operation of the  Company
        prior to the Closing Date  ("Covered  Third  Party  Claims");  provided,
        however, that Seller shall not indemnify, defend  or hold  harmless  the
        Buyer Indemnified Parties for any Covered Third Party Claims related  to
        or  arising from  any  (A) Liabilities listed  on  Schedule  8.2(a)(v),
        (B) items disclosed in the disclosure schedules to this Agreement (other
        than items disclosed in the disclosure schedules related to  Section 2.1
        (a)), or (C) Liabilities relating to or arising from  any  conditions or
        set of facts disclosed  in  the disclosure  schedules to this  Agreement
        (other  than items disclosed in  the  disclosure  schedules  related  to
        Section 2.1(a)); and

(vi)    fraud on the part of Seller in connection with the Transaction.

Section 8.3  Indemnification by Buyer.

     (a) Subject to the provisions of this Article VIII,  Buyer will  indemnify,
defend and hold harmless Seller, its Affiliates, and their respective directors,
officers,  attorneys,  accountants,  agents  and  employees,  and  their  heirs,
successors and assigns (collectively,  the "Seller Indemnified Parties"),  from,
against and in respect of any Losses imposed on, sustained, incurred or suffered
by or asserted  against any of the Seller  Indemnified  Parties,  relating to or
arising out of any of the following (collectively, "Seller Losses"):

(i)      any breach of any representation or warranty of Buyer contained herein;

(ii)     any breach of any covenant or agreement of Buyer contained herein;

(iii)    any Taxes payable by the Company for any period after the Closing  Date
         to the extent set forth in Section 5.2; and

(iv)     any Liability of or related to the  Company  to  the  extent  that such
         Liability is solely  attributable  to  an  occurrence  or  circumstance
         arising  after  the  Closing  Date,  except  for   (A)  any  Liability
         contemplated by Section 8.2(a)(iii), and (B) any Liability with respect
         to which, and to the extent that, there was a failure or  breach of any
         representation or warranty,  or  a  breach  or  nonfulfillment  of  any
         covenant or agreement, of Seller contained herein.

Section 8.4  Indemnification Procedures.

     (a) A party claiming  indemnification under this Agreement (an "Indemnified
Party") for any Claim or Claims  asserted by a third  party,  including,  in the
case of Buyer, a Covered Third Party Claim (collectively,  "Third Party Claims")
shall promptly:

(i) notify  the party from whom  indemnification  is sought  (the  "Indemnifying
Party") of any Third-Party  Claim asserted  against the Indemnified  Party which
could give rise to a right of indemnification under this Agreement; and

(ii) transmit to the  Indemnifying  Party a written  notice  ("Third Party Claim
Notice")  describing in reasonable detail the nature of the Third Party Claim, a
copy of all papers  served with  respect to such claim (if any),  an estimate of
the  amount of Losses  attributable  to the Third  Party  Claim,  if  reasonably
possible,  and the basis of the Indemnified  Party's request for indemnification
under this Agreement.

     (b) Within ten (10) days after receipt of any Third Party Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party:

(i) whether the  Indemnifying  Party  disputes  its  potential  liability to the
Indemnified  Party under this  Agreement with respect to such Third Party Claim;
and

(ii) whether the Indemnifying Party desires, at the sole cost and expense of the
Indemnifying  Party,  to defend the  Indemnified  Party against such Third Party
Claim.

     (c) If the  Indemnifying  Party notifies the  Indemnified  Party within the
Election  Period that the  Indemnifying  Party does not  dispute  its  potential
liability  to  the   Indemnified   Party  under  this  Agreement  and  that  the
Indemnifying  Party elects to assume the defense of the Third Party Claim,  then
the  Indemnifying  Party  shall have the right to  defend,  at its sole cost and
expense,  such  Third  Party  Claim  by  all  appropriate   proceedings,   which
proceedings shall be prosecuted  diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying  Party in accordance
with this Section 8.4.  The  Indemnifying  Party shall have full control of such
defense  and  proceedings   including  any  compromise  or  settlement  thereof;
provided,  however,  that any such  compromise or settlement  involving a dollar
amount in excess of the limitations  set forth in Section  8.5(c),  non-monetary
obligations of the Indemnified  Party, or otherwise  having a direct effect upon
its continuing operations or the business shall be subject to the consent of the
Indemnified Party. If requested by the Indemnifying Party, the Indemnified Party
shall, at the sole cost and expense of the  Indemnifying  Party,  cooperate with
the Indemnifying Party and its counsel in contesting any Third Party Claim which
the Indemnifying Party elects to contest,  including,  without  limitation,  the
making of any related  counterclaim against the Person asserting the Third Party
Claim or any  cross-complaint  against any  Person.  The  Indemnified  Party may
participate  in, but not control,  any defense or  settlement of any Third Party
Claim  controlled by the  Indemnifying  Party  pursuant to this Section 8.4 and,
except as provided  above or pursuant to this  Section  8.4,  shall bear its own
costs and expenses with respect to such participation.

     (d) If the Indemnifying  Party fails to notify the Indemnified Party within
the Election Period that the Indemnifying Party elects to defend the Indemnified
Party  pursuant to this  Section  8.4, or if the  Indemnifying  Party  elects to
defend  the  Indemnified  Party  pursuant  to  this  Section  8.4 but  fails  to
diligently  and promptly  prosecute  or settle the Third Party  Claim,  then the
Indemnified Party shall have the right to defend at the sole cost and expense of
the Indemnifying  Party, the Third Party Claim. The Indemnified Party shall have
full  control  of such  defense  and  proceeding;  provided,  however,  that the
Indemnified Party may not enter into, without the Indemnifying  Party's consent,
which  shall  not  be  unreasonably  withheld  or  delayed,  any  compromise  or
settlement of such Third Party Claim. The Indemnifying Party may participate in,
but not control,  any defense or settlement  controlled by the Indemnified Party
pursuant to this  Section  8.4,  and the  Indemnifying  Party shall bear its own
costs and expenses with respect to such participation.

     (e) In the  event an  Indemnified  Party  should  have a Claim  against  an
Indemnifying  Party  hereunder  which does not involve a Third Party Claim,  the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity  Notice") describing in reasonable detail the nature of the Claim, an
estimate of the amount of Losses  attributable  to such Claim,  the basis of the
Indemnified  Party's  request for  indemnification  under this Agreement and the
amount for which a Claim for  indemnification  is made,  taking into account the
limitations set forth in Section 8.5. If the Indemnifying  Party does not notify
the Indemnified  Party within thirty (30) days from its receipt of the Indemnity
Notice that the  Indemnifying  Party disputes such Claim, the Claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a Liability of the
Indemnifying Party hereunder. If the Indemnifying Party has timely disputed such
Claim, as provided above,  such dispute shall be resolved in accordance with the
dispute resolutions provisions set forth in Section 9.7 of this Agreement.

     (f) The failure to provide  notices  required by this Section 8.4 shall not
excuse any party from its continuing obligations  hereunder;  however, any Claim
shall be reduced by the Losses  resulting  from such party's delay or failure to
provide notice as required by this Section 8.4.

Section 8.5  Indemnification Limitations.

     (a) No Claim for indemnification  under this Article VIII shall be asserted
by  any   Indemnified   Party  after  the  expiration  and  termination  of  the
representations,   warranties,   covenants,   agreements   and   indemnification
obligations as described in, or otherwise contemplated by, Section 8.1.

     (b) No Indemnifying  Party shall have any Liability  hereunder to indemnify
the Indemnified  Party for Buyer Losses or Seller Losses,  as applicable,  until
the aggregate amount of Buyer Losses or Seller Losses, as applicable, exceed One
Hundred Thousand Dollars  ($100,000) in which event the Indemnified  Party shall
be entitled to indemnification for all such Losses.

     (c) The aggregate  indemnification  obligation of Seller or Buyer hereunder
for Buyer Losses (other than Buyer Losses  described in the following  sentence)
or Seller  Losses,  as  applicable,  shall not exceed Two Million  Five  Hundred
Thousand  Dollars  ($2,500,000).  Notwithstanding  the foregoing,  the aggregate
indemnification  obligation of Seller hereunder for actual  out-of-pocket  Buyer
Losses  related to or arising  from  Sections  8.2(a)(v) or  8.2(a)(vi)  hereof,
together with all other Buyer Losses described in the preceding sentence,  shall
not exceed Ten Million Dollars ($10,000,000).

     (d) Such limitations shall not apply to any indemnification for a breach of
Section  3.22 by Seller or  pursuant  to  Sections  8.2(a)(iii),  8.2(a)(iv)  or
8.3(a)(iii).

Section 8.6  Adjustment for Insurance Benefit.

     Any  indemnification  payable in accordance with this Article VIII shall be
net of any  amounts  actually  recovered  (after  deducting  related  costs  and
expenses) by the Indemnified Party for the Losses for which such indemnification
payment is made under any  insurance  policy,  warranty  or  indemnity  from any
Person other than a party hereto.

Section 8.7  Exclusive Remedy.

     Without  limiting any rights of any party to bring an action for injunctive
relief as contemplated  by Section  9.7(b),  the rights of the parties to assert
indemnification  claims and receive  indemnification  payments  pursuant to this
Article  VIII will be the sole and  exclusive  right and remedy  exercisable  by
Buyer  Indemnified  Parties and Seller  Indemnified  Parties with respect to any
Claims arising under this Agreement. Notwithstanding the foregoing, in the event
Seller breaches its representation in Section 3.23 with respect to any property,
assets or rights used by the Company to manufacture  and sell the Products as of
the Closing Date, to the extent Seller owns and/or is permitted to transfer such
property, asset or right, Seller shall cure such breach by promptly transferring
such  property,  asset or right to the Company,  and Buyer shall have no further
remedy with respect thereto.

                           ARTICLE IX. MISCELLANEOUS

Section 9.1  Notices.

     All notices and other communications pursuant to this Agreement shall be in
writing and shall be deemed given if delivered personally,  telecopied,  sent by
nationally-recognized  overnight  courier or mailed by  registered  or certified
mail  (return  receipt  requested),  postage  prepaid,  to  the  parties  at the
addresses  set forth below or to such other  address as the party to whom notice
is to be given may have  furnished  to the other  parties  hereto in  writing in
accordance  herewith.  Any such notice or communication  shall be deemed to have
been delivered and received (a) in the case of personal delivery, on the date of
such delivery,  (b) in the case of telecopier,  on the date sent if confirmation
of receipt is received and such notice is also promptly  mailed by registered or
certified   mail   (return   receipt   requested),   (c)  in  the   case   of  a
nationally-recognized  overnight  courier  in  circumstances  under  which  such
courier  guarantees  next business day delivery,  on the next business day after
the date when sent and (d) in the case of  mailing,  on the third  business  day
following  that on which  the piece of mail  containing  such  communication  is
posted:

If to Buyer:               Performance Technologies Incorporated
                           205 Indigo Creek Drive
                           Rochester, New York 14626
                           Attention:  Chief Financial Officer
                           Fax: (585) 256-3520

with a copy to:            Harter, Secrest & Emery LLP
                           1600 Bausch & Lomb Place
                           Rochester, New York 14604
                           Attention:  Jeffrey H. Bowen, Esq.
                           Fax: (585) 232-2152

If to Seller:              Intel Corporation
                           2200 Mission College Boulevard
                           Santa Clara, California 95052
                           Attention:  Treasurer
                           Fax: (408) 765-8871

and:                       Intel Corporation
                           2200 Mission College Boulevard
                           Santa Clara, California 95052
                           Attention:  General Counsel
                           Fax: (408) 765-1859

with a copy to:            Weil, Gotshal & Manges LLP
                           201 Redwood Shores Parkway
                           Redwood Shores, California 94065
                           Attention:  Richard Millard, Esq.
                           Fax: (650) 802-3100

Section 9.2  Amendment; Waiver.

     Any provision of this  Agreement may be amended or waived if such amendment
or waiver is in writing and signed,  in the case of an  amendment,  by Buyer and
Seller,  or in the case of a waiver,  by the party against whom the waiver is to
be effective. No failure or delay by any party in exercising any right, power or
privilege  hereunder  will  operate as a waiver  thereof  nor will any single or
partial  exercise  thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.

Section 9.3  No Assignment or Benefit to Third Parties.

     No party may assign any of its rights or  delegate  any of its  obligations
under this  Agreement,  by  operation  of Law or  otherwise,  without  the prior
written  consent of the other  party,  and any attempt to assign this  Agreement
without  such  consent  will be void and of no force or effect.  Nothing in this
Agreement,  express or implied, is intended to confer upon any Person other than
Buyer,  Seller or the Indemnified  Parties,  or their  respective  successors or
permitted assigns,  any rights or remedies under or by reason of this Agreement.
Without  limiting the  generality of the  foregoing,  nothing in this  Agreement
creates any rights in any employees or groups of employees.

Section 9.4  Expenses.

     Except as otherwise  expressly  provided by this Agreement,  whether or not
the  Transaction is consummated,  all costs and expenses  incurred in connection
with this Agreement and the Transaction will be borne by the party incurring the
same.

Section 9.5  Schedules and Exhibits, Etc.

     Buyer's rights to  indemnification  or other remedies provided hereby based
on any  breach by  Seller  of its  representations,  warranties,  covenants  and
agreements will not be affected by any investigation  conducted with respect to,
or any knowledge  acquired (or capable of being  acquired) by Buyer at any time,
whether  before or after the  execution  and  delivery of this  Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of or compliance  with,
any such  representation,  warranty,  covenant or  agreement.  The due diligence
review conducted by Buyer and its representatives will not relieve Seller of any
duties  concerning  its  representations,  warranties,  covenants or  agreements
contained in this Agreement or in any Ancillary Agreement.

Section 9.6  Governing Law.

     This  Agreement  will be governed by and construed in  accordance  with the
Laws of the State of Delaware  without  regard to its principles of conflicts of
laws.

Section 9.7  Dispute Resolution.

     (a) All disputes arising directly under the express terms of this Agreement
shall be  resolved  as  follows:  The senior  management  of the  parties to the
dispute shall meet to attempt to resolve such disputes.  If the disputes  cannot
be  resolved  by the  senior  management  of the  parties,  any party may make a
written  demand for formal dispute  resolution and specify  therein the scope of
the  dispute.  Within  thirty  (30) days after such  written  notification,  the
parties  agree to meet for one (1) day with an  impartial  mediator and consider
dispute resolution alternatives other than litigation.  If an alternative method
of dispute  resolution  is not agreed upon within thirty (30) days after the one
(1) day mediation, either party may begin litigation proceedings.

     (b)  Notwithstanding  the  provisions of Section  9.7(a) above,  each party
shall have the right,  without the requirement of first seeking a remedy through
mediation,  to seek  preliminary  injunctive  or other  equitable  relief in any
proper  court in the event  that such party  determines  that  eventual  redress
through mediation will not provide a sufficient remedy for any violation of this
Agreement by any other party.

     (c) In the event a  proceeding  is  brought to  enforce  or  interpret  any
provision of this Agreement,  the prevailing  party shall be entitled to recover
reasonable  attorneys'  fees and  costs in an amount to be fixed by the court or
arbitrator, as applicable.

Section 9.8  Submission to Jurisdiction; Waiver of Jury Trial.

     (a) The parties hereby irrevocably submit to the jurisdiction of the courts
of the State of Delaware and the Federal  courts of the United States of America
located in the State of  Delaware  solely in respect of the  interpretation  and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement,  and in respect of the transactions  contemplated hereby, and
hereby waive,  and agree not to assert,  as a defense in any  proceeding for the
interpretation  or enforcement  hereof or of any such  document,  that it is not
subject  thereto  or  that  such  proceeding  may  not  be  brought  or  is  not
maintainable  in said courts or that the venue thereof may not be appropriate or
that this  Agreement  or any such  document  may not be  enforced  in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such  proceeding  shall be heard  and  determined  in such a  Delaware  state or
Federal  court.  The  parties  hereby  consent  to  and  grant  any  such  court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 9.1 or in such other
manner as may be  permitted by  applicable  Law,  shall be valid and  sufficient
service thereof.

     (b) The  parties  agree  that  irreparable  damage  may  occur and that the
parties  would not have any adequate  remedy at law in the event that any of the
provisions  of this  Agreement  were not  performed  in  accordance  with  their
specific terms or were  otherwise  breached.  It is accordingly  agreed that the
parties  shall be  entitled  to seek an  injunction  or  injunctions  to prevent
breaches of this Agreement and to enforce  specifically the terms and provisions
of this  Agreement in any Federal  court  located in the State of Delaware or in
Delaware  state court,  this being in addition to any other remedy to which they
are entitled at law or in equity.

     (c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE  COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE  EACH SUCH PARTY HEREBY  IRREVOCABLY  AND  UNCONDITIONALLY  WAIVES ANY
RIGHT  SUCH  PARTY  MAY HAVE TO A TRIAL  BY JURY IN  RESPECT  OF ANY  LITIGATION
DIRECTLY OR  INDIRECTLY  ARISING OUT OF OR  RELATING  TO THIS  AGREEMENT  OR THE
TRANSACTIONS   CONTEMPLATED  BY  THIS   AGREEMENT.   EACH  PARTY  CERTIFIES  AND
ACKNOWLEDGES  THAT (i) NO  REPRESENTATIVE,  AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION,  SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER,  (iii) EACH SUCH
PARTY MAKES THIS WAIVER  VOLUNTARILY,  AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO  ENTER  INTO  THIS  AGREEMENT  BY,  AMONG  OTHER  THINGS,   THE  WAIVERS  AND
CERTIFICATIONS IN THIS SECTION 9.8.

Section 9.9  Remedies Cumulative.

     Except as  otherwise  set forth  herein,  the various  rights and  remedies
herein  provided  will be  cumulative  and not  exclusive of any other rights or
remedies herein provided or any rights or remedies provided by Law.

Section 9.10  Inferences.

     Inasmuch  as  this  Agreement  is  the  result  of   negotiations   between
sophisticated  parties of equal  bargaining  power  represented  by counsel,  no
inference  in favor of or against any party will be drawn from the fact that any
portion of this Agreement has been drafted by or on behalf of such party.

Section 9.11  Severability.

     The  provisions  of  this  Agreement  will  be  deemed  severable  and  the
invalidity or  unenforceability of any provision will not affect the validity or
enforceability  of the  other  provisions  hereof.  If  any  provision  of  this
Agreement,  or the  application  thereof to any Person or any  circumstance,  is
invalid  or  unenforceable,  (a) a  suitable  and  equitable  provision  will be
substituted  therefor  in  order  to  carry  out,  so far as  may be  valid  and
enforceable,  the intent and purpose of such invalid or unenforceable provision,
and (b) the remainder of this Agreement and the application of such provision to
other  Persons or  circumstances  will not be  affected  by such  invalidity  or
unenforceability,  nor will  such  invalidity  or  unenforceability  affect  the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.

Section 9.12  Entire Agreement.

     This Agreement,  the CNDA and the Ancillary Agreements together contain the
entire  agreement  between the parties with respect to the subject matter hereof
and supersede all prior  agreements and  understandings,  oral or written,  with
respect to such matters.

Section 9.13  Headings.

     The heading  references  herein are for  convenience  purposes only, do not
constitute  a part of this  Agreement  and will not be deemed to limit or affect
any of the provisions hereof.

Section 9.14  Counterparts.

     This Agreement may be executed in one or more  counterparts,  each of which
will be deemed an original,  and all of which will  constitute  one and the same
Agreement.
                            [Signature page follows]
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.

                                  INTEL CORPORATION

                                  By: /s/ Leslie L. Vadasz
                                  ----------------------------------------------
                                  Name:   Leslie L. Vadasz
                                  ----------------------------------------------
                                  Title:  Executive Vice President
                                  ----------------------------------------------

                                  PERFORMANCE TECHNOLOGIES INCORPORATED

                                  By: /s/ Donald L. Turrell
                                  ----------------------------------------------
                                  Name:   Donald L. Turrell
                                  ----------------------------------------------
                                  Title:  President and Chief Executive Officer
                                  ----------------------------------------------

             [SIGNATURE PAGE TO INTEL/PTI STOCK PURCHASE AGREEMENT]
TABLE OF CONTENTS

                                                                            Page
ARTICLE I.  DEFINITIONS........................................................1

         Section 1.1  Certain Definitions......................................1

         Section 1.2  Interpretation...........................................5

         Section 1.3  Accounting Conventions...................................5

ARTICLE II.  PURCHASE AND SALE.................................................5

         Section 2.1  Pre-Closing Transfers and Other Actions..................5

         Section 2.2  Purchase and Sale of Shares..............................6

         Section 2.3  Asset Confirmation.......................................7

         Section 2.4  Inventory Confirmation...................................8

         Section 2.5  Retention of Certain Employees...........................9

         Section 2.6 Closing...................................................9

ARTICLE III.  REPRESENTATIONS AND WARRANTIES OF SELLER.........................9

         Section 3.1  Power and Authority of Seller...........................10

         Section 3.2  Organization, Power and Capitalization of the Company...10

         Section 3.3  Governmental Approvals..................................10

         Section 3.4  Non-Contravention.......................................10

         Section 3.5  Binding Effect..........................................11

         Section 3.6  Title Matters...........................................11

         Section 3.7  Financial Statements....................................11

         Section 3.8  Liabilities.............................................11

         Section 3.9  Compliance with Laws....................................12

         Section 3.10  Litigation and Claims..................................12

         Section 3.11  Tangible Assets and Products...........................12

         Section 3.12  Company Intellectual Property..........................12

         Section 3.13  Major Vendors and Customers............................14

         Section 3.14  Material Contracts; Warranties.........................14

         Section 3.15  Tax Matters............................................15

         Section 3.16  Employment Matters.....................................16

         Section 3.17  Benefits Arrangements..................................17

         Section 3.18  Environmental Matters..................................18

         Section 3.19  Insurance..............................................19

         Section 3.20  Conduct of Business....................................19
TABLE OF CONTENTS
                                   (continued)
                                                                            Page
         Section 3.21  Related-Party Transactions.............................20

         Section 3.22  Finders' Fees..........................................21

         Section 3.23  Adequacy of Assets of the Company......................21

         Section 3.24  Disclosure.............................................21

ARTICLE IV.  REPRESENTATIONS AND WARRANTIES OF BUYER..........................21

         Section 4.1  Organization and Power..................................21

         Section 4.2  Authorization...........................................21

         Section 4.3  Governmental Approvals..................................21

         Section 4.4  Non-Contravention.......................................22

         Section 4.5  Binding Effect..........................................22

         Section 4.6  Finders' Fees...........................................22

         Section 4.7  Financing...............................................22

         Section 4.8  Disclosure..............................................22

ARTICLE V.  COVENANTS AS TO TAX MATTERS.......................................23

         Section 5.1  Transfer Taxes..........................................23

         Section 5.2  Liability for Taxes.....................................23

         Section 5.3  Tax Returns.............................................24

         Section 5.4  Information to be Provided by Buyer.....................25

         Section 5.5  Contests................................................25

         Section 5.6  Post-Closing Events that Affect Seller's Liability for
                      Taxes...................................................25

         Section 5.7  Assistance and Cooperation..............................27

ARTICLE VI.  OTHER COVENANTS..................................................27

         Section 6.1  Further Assurances......................................27

         Section 6.2  Inability to Obtain Required Approvals..................27

         Section 6.3  Applied Computing Platform Provider Program.............28

         Section 6.4  Additional Financial Information........................28

         Section 6.5  Confidentiality.........................................28

         Section 6.6  Non-Solicitation........................................29

         Section 6.7  Transition Services.....................................29

         Section 6.8  Notification; Updating Schedules........................29

         Section 6.9  Retained Marks..........................................30

         Section 6.10  Access to Books and Records and Employees..............30

         Section 6.11  Warranty Service.......................................30

         Section 6.12  Dissolution of Sales Corporation; Termination
                       of Liens...............................................31

         Section 6.13  1099 Reporting Requirements............................31

ARTICLE VII.  CONDITIONS TO CLOSING...........................................31

         Section 7.1  Conditions to the Obligations of Buyer and Seller.......31

         Section 7.2  Further Conditions to the Obligation of Buyer...........32

         Section 7.3  Further Conditions to the Obligation of Seller..........33

ARTICLE VIII.  INDEMNIFICATION................................................33

         Section 8.1  Survival; Limitation on Representations, Warranties.....33

         Section 8.2  Indemnification by Seller...............................34

         Section 8.3  Indemnification by Buyer................................35

         Section 8.4  Indemnification Procedures..............................35

         Section 8.5  Indemnification Limitations.............................37

         Section 8.6  Adjustment for Insurance Benefit........................37

         Section 8.7  Exclusive Remedy........................................37

ARTICLE IX.  MISCELLANEOUS....................................................38

         Section 9.1 Notices..................................................38

         Section 9.2  Amendment; Waiver.......................................39

         Section 9.3  No Assignment or Benefit to Third Parties...............39

         Section 9.4  Expenses................................................39

         Section 9.5  Schedules and Exhibits, Etc.............................39

         Section 9.6  Governing Law...........................................39

         Section 9.7  Dispute Resolution......................................40

         Section 9.8  Submission to Jurisdiction; Waiver of Jury Trial........40

         Section 9.9  Remedies Cumulative.....................................41

         Section 9.10  Inferences.............................................41

         Section 9.11  Severability...........................................41

         Section 9.12  Entire Agreement.......................................42

         Section 9.13  Headings...............................................42

         Section 9.14  Counterparts...........................................42
TABLE OF DEFINED TERMS

 Defined Term                                                  Section
 ------------                                                  -------

 Accountants ..................................................ss. 1.1
 Affiliate ....................................................ss. 1.1
 Agreement ....................................................ss. 1.1
 Ancillary Agreements..........................................Recitals
 Article ......................................................ss. 1.2(b)
 Asset Confirmation ...........................................ss. 2.3(a)
 Asset Statement ..............................................ss. 2.3(a)
 Books and Records ............................................ss. 1.1
 Buyer ........................................................Introduction
 Buyer Indemnified Parties.....................................8.2(a)
 Buyer Losses..................................................8.2(a)
 Claim ........................................................ss. 1.1
 Closing ......................................................ss. 1.1
 Closing Date .................................................ss. 2.6
 Closing Documents ............................................ss. 1.1
 CNDA .........................................................ss. 6.5
 COBRA ........................................................ss. 1.1
 Code .........................................................ss. 1.1
 Company ......................................................Recitals
 Company Intellectual Property ................................ss. 3.12(a)
 Contract .....................................................ss. 3.14(a)
 Covered Third Party Claim ....................................ss. 8.2(a)(v)
 Demand Forecast Inventory.....................................ss. 2.4(a)
 dollars ......................................................ss. 1.2(e)
 Election Period ..............................................ss. 8.4(b)
 Employee Leasing Agreement ...................................ss. 3.16
 Employment Laws ..............................................ss. 3.16
 Encumbrances .................................................ss. 1.1
 Environmental Law ............................................ss. 1.1
 ERISA ........................................................ss. 1.1
 ERISA Affiliate ..............................................ss. 1.1
 Exhibit ......................................................ss. 1.2(b)
 Financial Statements .........................................ss. 1.1
 GAAP .........................................................ss. 1.1
 Governmental Authorizations ..................................ss. 1.1
 Governmental Entity ..........................................ss. 1.1
 Hazardous Substance ..........................................ss. 1.1
 herein .......................................................ss. 1.2(a)
 hereof .......................................................ss. 1.2(a)
 hereunder.....................................................ss. 1.2(a)
 include ......................................................ss. 1.2(h)
 includes .....................................................ss. 1.2(h)
 including ....................................................ss. 1.2(h)
 Indemnified Party ............................................ss. 8.4(a)
 Indemnifying Party ...........................................ss. 8.4(a)(i)
 Indemnity Notice .............................................ss. 8.4(e)
 Intel San Luis Obispo.........................................6.9
 Intellectual Property ........................................ss. 1.1
 Inventory ....................................................ss. 1.1
 Inventory Confirmation .......................................ss. 2.4(a)
 Inventory Statement ..........................................ss. 2.4(a)
 JPMorgan Chase................................................7.3(c)(i)
 Key Employee .................................................ss. 2.5(a)
 Knowledge ....................................................ss. 1.1
 Law ..........................................................ss. 1.1
 Lease ........................................................ss. 2.1(d)
 Liability ....................................................ss. 1.1
 Licenses .....................................................ss. 3.12(a)(v)
 Losses .......................................................ss. 1.1
 Material Adverse Effect ......................................ss. 1.1
 Material Contract ............................................ss. 3.14(a)
 Material Contracts ...........................................ss. 3.14(a)
 Ordinary Course ..............................................ss. 1.1
 party ........................................................ss. 1.2(c)
 Patents ......................................................ss. 3.12(a)(iii)
 Permitted Encumbrances .......................................ss. 1.1
 Person .......................................................ss. 1.1
 Post-Closing Tax Adjustment ..................................ss. 5.6(c)(ii)(B)
 Post-Closing Tax Period ......................................ss. 5.2(b)
 Pre-Closing Tax Adjustment ...................................ss. 5.6(c)(ii)(B)
 Pre-Closing Tax Period .......................................ss. 5.2(a)(ii)
 Products .....................................................ss. 1.1
 Purchase Price ...............................................ss. 2.2(a)
 Required Approvals ...........................................ss. 6.1
 Required Service..............................................6.11(a)
 Retained Employees ...........................................ss. 2.5(a)
 Retained Marks ...............................................ss. 6.9
 Schedule .....................................................ss. 1.2(b)
 Section ......................................................ss. 1.2(b)
 Seller .......................................................Introduction
 Seller Indemnified Parties ...................................ss. 8.3(a)
 Seller Losses ................................................ss. 8.3(a)
 Seller Retained Assets and Liabilities .......................ss. 2.1(a)
 Shares .......................................................ss. 1.1
 Straddle Period ..............................................ss. 5.2(c)
 Subsidiary ...................................................ss. 1.1
 Taxes ........................................................ss. 1.1
 Tax Returns ..................................................ss. 1.1
 Technical Documentation ......................................ss. 3.12(a)(i)
 third party ..................................................ss. 1.2(d)
 Third Party Claims ...........................................ss. 8.4(a)
 Third Party Claim Notice .....................................ss. 8.4(a)(ii)
 Third Party Debt .............................................ss. 1.1
 Trademarks ...................................................ss. 3.12(a)(iv)
 Transaction ..................................................ss. 1.1
 Treasury Regulations .........................................ss. 1.1
 U.S...........................................................ss. 1.1
Omitted  exhibits and  schedules to the stock  purchase  agreement  will be
provided to the Securities and Exchange Commission upon written request.

                         TABLE OF EXHIBITS AND SCHEDULES

Exhibits
Exhibit A.........         Form of Intellectual Property Agreement
Exhibit B.........         Form of cPCI 2.16 Development Agreement
Exhibit C-1.......         Form of Seller OEM Letter Agreement
Exhibit C-2.......         Form of Buyer OEM Letter Agreement
Exhibit D.........         Form of Patent Cross License Agreement
Exhibit E.........         Form of Contribution and Assumption Agreement

Schedules
Schedule 2.1(a)(i):        Seller Retained IP Licenses and Agreements
Schedule 2.1(a)(ii):       Seller Retained Real Property
Schedule 2.1(a)(iii):      Seller Retained Inventory
Schedule 2.1(a)(vi):       Seller Retained Miscellaneous Assets
Schedule 2.1(d):           Assets to be Removed Prior to Closing
Schedule 2.4(a):           Demand Forecast Inventory
Schedule 2.5:              Key Employee and Retained Employees
Schedule 3.2(a):           Subsidiaries
Schedule 3.2(b):           Capital Stock
Schedule 3.4:              Non-Contravention
Schedule 3.6(b):           Title Matters
Schedule 3.7:              Financial Statements
Schedule 3.8(a):           Liabilities
Schedule 3.8(b):           Third Party Debt
Schedule 3.10:             Litigation and Claims
Schedule 3.11(a):          Tangible Assets
Schedule 3.11(b):          List of Products
Schedule 3.11(c):          Inventory
Schedule 3.12(a)(iii):     Patents and Patent Applications
Schedule 3.12(a)(iv):      Trademarks
Schedule 3.12(a)(v):       Licenses
Schedule 3.12(a)(vi):      World Wide Web Content and Domain Names
Schedule 3.12(b):          Encumbrances
Schedule 3.12(c):          Infringement
Schedule 3.12(d):          Technical Documentation
Schedule 3.12(f):          Invention Assignment Agreements
Schedule 3.13:             Customers, Suppliers and Distributors
Schedule 3.14(a):          Material Contracts
Schedule 3.14(b):          Enforceability of Material Contracts
Schedule 3.14(c)           Deviations from Standard Warranty
Schedule 3.15:             Tax Matters
Schedule 3.16:             Employment Matters
Schedule 3.18:             Environmental Matters
Schedule 3.19:             Insurance
Schedule 3.20(a):          Conduct of Business
Schedule 3.21:             Related-Party Transactions
Schedule 3.23:             Exceptions to Adequacy of Assets
Schedule 4.4:              Buyer Non-Contravention
Schedule 6.1:              Required Approvals
Schedule 6.7:  ...         Transition Services
Schedule 8.5(a)(v):        Buyer Liabilities