ASSET PURCHASE AGREEMENT

                                     between

                               FILENET CORPORATION
                                  as Purchaser

                                       and

                             APPLICATION PARTNERS, INC.
                                    as Seller







                            Dated as of May 18, 2000

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                                TABLE OF CONTENTS


ANNEX A           DESCRIPTION OF BUSINESS/LIST OF ASSETS
ANNEX A-1         EQUIPMENT INCLUDED IN PURCHASED ASSETS
ANNEX A-2         TRADEMARKS AND LOGOS INCLUDED IN PURCHASED ASSETS
ANNEX A-3         INTELLECTUAL PROPERTY INCLUDED IN PURCHASED ASSETS
ANNEX B           ALLOCATION OF PURCHASE PRICE


EXHIBIT A         BILL OF SALE
EXHIBIT B         ASSUMPTION AGREEMENT
EXHIBIT C         SUBLEASE AGREEMENT
EXHIBIT E         CONSULTING AGREEMENT
EXHIBIT F         OFFER LETTERS
EXHIBIT G         ESCROW AGREEMENT
EXHIBIT H         MANAGEMENT PRINCIPAL AGREEMENTS
EXHIBIT I         SUPPORT AGREEMENTS

DISCLOSURE SCHEDULES

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<PAGE>


                            ASSET PURCHASE AGREEMENT

     ASSET PURCHASE  AGREEMENT,  dated as of May 18, 2000 (as hereafter amended,
modified or supplemented,  this  "Agreement"),  between FileNET  Corporation,  a
Delaware corporation ("Purchaser"), and Application Partners, Inc., a California
Corporation ("Seller").


                              W I T N E S S E T H:

     WHEREAS,  Seller owns and operates a business, a division of which conducts
the activities described on Annex A hereto (the "Division"); and

     WHEREAS,  Seller  desires to sell to Purchaser,  and  Purchaser  desires to
purchase  from Seller,  the assets  relating to the  Division  listed on Annex A
hereto (the "Assets") and in connection therewith Purchaser is willing to assume
certain  liabilities of Seller relating thereto,  all upon the terms and subject
to the conditions set forth herein;

     NOW, THEREFORE,  in consideration of the premises and the mutual agreements
and covenants  hereinafter set forth,  and intending to be legally bound hereby,
Purchaser and Seller hereby agree as follows:


                                   Article 1.
                                  DEFINITIONS

     Section 1.01 Certain Defined Terms.  Unless the context otherwise requires,
the following  terms,  when used in this  Agreement,  shall have the  respective
meanings specified below:

     "Acquisition   Documents"   shall  mean  this   Agreement,   the  Ancillary
Agreements, and any certificate,  Financial Statement,  report or other document
delivered pursuant to this Agreement or the transactions contemplated hereby.

     "Action"  shall  mean  any  claim,  action,  suit,  arbitration,   inquiry,
proceeding or investigation by or before any Governmental Authority.

     "Affiliate"  shall mean,  with respect to any specified  Person,  any other
Person  that  directly,  or  indirectly  through  one  or  more  intermediaries,
controls,  is controlled  by, or is under common  control with,  such  specified
Person.

     "Ancillary  Agreements"  shall mean the Assumption  Agreement,  the Bill of
Sale and the Sublease Agreement.

     "Assets"  shall  have  the  meaning  specified  in  the  recitals  to  this
Agreement.

     "Assumed Liabilities" shall have the meaning specified in Section 2.02(a).

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<PAGE>

     "Assumption  Agreement" shall mean the Assumption  Agreement to be executed
by Purchaser and Seller on the Closing Date substantially in the form of Exhibit
B.

     "Bill of Sale" shall mean the Bill of Sale and Assignment to be executed by
Seller on the Closing Date substantially in the form of Exhibit A.

     "Business Day" shall mean any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by Law to be closed in California.

     "Cause"  shall  mean  that  Purchaser,  acting  in good  faith  based  upon
information  then known to  Purchaser,  determines  that a Division  Employee or
Division  Contractor  has:  (1)  committed  a material  breach of his duties and
responsibilities  (other than as a result of incapacity due to Disability);  (2)
been convicted of a felony; (3) materially failed to perform required duties and
responsibilities  or  performed  them  unsatisfactorily  or  incompetently;  (4)
materially  violated a Purchaser policy; (5) violated any fiduciary duty owed to
Purchaser;  or (6) violated any of the terms of the Proprietary  Information and
Inventions Agreement signed by such Division Employee or Division Contractor .

     "Closing" shall have the meaning specified in Section 2.04.

     "Closing Date" shall have the meaning specified in Section 2.04.

     "Code" shall mean the Internal Revenue Code of 1986, as amended through the
date hereof.

     "Confidentiality  Agreement"  shall mean the letter  agreement  dated as of
February 1, 2000 between Seller and Purchaser.

     "Consulting  Agreement" shall mean the consulting  agreement to be executed
by Purchaser and Seller, attached hereto as Exhibit E.

     "Contract  Software  Engineers" shall have the meaning specified in Section
2.07(a)(3).

     "Control"  (including the terms  "controlled  by" and "under common control
with"),  with respect to the relationship  between or among two or more Persons,
shall mean the  possession,  directly  or  indirectly  or as  trustee,  personal
representative or executor, of the power to direct or cause the direction of the
affairs or  management  of a Person,  whether  through the  ownership  of voting
securities,  as trustee,  personal  representative  or executor,  by contract or
otherwise, including, without limitation, the ownership, directly or indirectly,
of securities  having the power to elect a majority of the board of directors or
similar body governing the affairs of such Person.

     "Disability" shall mean a physical or mental impairment which substantially
limits a major life activity of a Division  Employee or Division  Contractor and
which renders such Division  Employee or Division  Contractor  unable to perform
the  essential   functions  of  his  or  her  position,   even  with  reasonable
accommodation which does not impose an undue hardship on the Purchaser.

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<PAGE>

     "Disclosure  Schedule" shall mean the Disclosure Schedules attached hereto,
dated as of the date hereof, and forming a part of this Agreement.

     "Division"  shall  have  the  meaning  specified  in the  recitals  to this
Agreement.

     "Division  Contractors" shall mean those contract software engineers listed
on Schedule 6.01.

     "Division Employees" shall mean those employee software engineers listed on
Schedule 6.01.

     "Employee  Software  Engineers" shall have the meaning specified in Section
2.07(a)(3).

     "Equipment" shall have the meaning specified in Annex A.

     "ERISA" shall have the meaning specified in Section 3.12(a).

     "Escrow Agent" shall mean the Bank of San Francisco.

     "Escrow  Agreement"  shall mean the  agreement to be executed by Purchaser,
Seller, and the Escrow Agent, attached hereto as Exhibit G.

     "Excluded Liabilities" shall have the meaning specified in Section 2.02(b).

     "Financial   Statements"  shall  have  the  meaning  specified  in  Section
3.04(a)(i).

     "Governmental Authority" shall mean any national, federal, state, municipal
or  local  or  other  government,  governmental,  regulatory  or  administrative
authority,  agency or commission or any court, tribunal, or judicial or arbitral
body.

     "Governmental  Order"  shall mean any order,  writ,  judgment,  injunction,
decree, stipulation,  determination or award entered by or with any Governmental
Authority.

     "Holdback Payment" shall mean have the meaning specified in Section 2.07.

     "Indemnified Party" shall have the meaning specified in Section 9.04.

     "Indemnifying Party" shall have the meaning specified in Section 9.04.

     "Intellectual  Property" shall mean, with respect to the Division,  (i) all
inventions  listed in Annex  A-3,  whether  or not  patentable,  whether  or not
reduced to practice, and whether or not yet made the subject of a pending patent
application  or  applications,  (ii) national  (including the United States) and
multinational statutory invention  registrations,  patents, patent registrations
and patent applications listed on Annex A-3 (including all reissues,  divisions,
continuations,  continuations-in-part,  extensions and  reexaminations)  and all
rights  therein  provided  by  international  treaties  or  conventions  and all
improvements to the inventions  disclosed in each such  registration,  patent or
application,  (iii) all trademarks,  service marks,  trade dress,  logos,  trade
names,  domain names and corporate names,  whether or not registered,  listed on
Annex  A-3(including the names and logos set forth on Annex A-2),  including all
common law rights, and registrations and applications for registration  thereof,

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<PAGE>

(iv) all copyrights  (registered or otherwise) and  registrations,  applications
for  registration  and  licenses  thereof  listed on Annex  A-3,  and all rights
therein provided by international treaties or conventions, (v) all trade secrets
and confidential, technical and business information (including ideas, formulas,
compositions,  inventions,  and conceptions of inventions  whether patentable or
unpatentable  and whether or not reduced to practice)  listed on Annex A-3, (vi)
copies and  tangible  embodiments  of all the  foregoing,  in  whatever  form or
medium,  (vii) all  rights to obtain  and  rights to apply for  patents,  and to
register  trademarks  and copyrights  related to the  foregoing,  and (viii) all
rights to sue or recover and retain  damages and costs and  attorneys'  fees for
present and past infringement of any of the foregoing.

     "IRS" shall mean the Internal Revenue Service of the United States.

     "Law" shall mean any national,  federal, state, municipal or local or other
statute,  law,  ordinance,  regulation,  rule, code, order, other requirement or
rule of law.

     "Leased Real Property" shall mean the real property related to the Division
leased by Seller as tenant,  together with, to the extent leased by Seller,  all
buildings  and  other  structures,   facilities  or  improvements  currently  or
hereafter  located  thereon,  all  fixtures,  systems,  equipment  and  items of
personal  property of Seller  related to the  Division  attached or  appurtenant
thereto, and all easements,  licenses,  rights and appurtenances relating to the
foregoing.

     "Letter of Intent" shall mean that Letter of Intent executed by the Parties
on April 3, 2000.

     "Liabilities"  shall mean any and all debts,  liabilities and  obligations,
whether  accrued or fixed,  absolute  or  contingent,  matured or  unmatured  or
determined or determinable,  including,  without limitation, those arising under
any Law,  Action or  Governmental  Order and those  arising  under any contract,
agreement, arrangement, commitment or undertaking.

     "Licensed  Intellectual  Property"  shall  mean all  Intellectual  Property
licensed  or  sublicensed  by Seller  from a third  party,  which can be used by
Purchaser after the Closing and which is listed on Schedule 3.10.

     "Loss" shall have the meaning specified in Section 9.02(a).

     "Management Principals" shall mean James Hockett and Jun Huang.

     "Management  Principal  Agreements" shall mean the employment agreements to
be executed by  Purchaser  and each  Management  Principal,  attached  hereto as
Exhibit H.

     "Material Adverse Effect" shall mean any circumstance, change in, or effect
on,  the  Division  that,  individually  or in  the  aggregate  with  any  other
circumstances,  changes  in,  or  effects  on,  the  Division  (i) is,  or could
reasonably be expected to be,  materially  adverse to the business,  operations,
assets or liabilities (including,  without limitation,  contingent liabilities),
employee  relationships,   customer  or  supplier   relationships,   results  of
operations or the financial  condition of the Division or (ii) could  reasonably
be expected to materially  adversely  affect the ability of Purchaser to operate
or conduct  the  Division  in the manner in which it is  currently  operated  or

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conducted by Seller.  A material adverse effect shall not include the following:
(A) a reduction in the value of the Division of less than $1,000,000.00;  or (B)
changes, events and effects that are directly caused by (i) conditions affecting
the United States  economy as a whole;  (ii)  conditions  affecting the software
industry as a whole,  which conditions (in the case of clause (i) or (ii) do not
affect the Division in a disproportionate manner).

     "Material  Contracts"  shall mean all contracts and agreements,  whether or
not made in the  ordinary  course of  business,  which are (i)  material  to the
conduct of the  Division,  (ii)  related to the Assets,  or (iii) the absence of
which would have a Material Adverse Effect on the Division or the Assets.

     "Offer  Letters"  shall  mean the offer by  Purchaser  to each  Transferred
Employee, attached hereto as Exhibit F.

     "Owned Intellectual  Property" shall mean all Intellectual  Property in and
to which Seller has a right to hold right, title and interest.

     "Permitted   Activities"   shall  mean  marketing,   sales  and  consulting
activities  by  Seller  with  respect  to each of the  following  products:  (i)
ClaimPro, Claims Processing Workstation, Image System Connectivity Program, Work
Management Engine,  and any derivative works,  modifications and improvements to
the foregoing made by Seller, its agents or licensees.

     "Person"  shall  mean  any  individual,   partnership,  firm,  corporation,
association,  trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended.

     "Plans" shall have the meaning specified in Section 3.12(a).

     "Purchase Price" shall have the meaning specified in Section 2.03.

     "Purchaser"  shall  have the  meaning  specified  in the  recitals  to this
Agreement.

     "Receivables" shall mean any and all accounts  receivable,  notes and other
amounts receivable from third parties, including, without limitation,  customers
and employees, arising from the conduct of the Division before the Closing Date,
whether  or not in the  ordinary  course,  together  with any  unpaid  financing
charges accrued thereon.

     "Reference  Balance  Sheet"  shall have the  meaning  specified  in Section
3.04(a)(ii).

     "Reference Balance Sheet Date" shall mean April 30, 2000.

     "Regulations"  shall mean the  Treasury  Regulations  (including  Temporary
Regulations)  promulgated  by the United  States  Department  of  Treasury  with
respect to the Code or other federal tax statutes.

     "Restricted Period" shall have the meaning specified in Section 5.07.

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<PAGE>

     "Seller"  shall  have  the  meaning  specified  in  the  recitals  to  this
Agreement.

     "Sublease  Agreement"  shall mean the Sublease  Agreement to be executed by
Purchaser and Seller on the Closing Date substantially in the form of Exhibit C.

     "Support  Agreements" shall mean the agreements to be executed by Purchaser
and each of the Support Principals, attached hereto as Exhibit I.

     "Support Principals" shall mean Jerry Goedicke and Lakshman Watawala.

     "Tax" or  "Taxes"  shall  mean any and all  taxes,  fees,  levies,  duties,
tariffs,  imposts,  and other  charges  of any kind  (together  with any and all
interest,  penalties,  loss, damage,  liability,  expense,  additions to tax and
additional amounts or costs incurred or imposed with respect thereto) imposed by
any government or taxing  authority,  to the extent Purchaser may be held liable
for any such amount or to the extent any such amount  constitutes  a lien on the
Assets or the Division.

     "Third Party Claims" shall have the meaning specified in Section 9.04(b).

     "Threshold Amount" shall have the meaning specified in Section 9.02(b).

     "Transferred Employee" shall have the meaning specified in Section 6.01.

     "Transferred Contractor" shall have the meaning specified in Section 6.01.


                                   Article 2.
                                PURCHASE AND SALE

Section 2.01      Assets to Be Sold.

     On the terms and subject to the conditions of this Agreement, Seller shall,
on the Closing Date, sell, convey and assign to Purchaser, free and clear of all
claims,  liens and interests  except as is provided for herein,  all of Seller's
right, title and interest in and to the Assets.

Section 2.02      Assumption and Exclusion of Liabilities.

     (a) On the terms and subject to the conditions of this Agreement, Purchaser
shall, on the Closing Date,  assume the following  Liabilities:  (i) liabilities
and obligations arising out of ownership,  use and operation of the Assets after
the Closing Date; and (ii) liabilities and obligations arising after the Closing
Date under the terms of any real property lease agreement and license  agreement
that is assigned,  sublet or  sublicensed  by Seller to Purchaser in  connection
with the execution of this  Agreement or the Ancillary  Agreements  set forth on
Schedule 2.02 (a) (the "Assumed Liabilities").

     (b) Seller shall retain,  and shall be responsible  for paying,  performing
and  discharging   when  due,  and  Purchaser  shall  not  assume  or  have  any
responsibility  for,  all assets  other than the Assets and all  Liabilities  of
Seller or the Division as of the Closing Date other than the Assumed Liabilities

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(the "Excluded Liabilities"),  whether or not the Excluded Liabilities relate to
the Division.

Section 2.03      Purchase Price; Allocation of Purchase Price.

     The aggregate purchase price for the Assets shall be US$20,000,000.00  (the
"Purchase  Price"),  subject to  adjustment  as set forth in Section 2.07, to be
paid as follows: (i) $15,000,000.00 in cash paid by wire transfer from Purchaser
to Seller on the Closing  Date;  and (ii) an aggregate of $5,000,000 in Holdback
Payments  which shall be deposited with the Escrow Agent on the Closing Date and
released  pursuant  to the  Escrow  Agreement,  if,  as and when the  conditions
specified in Section 2.07 have been satisfied.

Section 2.04      Closing.

     Subject  to the  terms  and  conditions  of this  Agreement,  the  sale and
purchase  of  the  Assets  and  the   assumption  of  the  Assumed   Liabilities
contemplated  by this Agreement shall take place at a closing (the "Closing") to
be held at the offices of Seller, at 10:00 A.M.  California time on May 23, 2000
provided  there  has  been  satisfaction  or  waiver  of all  conditions  to the
obligations  of the parties set forth in Article VIII, or at such other place or
at such other time or on such other date as Seller and  Purchaser  may  mutually
agree  upon in  writing  (the day on which the  Closing  takes  place  being the
"Closing Date").

Section 2.05      Closing Deliveries by Seller.

     At the Closing, Seller shall deliver or cause to be delivered to Purchaser:

     (a) the Bill of Sale,  and such other  instruments,  in form and  substance
satisfactory  to  Purchaser,  as may be  requested  by Purchaser to transfer the
Assets to  Purchaser  or  evidence  such  transfer  on the public  records;

     (b) executed  counterparts  of the  Consulting  Agreement,  the  Management
Principal  Agreements,  the Offer  Letters  and the  Support  Agreements;

     (c) a receipt for the Purchase Price; and

     (d) the opinions, certificates and other documents required to be delivered
pursuant to Section 8.02.

Section 2.06      Closing  Deliveries by Purchaser.

     At the Closing, Purchaser shall deliver to Seller:

     (a) $15,000,000.00 by wire transfer in immediately available funds;

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     (b)  $5,000,000.00 by wire transfer into an escrow account  established for
the payment of the Holdback described in Section 2.07, below, with directions to
retain,  hold,  and dispose of these funds in  accordance  with the terms of the
Escrow Agreement attached hereto as Exhibit H.

     (c) executed  Offer  Letters and executed  counterparts  of the  Consulting
Agreement, the Management Principal Agreements and the Support Agreements; and

     (d) the opinions, certificates and other documents required to be delivered
pursuant to Section 8.01.

Section 2.07      Holdback; Adjustment of Purchase Price

     (a) Upon completion of certain  product  objectives,  worker  transfers and
worker retention milestones,  as described below,  Purchaser shall authorize the
Escrow Agent to pay the following amounts (the "Holdback Payments") to Seller at
the time of such completion:

          1. $1,500,000,  upon the achievement of release  readiness  objectives
     for Sequis 1.0, as described on Schedule 2.07(a)(1).

          2. $1,500,000, upon the transfer of the workers designated on Schedule
     2.07(a)(2) to full-time  employment or service status with Purchaser by the
     dates  indicated  on Schedule  2.07(a)(2).  If any such  transfer  shall be
     delayed by any  immigration  related Law,  Seller shall offer such affected
     workers to Purchaser by contract,  at Seller's actual cost, in satisfaction
     of this section.

          3. $2,000,000, twelve months after the Closing, provided that (x) both
     of the  Management  Principals,  and  (y) 8 of  the  combined  group  of 11
     Employee  Software  Engineers  (the  "Employee  Software   Engineers")  and
     Contract Software Engineers (the "Contract Software Engineers")  designated
     on Schedule  2.07(a)(3)  remain actively  employed by, or in active service
     with, as applicable, Purchaser on such date.

     (b) If the conditions of Section 2.07(a)(2) are not met within three months
of the dates  required  therefor,  none of the  $1,500,000  provided for in that
Section will be paid to Seller or the  designated  employees.  If the conditions
are not met by the dates required  therefor,  but are met within three months of
such  required  dates,  the  Holdback  Payment  to be  made  to  Seller  and the
designated  employees  will be  prorated,  based on the  ratio of the  number of
man-days  that such  employees  were  available to Purchaser  over the number of
man-days  that such  employees  would have been  available to Purchaser  had the
conditions been met by the required dates.

     (c) If the  conditions of Section  2.07(a)(3)  are not met, but (i) both of
the  Management  Principals  and  (ii) at  least 6 of the  combined  group of 11
Employee  Software  Engineers and Contract  Software  Engineers  remain actively

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employed by, or in active service with, as applicable,  Purchaser  twelve months
after the Closing,  then the Holdback Payment provided for in Section 2.07(a)(3)
shall be reduced to $1,500,000.  If either (i) one of the Management  Principals
or (ii) more than 5 of the Employee  Software  Engineers  and Contract  Software
Engineers,  collectively,  are not actively  employed  by, or in active  service
with, as  applicable,  Purchaser  twelve  months after the Closing,  no Holdback
Payment shall be made under Section 2.07(a)(3).

     (d) For  purposes of Section  2.07(a)(3)  only,  if any  Contract  Software
Engineers leave within 12 months of the Closing, reasonable accommodations shall
be made to replace such Contract  Software  Engineers,  and any mutually  agreed
replacement  Contract Software Engineers shall count in favor of satisfaction of
the requirements of Section 2.07(a)(3).

     (e) Notwithstanding  anything in this Section 2.07 to the contrary,  if the
number  of  Management  Principals,  Employee  Software  Engineers  or  Contract
Software  Engineers is not adequate to satisfy the conditions  necessary for the
payment of the Holdback Payments, due to acts or omissions of the Purchaser such
as termination  without Cause, an office relocation beyond fifteen miles,  staff
reduction  due  to  budgetary   constraints  or  unusually  adverse   employment
conditions,  or,  with  respect  to  2.07(a)(3)  only,  is due to the  death  or
Disability of a  Transferred  Employee,  Management  Principal or, within thirty
days  prior  to the  relevant  date of  determination  provided  for in  Section
2.07(a)(3), a Transferred Contractor, such conditions shall be deemed met and no
reduction  shall be made in the Holdback  Payments as a result of the failure to
meet such conditions.

     (f) The Holdback  Payments shall be paid in accordance  with the procedures
set forth in the Escrow Agreement.

     (g) Any  reduction in the Holdback  Payments  pursuant to this Section 2.07
shall be treated for all purposes as an adjustment to the Purchase Price.


                                   Article 3.
                         REPRESENTATIONS AND WARRANTIES
                                    OF SELLER

     As an inducement to Purchaser to enter into this  Agreement,  Seller hereby
represents and warrants to Purchaser as follows:

Section 3.01      Organization, Authority and Qualification of Seller.

     Seller  is a  corporation  duly  organized,  validly  existing  and in good
standing  under  the  laws of the  State  of  California  and has all  necessary
corporate  power and  authority to enter into this  Agreement  and the Ancillary
Agreements,  to  carry  out its  obligations  hereunder  and  thereunder  and to
consummate  the  transactions  contemplated  hereby and thereby.  Seller is duly
licensed  or  qualified  to  do  business  and  is  in  good  standing  in  each
jurisdiction  in which the properties  owned or leased by it or the operation of
its business makes such licensing or qualification  necessary. The execution and

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delivery  of  this  Agreement  and  the  Ancillary  Agreements  by  Seller,  the
performance  by Seller  of its  obligations  hereunder  and  thereunder  and the
consummation by Seller of the transactions  contemplated hereby and thereby have
been duly  authorized  by all  requisite  action  on the part of Seller  and its
shareholders.  This Agreement has been,  and upon their  execution the Ancillary
Agreements  will be, duly  executed and  delivered by Seller,  and (assuming due
authorization,  execution and delivery by Purchaser) this Agreement constitutes,
and upon their execution the Ancillary Agreements will constitute,  legal, valid
and binding  obligations of Seller enforceable against Seller in accordance with
their respective terms.

Section 3.02      No Conflict.

     The execution, delivery and performance of this Agreement and the Ancillary
Agreements by Seller (a) do not and will not violate, conflict with or result in
the breach of any provision of the charter or by-laws (or similar organizational
documents)  of Seller,  (b) do not  conflict  with or violate (or cause an event
which  could  have  a  Material  Adverse  Effect  as a  result  of)  any  Law or
Governmental  Order  applicable  to Seller or any of its assets,  properties  or
businesses,  including,  without limitation, the Assets and the Division, or (c)
except as set forth in Schedule 3.02, do not and will not conflict with,  result
in any breach of, constitute a default (or event which with the giving of notice
or lapse of time, or both,  would become a default)  under,  require any consent
under,  or give to others any rights of  termination,  amendment,  acceleration,
suspension,  revocation  or  cancellation  of, or result in the  creation of any
encumbrance on any of the assets or properties of Seller  pursuant to, any note,
bond, mortgage or indenture,  contract,  agreement,  lease,  sublease,  license,
permit,  franchise or other instrument or arrangement to which Seller is a party
or by which any of such assets or properties is bound or affected.

Section 3.03      Governmental Authority and Approvals.

     The  execution,  delivery  and  performance  of  this  Agreement  and  each
Ancillary  Agreement by Seller do not and will not require  Seller to obtain any
consent,  approval,  authorization  or other order of, action by, filing with or
notification to, any Government Authority, except as described in Schedule 3.03;

Section 3.04      Financial Information; Books and Records.

     Schedule  3.04(a)(i)  sets  forth  true  and  complete  copies  of (i)  the
unaudited  balance sheet of Seller for the fiscal years ended as of December 31,
1999,  and the  related  statements  of  income  (collectively,  the  "Financial
Statements")  and (ii) the  unaudited  balance sheet of the Division as of April
30,  2000  (the  "Reference  Balance  Sheet")  has been  delivered  by Seller to
Purchaser.  The Financial  Statements  and the Reference  Balance Sheet (A) were
prepared in accordance with the books of account and other financial  records of
Seller, (B) present fairly the financial  condition and results of operations of
Seller  related  to the  Division  as of the dates  thereof  or for the  periods
covered  thereby,  (C) have been prepared in accordance with prudent  accounting
principles  applied on a basis  consistent with the past practices of Seller and
throughout  the  periods   involved,   and  (D)  will  include  all  adjustments
(consisting  only of normal  recurring  accruals)  that are necessary for a fair


                                       12
<PAGE>

presentation  of the financial  condition of Seller  related to the Division and
the results of the  operations of Seller related to the Division as of the dates
thereof for the periods covered thereby.

          (a) The books of account and other financial records of Seller as they
     relate to the Division: (i) reflect all items of income and expense and all
     assets and Liabilities  required to be reflected therein in accordance with
     prudent  accounting  principles applied on a basis consistent with the past
     practices of Seller and  throughout the periods  involved,  (ii) are in all
     material respects  complete and correct,  and do not contain or reflect any
     material  inaccuracies or discrepancies,  and (iii) have been maintained in
     accordance with good business and accounting practices.

Section 3.05      No Undisclosed Liabilities.

     There are no  Liabilities  of Seller  related  to the  Division  other than
Liabilities  (i) reflected or reserved  against on the Reference  Balance Sheet,
(ii)  disclosed  in  Schedule  3.05,  or (iii)  incurred  since the date of this
Agreement in the ordinary course of business,  consistent with past practice, of
Seller  related  to the  Division  and which do not and could not be  reasonably
expected to have a Material Adverse Effect.

Section 3.06      Conduct  in  the Ordinary  Course; Absence of Certain Changes,
                  Events and Conditions.

     Since the  Reference  Balance  Sheet Date,  except as disclosed in Schedule
3.06, the Division has been conducted in the ordinary course and consistent with
past practice.  Since the Reference Balance Sheet Date, Seller has not permitted
or suffered any liens or encumbrances on the Assets,  made any unusual payments,
purchases,  transactions,  capital expenditures or agreements.  As amplification
and not  limitation of the  foregoing,  since the Reference  Balance Sheet Date,
except as disclosed on Schedule 3.06, Seller has not:

          (i) written down or written up (or failed to write down in  accordance
     with prudent accounting principles consistent with past practice) the value
     of any  Inventories or Receivables or revalued any assets of Seller related
     to the Division  other than in the ordinary  course of business  consistent
     with past practice and in accordance with prudent accounting principles;


          (ii) (A) granted any  increase,  or  announced  any  increase,  in the
     wages,  salaries,  compensation,  bonuses,  incentives,  pension  or  other
     benefits payable by Seller related to the Division to any of its employees,
     including, without limitation, any increase or change pursuant to any Plan,
     or (B)  established or increased or promised to increase any benefits under
     any  Plan,  in either  case  except as  required  by Law or any  collective
     bargaining  agreement and involving ordinary increases  consistent with the
     past practice of Seller related to the Division; or

          (iii) to the best of Seller's knowledge, suffered any Material Adverse
     Effect related to the Division.


                                       13
<PAGE>


Section 3.07      Litigation.

     Except as set forth in  Schedule  3.07,  there are no Actions by or against
Seller related to the Division,  or affecting any of the Assets or the Division,
pending before any  Governmental  Authority (or, to the best knowledge of Seller
without duty of inquiry,  threatened to be brought by or before any Governmental
Authority).  Except as set forth in Schedule 3.07, neither Seller nor any of its
assets or properties,  including,  without limitation, the Assets, is subject to
any  Governmental  Order (nor, to the best  knowledge of Seller  without duty of
inquiry,  are there any such Governmental Orders threatened to be imposed by any
Governmental Authority).

Section 3.08      Compliance with Laws.

     To the best of  Seller's  knowledge,  it has  conducted  and  continues  to
conduct  the  Division  in  accordance  with all Laws  and  Governmental  Orders
applicable  to Seller or any of its  properties  or assets,  including,  without
limitation,  the Assets and the Division,  and Seller is not in violation of any
such Law or Governmental Order.

Section 3.09      Material Contracts.

     Except as disclosed in Schedule 3.09, each Material Contract: (i) is legal,
valid and  binding on the  respective  parties  thereto and is in full force and
effect,  (ii) is freely and fully  assignable  to Purchaser  without  penalty or
other adverse  consequences,  and (iii) upon  consummation  of the  transactions
contemplated  by this  Agreement  and the  Ancillary  Agreements,  except to the
extent that any  consents  set forth in Schedule  3.02 are not  obtained,  shall
continue in full force and effect without penalty or other adverse  consequence.
Seller is not in breach of, or default under, any Material Contract.

Section 3.10      Intellectual Property.(a)

     The  rights  of  Seller in or to the  Owned  Intellectual  Property  do not
conflict  with or infringe on the rights of any other  Person and Seller has not
received any claim or written notice from any Person to such effect.

     To the best of Seller's knowledge, which does not include any investigation
or  inspection  of the  validity of such  licenses,  the  Licensed  Intellectual
Property do not conflict  with or infringe on the rights of any other Person and
Seller  has not  received  any claim or written  notice  from any Person to such
effect.

          (i)  Except  as   disclosed  in  Schedule   3.10(a):   all  the  Owned
     Intellectual Property is owned by Seller, free and clear of any encumbrance
     and (ii) no Actions have been made or asserted  (nor, to the best knowledge
     of Seller is any action  pending nor has any such  Action been  threatened)
     against  Seller either (A) based upon or  challenging or seeking to deny or
     restrict the use by Seller of any of the Owned Intellectual Property or (B)
     alleging that any services  provided,  or products  manufactured or sold by


                                       14
<PAGE>

     Seller are being provided, manufactured or sold in violation of any patents
     or trademarks,  or any other rights of any Person. To the best knowledge of
     Seller,  no Person is using any trademarks,  service marks,  trade names or
     similar  property that are  confusingly  similar to the Owned  Intellectual
     Property or any patents, copyrights trademarks, service marks, trade names,
     trade secrets or similar property that infringe upon the Owned Intellectual
     Property or upon the rights of Seller therein.

          (ii) Except as disclosed in Schedule 3.10(b): (i) no Actions have been
     made or asserted  (nor, to the knowledge of Seller is any Action pending or
     has any Action been  threatened)  against  Seller  either (A) based upon or
     challenging  or seeking to deny or restrict the use by Seller of any of the
     Licensed   Intellectual   Property  or  (B)  alleging   that  any  Licensed
     Intellectual  Property is being licensed,  sublicensed or used in violation
     of any patents or trademarks,  or any other rights of any Person;  and (ii)
     to the best knowledge of Seller, no Person is using any trademarks, service
     marks, trade names or similar property that are confusingly  similar to the
     Licensed  Intellectual  Property or any  patents,  copyrights,  trademarks,
     service marks, trade names, trade secrets or similar property that infringe
     upon the  Licensed  Intellectual  Property  or upon the  rights  of  Seller
     therein.

Section 3.11      Assets.

     (a) Except as disclosed in Schedule 3.11(a), Seller owns, leases or has the
legal right to use all the Assets and has good and  marketable  title to, or, in
the case of leased or subleased Assets, valid and subsisting leasehold interests
in, all the Assets, free and clear of all encumbrances.

     (b) The Assets and Leased Real  Properties  constitute all the  properties,
assets and rights  forming a part of, used,  held or intended to be used in, and
all such  properties,  assets and rights as are necessary in the conduct of, the
Division.

     (c)  Except as set forth in  Schedule  3.10(b),  3.11(a)  or  3.11(c),  and
subject to the consent of third parties  disclosed  elsewhere in the  Disclosure
Schedule,  Seller has the complete and unrestricted  power and unqualified right
to sell,  assign,  transfer,  convey and deliver the Assets to Purchaser without
penalty or other adverse consequences.

Section 3.12      Employee Benefit Matters.

     (a) Plans and  Material  Documents.  Schedule  3.12(a)  lists all  employee
benefit  plans (as defined in Section  3(3) of the  Employee  Retirement  Income
Security Act of 1974, as amended ("ERISA")) and all bonus,  stock option,  stock
purchase, restricted stock, incentive, deferred compensation, retiree medical or
life  insurance,  supplemental  retirement,  severance or other  benefit  plans,
programs or arrangements,  and all employment,  termination,  severance or other
contracts or agreements,  whether legally enforceable or not, to which Seller is
a party  with  respect to the  Division,  with  respect to which  Seller has any


                                       15
<PAGE>

obligation or which are  maintained,  contributed  to or sponsored by Seller for
the  benefit of any  current or former  employee,  officer or director of Seller
with respect to the Division (collectively, "Plans").

     (b) Absence of Certain Liabilities and Events. There has been no prohibited
transaction  (within the meaning of Section 406 of ERISA or Section  4975 of the
Code) with respect to any Plan.  Seller has not incurred any  liability  for any
excise tax arising under Section  4971,  4972,  4980 or 4980B of the Code and to
the best of Seller's  knowledge no fact or event exists which could give rise to
any such liability.  Seller has not incurred any liability under, arising out of
or by operation of Title IV of ERISA (other than  liability  for premiums to the
Pension Benefit Guaranty Corporation arising in the ordinary course), including,
without  limitation,  any liability in connection  with (i) the  termination  or
reorganization  of any employee  benefit  plan subject to Title IV of ERISA,  or
(ii) the withdrawal from any  Multiemployer  Plan or Multiple Employer Plan, and
no fact or event exists which could give rise to any such liability. No complete
or partial  termination  has occurred  within the five years  preceding the date
hereof with  respect to any Plan.  No  reportable  event  (within the meaning of
Section  4043 of ERISA) has occurred or is expected to occur with respect to any
Plan subject to Title IV of ERISA. No Plan had an accumulated funding deficiency
(within the meaning of Section 302 of ERISA or Section 412 of the Code), whether
or not waived,  as of the most  recently  ended plan year of such Plan.  Section
3.13 Labor Matters.

     Except  as set forth in  Schedule  3.13,  (a)  Seller is not a party to any
collective  bargaining  agreement or other labor union  contract  applicable  to
persons  employed  by Seller  with  respect to the  Division,  and,  to Seller's
knowledge,  currently there are no organizational campaigns,  petitions or other
unionization  activities  seeking  recognition of a collective  bargaining  unit
which  could  affect  the  Division;  (b) there are no  controversies,  strikes,
slowdowns or work  stoppages  pending or, to the best  knowledge of Seller after
due inquiry, threatened between Seller and any of the employees of the Division,
and Seller has not experienced any such  controversy,  strike,  slowdown or work
stoppage  within the past three years;  (c) Seller has not breached or otherwise
failed to comply  with the  provisions  of any  collective  bargaining  or union
contract  with respect to the Division and there are no  grievances  outstanding
against  Seller under any such  agreement  or contract;  (d) there are no unfair
labor practice  complaints  pending  against Seller with respect to the Division
before the National Labor Relations Board or any other Governmental Authority or
any current union representation  questions involving employees of the Division;
(e) Seller is currently in compliance  with all applicable  Laws relating to the
employment  of  labor,  including  those  related  to wages,  hours,  collective
bargaining, employee benefits and the payment and withholding of taxes and other
sums as required by the appropriate  Governmental  Authority with respect to the
Division and has withheld and paid to the appropriate  Governmental Authority or
is holding for payment not yet due to such  Governmental  Authority  all amounts
required to be withheld from employees of the Division and is not liable for any
arrears of wages, taxes,  penalties or other sums for failure to comply with any
of the  foregoing;  (f) Seller has paid in full to all employees of the Division
or  adequately  accrued for in  accordance  with prudent  accounting  principles
consistently applied all wages,  salaries,  commissions,  bonuses,  benefits and
other compensation due to or on behalf of such employees;  (g) there is no claim
with respect to payment of wages,  salary or overtime pay that has been asserted
or is now pending or threatened  before any Governmental  Authority with respect


                                       16
<PAGE>

to any Persons  currently or formerly  employed by Seller in the  Division;  (h)
Seller is not a party to, or otherwise  bound by, any consent  decree  with,  or
citation by, any  Governmental  Authority  relating to  employees or  employment
practices  with respect to the  Division;  (i) there is no charge or  proceeding
with respect to a violation of any occupational  safety or health standards that
has been asserted or is now pending or threatened  with respect to the Division;
and (j)  there is no  charge  of  discrimination  in  employment  or  employment
practices,  for any reason,  including,  without limitation,  age, gender, race,
religion or other legally protected category,  which has been asserted or is now
pending or  threatened  before the United  States Equal  Employment  Opportunity
Commission,  or any other  Governmental  Authority in any  jurisdiction in which
Seller  has  employed  or  currently  employs  any  Person  with  respect to the
Division.

Section 3.14      Taxes.

     All returns and reports in respect of Taxes  required to be filed have been
timely  filed and all Taxes  required to be shown on such returns and reports or
otherwise  due have been  timely  paid.  All such  returns and reports are true,
correct and  complete in all  material  respects.  There are no Tax liens on the
Assets.

Section 3.15      Insurance.

     All material  assets and  properties  of the Division are, and for the past
five years  have been,  covered  by valid  and,  except for  policies  that have
expired under their terms in the ordinary course,  currently effective insurance
policies  or  binders  of  insurance  (including,  without  limitation,  general
liability  insurance,  property insurance and workers'  compensation  insurance)
issued in favor of Seller, in each case with responsible insurance companies and
in  adequate  amounts,  covering  such risks as are  consistent  with  customary
practices  and  standards  of companies  engaged in  businesses  and  operations
similar to those of Seller with respect to the Division.

Section 3.16      Full Disclosure.

     None of the warranties made by Seller, or made in any Disclosure  Schedule,
Financial Statement,  Reference Balance Sheet or any other certificate furnished
or to be furnished by Seller, contains or will contain any untrue statement of a
material  fact,  or omits to state a material  fact  necessary  to  prevent  the
statements from being misleading.

Section 3.17      Brokers.

     No  broker,  finder or  investment  banker is  entitled  to any  brokerage,
finder's  or  other  fee or  commission  in  connection  with  the  transactions
contemplated  by  this  Agreement  or  the  Ancillary   Agreements   based  upon
arrangements made by or on behalf of Seller.


                                       17
<PAGE>

Section 3.18      Vote Required.

     The affirmative  vote of the board of directors and of the  shareholders of
Seller are necessary to approve this Agreement and the transactions contemplated
hereby. The board of directors and the shareholders of Seller have approved this
Agreement and the transactions contemplated hereby.


                                   Article 4.
                         REPRESENTATIONS AND WARRANTIES
                                  OF PURCHASER

     As an inducement to Seller to enter into this Agreement,  Purchaser  hereby
represents and warrants to Seller as follows:

Section 4.01      Organization and Authority of Purchaser.

     Purchaser is a corporation  duly  organized,  validly  existing and in good
standing under the laws of the State of Delaware and has all necessary corporate
power and authority to enter into this  Agreement and the Ancillary  Agreements,
to carry out its  obligations  hereunder and  thereunder  and to consummate  the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement  and  the  Ancillary  Agreements  by  Purchaser,  the  performance  by
Purchaser of its  obligations  hereunder and thereunder and the  consummation by
Purchaser  of the  transactions  contemplated  hereby and thereby have been duly
authorized by all requisite action on the part of Purchaser.  This Agreement has
been, and upon their  execution the Ancillary  Agreements will be, duly executed
and delivered by  Purchaser,  and  (assuming  due  authorization,  execution and
delivery by Seller) this  Agreement  constitutes,  and upon their  execution the
Ancillary  Agreements will constitute,  legal, valid and binding  obligations of
Purchaser,  enforceable  against  Purchaser in accordance with their  respective
terms.

Section 4.02      No Conflict.

     Assuming the making and obtaining of all filings, notifications,  consents,
approvals,  authorizations and other actions referred to in Section 4.03, except
as may result from any facts or  circumstances  relating  solely to Seller,  the
execution,  delivery  and  performance  of  this  Agreement  and  the  Ancillary
Agreements  by  Purchaser,  do not and will not (a)  violate,  conflict  with or
result in the  breach of any  provision  of the  Articles  of  Incorporation  or
by-laws (or other organizational  documents) of Purchaser,  or (b) conflict with
or violate any Law or Governmental Order applicable to Purchaser.

Section 4.03      Governmental Consents and Approvals.

     The  execution,  delivery  and  performance  of  this  Agreement  and  each
Ancillary  Agreement  to which it is a party  by  Purchaser  do not and will not
require any  consent,  approval,  authorization  or other  order of,  action by,
filing with, or notification to, any Governmental Authority.


                                       18
<PAGE>

Section 4.04      Brokers.

     No  broker,  finder or  investment  banker is  entitled  to any  brokerage,
finder's  or  other  fee or  commission  in  connection  with  the  transactions
contemplated  by  this  Agreement  or  the  Ancillary   Agreements   based  upon
arrangements made by or on behalf of Purchaser.

Section 4.05      Vote Required.

     No vote of the  shareholders  of the  Purchaser is required to approve this
Agreement and the transactions  contemplated  hereby.  The board of directors of
Purchaser has approved this Agreement and the transactions contemplated hereby.


                                   Article 5.
                             ADDITIONAL AGREEMENTS

Section 5.01      Conduct of Business Prior to the Closing.

     Seller covenants and agrees that,  between the date hereof and the Closing,
Seller shall conduct the  operations of the Division in the ordinary  course and
consistent with Seller's past practice.

Section 5.02      Access to Information.

     From the date hereof  until the Closing,  upon  reasonable  notice,  Seller
shall: (i) afford Purchaser reasonable access,  during normal business hours, to
Seller's  offices,  other  facilities,  books and records and to Seller's agents
regarding  the  Assets,  and  (ii)  furnish  to the  Purchaser  such  additional
financial and operating  data,  reasonable  access to Seller's books and records
and other information  regarding the Assets of Seller as Purchaser may from time
to time reasonably request.

     In order to facilitate  the  resolution of any claims made by or against or
incurred by Purchaser after the Closing or for any other reasonable purpose, for
a period  ending  on the  close of  business  on the  120th  day  following  the
expiration  of  the  applicable  statute  of  limitations  with  respect  to Tax
liabilities,  Seller  shall (i) retain all books and records of Seller which are
not  transferred  to Purchaser  pursuant to this  Agreement  and which relate to
Seller,  its  Division or the Assets for periods  prior to the Closing and which
shall not otherwise have been delivered to Purchaser,  and (ii) upon  reasonable
notice, afford the officers, employees and authorized agents and representatives
of Purchaser  reasonable  access  (including  the right to make  photocopies  at
Purchaser's expense), during normal business hours, to such books and records.


                                       19
<PAGE>

Section 5.03      Confidentiality.

     The parties  acknowledge that Purchaser and Seller have previously executed
the Confidentiality Agreement, which Confidentiality Agreement shall continue in
full  force and  effect in  accordance  with its  terms.  If this  Agreement  is
terminated for any reason,  the  Confidentiality  Agreement  shall survive,  and
neither  party  shall use any  Information  obtained  from the  other  party (as
defined in the Confidentiality Agreement) for any purposes.


Section 5.04      Regulatory and Other Authorizations; Notices and Consents.

     Purchaser and Seller shall use  commercially  reasonable  efforts to obtain
all  authorizations,   consents,   orders  and  approvals  of  all  Governmental
Authorities and officials,  customers, vendors and other parties who may have or
be able to assert legal rights with respect to this  transaction  that may be or
become  necessary  for  execution  and  delivery  of  this  Agreement,  and  the
performance of Purchaser's and Seller's  obligations pursuant to, this Agreement
and the  Ancillary  Agreements  and will  cooperate  fully  with  each  other in
promptly  seeking  to  obtain  all such  authorizations,  consents,  orders  and
approvals.  Purchaser is responsible for conducting an independent investigation
in order to determine  whether the  Acquisition  Agreement and the  transactions
contemplated  thereunder  are subject to compliance  with the  Hart-Scott-Rodino
Act, and for taking all required action if such compliance is necessary.  Seller
hereby  acknowledges that Purchaser has made or will make such  determination in
reliance upon the Seller's balance sheet and financial statements, each dated as
of December 31, 1999 and provided by Seller.

Section 5.05      Notice of Developments.

     Prior to the Closing,  Seller shall promptly notify Purchaser in writing of
(a) all events,  circumstances,  facts and occurrences arising subsequent to the
date of this Agreement  which are reasonably  likely to have a Material  Adverse
Effect on the Division,  and (b) all other material  developments  affecting the
Assets,  Liabilities,  business,  financial  condition,  operations,  results of
operations, customer or supplier relations, employee relations of the Division.

Section 5.06      Use of Intellectual Property.

     Except as set forth in Schedule  5.06,  from and after the Closing,  Seller
shall  not  use  any  of  the  Owned  Intellectual   Property  or  the  Licensed
Intellectual Property.

Section 5.07      Non-Competition.

     (a) For a  period  of one (1)  year  after  the  Closing  (the  "Restricted
Period"), the Seller shall not engage,  directly or indirectly,  in any business
anywhere  in  the  world  that   produces  or  supplies   products  or  services
substantially  similar  to the Assets of the  Division  nor,  without  the prior
written  consent of  Purchaser,  directly or  indirectly,  own an  interest  in,
manage,  operate,  join,  control,  lend  money  or  render  financial  or other
assistance to or participate in or be connected  with, as an officer,  employee,


                                       20
<PAGE>

partner,  stockholder,  consultant  or  otherwise,  any  person or  entity  that
competes  with the aspect of the Division  related to the Assets by producing or
supplying products or services of the kind produced or supplied by the Assets of
the  Division;  provided,  however,  (i) this  Section  5.07  shall not apply to
Permitted Activities,  and (ii) for the purposes of this Section 5.07, ownership
of securities  having no more than five percent (5%) of the  outstanding  voting
power of any competitors which are listed on any national securities exchange or
traded actively in the national  over-the-counter  market shall not be deemed to
be in  violation  of  this  Section  5.07 so long  as the  Seller  has no  other
connection or relationship  with such  competitor.  The fact that the Seller has
specified  that an activity is a Permitted  Activity is not to be interpreted as
an admission that such activity would otherwise be a competitive  activity under
this Section.

          (a) Seller acknowledges that the covenants of Seller set forth in this
     Section 5.07 are an essential  element of this  Agreement and that, but for
     the agreement of Seller to comply with these covenants, Purchaser would not
     have entered into this  Agreement.  Seller  acknowledges  that this Section
     5.07  constitutes  an  independent  covenant  and shall not be  affected by
     performance or  nonperformance  of any other provision of this Agreement by
     Purchaser.

          (b) Seller has independently consulted with its counsel and after such
     consultation  agrees that the  covenants set forth in this Section 5.07 are
     reasonable and proper.

Section 5.08      Sublease.

     Purchaser  agrees to sublet a portion of  Seller's  premises  for a minimum
period of one (1) year  after  Closing,  under the terms and  conditions  of the
Sublease Agreement attached hereto as Exhibit C.

Section 5.09      Bulk Transfer Laws.

     Purchaser hereby waives  compliance by Seller with any applicable bulk sale
or bulk transfer  laws of any  jurisdiction  in connection  with the sale of the
Assets to Purchaser  (other than any obligations with respect to the application
of the  proceeds  herefrom).  Pursuant  to  Article  IX,  Seller  has  agreed to
indemnify  Purchaser  against any and all  liabilities  which may be asserted by
third parties against Purchaser as a result of Seller's  noncompliance  with any
such law.

Section 5.10      Further Action.

     Each of the parties  hereto shall use all  reasonable  efforts to take,  or
cause to be taken,  all  appropriate  action,  do or cause to be done all things
necessary,  proper or advisable under applicable Laws,  including  obtaining any
necessary  consents or approvals from, or making any necessary  filings with any
domestic or foreign regulatory agencies,  and execute and deliver such documents
and  other  papers,  as may be  required  to carry  out the  provisions  of this
Agreement and  consummate and make effective the  transactions  contemplated  by
this Agreement.


                                       21
<PAGE>

                                   Article 6.
                                EMPLOYEE MATTERS

Section 6.01      Offer of Employment.

     Schedule 6.01  contains a true and complete list of all Division  Employees
of the date hereof and sets forth their  position,  current  salary,  (proposed)
retention  bonus,  and status.  Schedule  6.01 also contains a true and complete
list of all Division Contractors as of the date hereof and sets forth the entity
which  employes  each  such  Division  Contractor.   Seller  shall  update  such
information  with as much notice to Buyer as possible prior to the Closing Date.
As of the Closing  Date,  Purchaser  shall offer  employment to each of the then
current Division Employees.  Each employee who accepts such offers of employment
effective as of the Business Day immediately  following the Closing Date(or such
later date as Seller and Purchaser shall agree) shall be referred to herein as a
"Transferred Employee." Seller makes no representation or warranty as to whether
any or all of  the  Division's  employees  will  accept  Purchaser's  offers  of
employment.  Seller shall also reassign the  services,  to the extent that it is
permitted under its agreement with each Division Contractor's  employer, of each
Division  Contractor  listed on Schedule  2.07(a)(3) under the heading "Contract
Software  Engineers" to the Purchaser as of the Closing Date (or such later date
as Seller and Purchaser shall agree).  Each Division Contractor that is assigned
to Purchaser  shall be referred to as a  "Transferred  Contractor".  Seller will
take all steps reasonably necessary to effect such reassignments  including, but
not limited to, the execution of the Consulting Agreement.  Seller shall invoice
Purchaser monthly for its actual cost of providing such Transferred  Contractors
to Purchaser.

Section 6.02      Accrued Wages, Salaries and Vacation; Benefits.

     Seller shall pay to each Transferred Employee all wages, salaries, business
expenses and compensation  for accrued  vacation,  insurance  benefits and COBRA
premiums, if applicable,  earned by him or her prior to the Closing Date. Seller
shall retain all liability  under, and  responsibility  for, the Plan listed (or
required  to be  listed)  in  Schedule  3.12(a)  and  Purchaser  shall  have  no
obligation under or with respect to any such plan or arrangement.


                                   Article 7.
                                   TAX MATTERS
Section 7.01      Indemnity.

     Seller  agrees  to  indemnify  and  hold  harmless  Purchaser  against  the
following Taxes and against any loss,  damage,  liability or expense,  including
reasonable  fees for  attorneys  and  other  outside  consultants,  incurred  in
contesting or otherwise in connection with any such Taxes:  (i) Taxes imposed on
Purchaser (excluding any taxes attributable to assets or businesses of Purchaser
other than the Assets or the Division) with respect to taxable periods ending on
or before the  Closing  Date;  (ii) with  respect to taxable  periods  beginning
before the Closing  Date and ending  after the Closing  Date,  Taxes  imposed on


                                       22
<PAGE>

Purchaser (excluding any taxes attributable to assets or businesses of Purchaser
other than the Assets or the  Division)  which are  allocable  to the portion of
such period ending on the Closing Date;  and (iii) Taxes imposed on Purchaser as
a result of any breach of warranty or  misrepresentation  under  Section 3.14 of
this  Agreement.  Purchaser  shall be responsible  for Taxes of the Division for
periods after the Closing Date.

Section 7.02      Conveyance Taxes.

     Seller shall be responsible for any real property  transfer or gains,  use,
transfer, value added, stock transfer, and stamp taxes, any transfer, recording,
registration,  and other fees,  and any similar  Taxes which  become  payable in
connection  with  the  transactions  contemplated  by  this  Agreement  and  the
Ancillary  Agreements.   Notwithstanding  the  foregoing,   Purchaser  shall  be
responsible  for any sales tax  incurred  in  connection  with the  transactions
contemplated by this Agreement and the Bill of Sale.

Section 7.03      Miscellaneous.

     (a) Seller and  Purchaser  agree to treat all payments made by either to or
for the  benefit of the other under this  Article  VII,  under  other  indemnity
provisions  of this  Agreement  and  for any  misrepresentations  or  breach  of
warranties  or covenants,  as  adjustments  to the Purchase  Price or as capital
contributions for Tax purposes and that such treatment shall govern for purposes
hereof except to the extent that the laws of a particular  jurisdiction  provide
otherwise,  in which case such payments shall be made in an amount sufficient to
indemnify the relevant party on an after-Tax basis.

          (a)  Notwithstanding  any provision in this Agreement to the contrary,
     the obligations of Seller to indemnify and hold harmless Purchaser pursuant
     to this Article VII, and the  representations  and warranties  contained in
     Section  3.14,  shall  terminate  at the close of business on the 120th day
     following the  expiration of the  applicable  statute of  limitations  with
     respect to the Tax  liabilities  in question  (giving effect to any waiver,
     mitigation or extension thereof).

          (b) For  purposes  of this  Article  VII,  "Purchaser"  and  "Seller",
     respectively,  shall  include  each  member  of  the  affiliated  group  of
     corporations of which it is or becomes a member.


                                   Article 8.
                              CONDITIONS TO CLOSING

Section 8.01      Conditions to Obligations of Seller.

     The  obligations of Seller to consummate the  transactions  contemplated by
this Agreement shall be subject to the fulfillment,  at or prior to the Closing,
of each of the following conditions:


                                       23
<PAGE>

          (a) Representations, Warranties and Covenants. The representations and
     warranties of Purchaser  contained in this  Agreement  shall have been true
     and  correct  when  made  and  shall be true and  correct  in all  material
     respects as of the Closing, with the same force and effect as if made as of
     the Closing Date,  other than such  representations  and  warranties as are
     made as of another date,  the covenants  and  agreements  contained in this
     Agreement to be complied  with by Purchaser on or before the Closing  shall
     have been  complied  with in all material  respects,  and Seller shall have
     received a  certificate  from  Purchaser  to such  effect  signed by a duly
     authorized officer thereof;

          (b) No Proceeding or  Litigation.  No Action shall have been commenced
     by or before any Governmental Authority against either Seller or Purchaser,
     seeking to restrain or  materially  and  adversely  alter the  transactions
     contemplated  by  this  Agreement  which,  in the  reasonable,  good  faith
     determination  of Seller,  is likely to render it impossible or unlawful to
     consummate such  transactions;

          (c) Ancillary Agreements.  Purchaser shall have executed and delivered
     to Seller each of the Ancillary Agreements to which it is a party; and

          (d)  Management  Principal  Agreements,  Consulting  Agreement,  Offer
     Letters and Support Agreements. Purchaser shall have executed and delivered
     to Seller  each of the  Management  Principal  Agreements,  the  Consulting
     Agreement,  the Offer  Letters and the  Support  Agreements.

Section  8.02     Conditions to Obligations of Purchaser.

     The obligations of Purchaser to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment,  at or prior to the Closing,
of each of the following conditions:

          (a) Representations, Warranties and Covenants. The representations and
     warranties of Seller  contained in this Agreement  shall have been true and
     correct  when made and shall be true and correct as of the Closing with the
     same force and effect as if made as of the  Closing  Date,  other than such
     representations  and  warranties  as  are  made  as of  another  date,  the
     covenants and agreements contained in this Agreement to be complied with by
     Seller  on or  before  the  Closing  shall  have been  complied  with,  and
     Purchaser shall have received a certificate of Seller to such effect signed
     by a duly authorized officer thereof;

          (b) No Proceeding or  Litigation.  No Action shall have been commenced
     or threatened by or before any Governmental Authority against either Seller
     or  Purchaser,  seeking to restrain or materially  and adversely  alter the
     transactions  contemplated  hereby which in the good faith determination of
     Purchaser is likely to render it impossible  or unlawful to consummate  the
     transactions   contemplated   by  this   Agreement  or   otherwise   render
     inadvisable,  in the good faith  determination of the Board of Directors of
     Purchaser  based  on  information  not  known to  Purchaser  as of the date
     hereof,  the consummation by Purchaser of the transactions  contemplated by
     this  Agreement;  provided,  however,  that the  provisions of this Section
     8.02(b)  shall not apply if Purchaser  has caused,  solicited or encouraged
     any such Action;


                                       24
<PAGE>

          (c)  Resolutions of Seller.  Purchaser  shall have received a true and
     complete  copy,  certified by the  Secretary  or an Assistant  Secretary of
     Seller,  of the  resolutions  duly  and  validly  adopted  by the  Board of
     Directors of Seller  evidencing  its  authorization  of the  execution  and
     delivery  of  this   Agreement  and  the  Ancillary   Agreements   and  the
     consummation of the transactions contemplated hereby and thereby;

          (d) Consents and Approvals.  Purchaser and Seller shall have received,
     each in form and substance reasonably satisfactory to Purchaser in its sole
     and absolute discretion, all authorizations, consents, orders and approvals
     of all Governmental  Authorities and officials and all third party consents
     and estoppel  certificates  which Purchaser  reasonably  deems necessary or
     desirable for the  consummation  of the  transactions  contemplated by this
     Agreement and the Ancillary Agreements;

          (e) Ancillary Agreements.  Seller shall have executed and delivered to
     Purchaser each of the Ancillary Agreements to which it is a party;

          (f)  Management  Principal  Agreements,  Consulting  Agreement,  Offer
     Letters and Support  Agreements.  Seller shall have delivered to Purchasers
     the Management Principal Agreements,  the Consulting  Agreement,  the Offer
     Letters and the Support  Agreements,  executed  by the  respective  parties
     thereto  ;  provided,  that  if the  combination  of  Management  Principal
     Agreements and Offer Letters delivered  pursuant to this Section,  together
     with the number of  Transferred  Contractors  pursuant to Section  6.01, is
     sufficient  to satisfy the  requirement  of Section  2.07(a)(2),  then this
     condition shall be deemed satisfied.

          (g) Material  Contracts.  Purchaser shall have received,  each in form
     and substance reasonably satisfactory to Purchaser, amendments or novations
     of each  Material  Contract  identified  in Schedule  3.09 which  Purchaser
     reasonably  deems  necessary  or  desirable  for  the  consummation  of the
     transactions  contemplated  by this Agreement and the Ancillary  Agreements
     and the ongoing operation of the Division,  including,  without limitation,
     all third party consents required under any Material Contracts; and

          (h) No Material Adverse Effect. No circumstance,  change in, or effect
     on the Division  shall have occurred which has a Material  Adverse  Effect.


                                   Article 9.
                                 INDEMNIFICATION

Section 9.01      Survival of Representations and Warranties.

     The  representations  and warranties of Seller  contained in this Agreement
and the Ancillary  Agreements,  and all statements  contained in the Acquisition
Documents,  shall  survive the  Closing  until  twelve  (12) months  thereafter;
provided,  however, that (a) the representations and warranties dealing with Tax
matters shall survive as provided in Section  7.03(a),  (b) insofar as any claim
is made by Purchaser for the breach of any  representation or warranty of Seller
contained herein, which claim is attributable to products shipped, or activities
or  omissions  related to  Intellectual  Property  that occur on or prior to the


                                       25
<PAGE>

Closing Date, such  representations  and warranties  shall, for purposes of such
claim by Purchaser, survive the Closing until five (5) years thereafter, and (c)
insofar as any claim is made by Purchaser  for the breach of any  representation
or warranty of Seller contained herein, which claim arises out of allegations of
personal  injury  suffered by any third  party on or prior to the Closing  Date,
such  representations  and  warranties  shall,  for  purposes  of such  claim by
Purchaser,  survive until thirty (30) calendar days after the  expiration of the
applicable statute of limitations  governing such claims.  Neither the period of
survival nor the  liability  of Seller with respect to Seller's  representations
and warranties shall be reduced by any  investigation  made at any time by or on
behalf of  Purchaser.  If written  notice of a claim has been given prior to the
expiration  of the  applicable  representations  and  warranties by Purchaser to
Seller,  then the relevant  representations  and warranties  shall survive as to
such claim until the claim has been finally resolved.

Section 9.02      Indemnification by Seller.

     (a) Indemnifiable Losses.  Subject to Section 9.02(b) below,  Purchaser and
its Affiliates,  officers, directors,  employees, agents, successors and assigns
shall be  indemnified  and held harmless by Seller for any and all  Liabilities,
losses, damages,  claims, costs and expenses,  interest,  awards,  judgments and
penalties actually suffered or incurred by them (including,  without limitation,
any Action  brought or otherwise  initiated by any of them) (a "Loss"),  arising
out of or resulting from the following:

          (i) the  breach  of any  representation  or  warranty  made by  Seller
     contained in the Acquisition Documents;

          (ii) the breach of any covenant or  agreement  by Seller  contained in
     the Acquisition Documents;

          (iii) any and all Losses  suffered or incurred by  Purchaser by reason
     of or in connection with any claim or cause of action of any third party to
     the extent arising out of any action, inaction, event, condition, liability
     or  obligation of Seller  occurring or existing  prior to the Closing which
     would  constitute  a breach  of a  representation  or  covenant  of  Seller
     hereunder; and

          (iv) without  limiting the  generality of the  foregoing,  any and all
     Losses suffered or incurred by Purchaser by reason of or in connection with
     any  claim  or  cause  of  action  of  the  Freedom  Group  arising  out of
     Purchaser's  use or ownership  of the Assets,  including  any  Intellectual
     Property.

     Notwithstanding  the  foregoing,  Seller shall not be  responsible  for any
Losses  resulting  from  Purchaser's  modification  or alteration of the Assets,
including any Intellectual  Property,  or responsible for any Losses incurred by
Purchaser for punitive damages or claimed by Purchaser as a loss of profits.

     (b) Claims. Threshold Amount.  Notwithstanding the foregoing,  Seller shall
have no liability  with respect to the matters  described in paragraph (a) above
unless  and until the  aggregate  amount of Losses  thereunder  of which  Seller
receives written notice exceeds  $250,000.00 (the "Threshold  Amount").  At such


                                       26
<PAGE>

time as the  aggregate  Losses  suffered by  Purchaser  with  respect to matters
described  in  paragraph(i)  exceed the  Threshold  Amount,  Purchaser  shall be
indemnified to the full extent of all such Losses  (including  Losses counted in
determining  whether the aggregate Losses equal or exceed the Threshold Amount);
provided,  however,  that Seller shall be liable for any such Losses arising out
of any fraudulent breach of any representation or warranty.

Section 9.03      Indemnification by Purchaser.

     Purchaser will  indemnify,  defend and hold harmless Seller and each of its
affiliates,  officers, directors,  employees, agents, successors and assigns for
any and all Losses  arising out of or resulting (i) from  Purchaser's  breach or
misrepresentation  of any  representation,  warranty,  covenant or  agreement of
Purchaser  contained in the  Acquisition  Documents which has not been expressly
waived by Seller in writing;  (ii) any act or omission of  Purchaser,  or any of
its successors or assigns,  after the closing date, that constitutes a breach or
default  under any of the Assumed  Liabilities;  and (iii) any Losses  resulting
from Purchaser's modification or alteration of the Assets.

         Section 9.04      Indemnification Procedures.

     For purposes of this Section 9.04,  "Indemnified Party" shall mean (i) each
of  Purchaser  and  its  Affiliates,  officers,  directors,  employees,  agents,
successors and assigns,  when being  indemnified  by Seller  pursuant to Section
9.02, and (ii) each of the Seller,  its affiliates and its officers,  directors,
employees,  agents,  successors and assigns, when being indemnified by Purchaser
pursuant to Section 9.03,  and  "Indemnifying  Party" shall mean (x) Seller when
indemnifying  Purchaser  and its  Affiliates,  officers,  directors,  employees,
agents,  successors and assigns pursuant to Section 9.02, and (y) Purchaser when
indemnifying  Seller, its affiliates and their officers,  directors,  employers,
agents, successors and assigns pursuant to Section 9.03:

          (a) An Indemnified  Party shall give the Indemnifying  Party notice of
     any matter which an  Indemnified  Party has  determined  has given or could
     give rise to a right of indemnification under this Agreement,  within sixty
     (60) days of such determination,  stating the amount of the Loss, if known,
     and method of computation  thereof,  a brief  description of the facts upon
     which such claim is based and  containing a reference to the  provisions of
     this Agreement in respect of which such right of indemnification is claimed
     or  arises.  If,  after  the  amount  of  the  claim  is  specified  by the
     Indemnified  Person,  the Indemnifying  Party objects to any such claim, it
     may give written notice to the  Indemnified  Person within thirty (30) days
     of the later of (i) receipt of the Indemnified  Person's notice of claim or
     (ii) the  specification  by the  Indemnified  Person  of the  amount of the
     claim, advising the Indemnified Person of its objection.  If no such notice
     is timely received from the Indemnifying  Party by the Indemnified  Person,
     the  Indemnified  Person will be entitled to payment from the  Indemnifying
     Party in the amount of the Loss  arising out of the claim  specified in its
     notice of claim. If the Indemnifying  Party advises the Indemnified  Person
     within  such  thirty  (30) day period  that it objects to such  claim,  the
     Indemnified  Person and the Indemnifying  Party shall promptly meet and use
     their best  efforts to settle the  dispute in writing.  If the  Indemnified


                                       27
<PAGE>

     Person  and the  Indemnifying  Party are unable to reach  agreement  within
     thirty (30) days after the  Indemnifying  Party objects to the claim,  then
     the  disputed  portion of the claim shall be  submitted  to the  resolution
     process  provided in Section 11.12. If the arbiter shall determine that the
     Indemnified  Person is  entitled  to  indemnification  with  respect to the
     dispute  submitted,  the  Indemnified  Person  will be  entitled  to obtain
     payment from the  Indemnifying  Party within thirty (30) days in the amount
     determined by the arbitrator.

          (b) The obligations and  Liabilities of the  Indemnifying  Party under
     this  Article IX with  respect to Losses  arising  from claims of any third
     party which are subject to the indemnification provided for in this Article
     IX ("Third  Party  Claims")  shall be governed by and  contingent  upon the
     following  additional terms and conditions:  if an Indemnified  Party shall
     receive notice of any Third Party Claim,  the Indemnified  Party shall give
     the Indemnifying  Party notice of such Third Party Claim within thirty days
     of the receipt by the Indemnified Party of such notice; provided,  however,
     that the failure to provide such notice shall not release the  Indemnifying
     Party  from any of its  obligations  under  this  Article  IX except to the
     extent the Indemnifying Party is materially  prejudiced by such failure and
     shall not  relieve  the  Indemnifying  Party from any other  obligation  or
     Liability that it may have to any  Indemnified  Party  otherwise than under
     this  Article IX. If the  Indemnifying  Party  acknowledges  in writing its
     obligation to indemnify the Indemnified  Party hereunder against any Losses
     that may result from such Third Party Claim,  then the  Indemnifying  Party
     shall be  entitled  to assume and  control  the defense of such Third Party
     Claim at its expense and through  counsel of its choice if it gives  notice
     of its intention to do so to the Indemnified  Party within five days of the
     receipt of such notice from the Indemnified Party; provided,  however, that
     if there  exists or is  reasonably  likely to exist a conflict  of interest
     that would make it inappropriate in the judgment of the Indemnified  Party,
     in its  reasonable  discretion,  for the same counsel to represent both the
     Indemnified  Party and the Indemnifying  Party,  then the Indemnified Party
     shall be entitled to retain its own counsel,  at its own  expense,  in each
     jurisdiction  for  which  the  Indemnified  Party  determines   counsel  is
     required.  In the  event  the  Indemnifying  Party  exercises  the right to
     undertake  any such defense  against any such Third Party Claim as provided
     above, the Indemnified Party shall cooperate with the Indemnifying Party in
     such  defense  and  make  available  to  the  Indemnifying   Party  at  the
     Indemnifying Party's expense, all witnesses,  pertinent records,  materials
     and  information  in  the  Indemnified  Party's  possession  or  under  the
     Indemnified  Party's control relating thereto as is reasonably  required by
     the Indemnifying Party.  Similarly,  in the event the Indemnified Party is,
     directly or indirectly, conducting the defense against any such Third Party
     Claim, the Indemnifying Party shall cooperate with the Indemnified Party in
     such  defense  and  make  available  to  the  Indemnified   Party,  at  the
     Indemnifying  Party's expense, all such witnesses,  records,  materials and
     information   in  the   Indemnifying   Party's   possession  or  under  the
     Indemnifying  Party's control relating thereto as is reasonably required by
     the  Indemnified  Party.  No such Third  Party  Claim may be settled by the
     Indemnifying  Party  without the prior written  consent of the  Indemnified
     Party. If the Indemnifying  Party refuses to defend against the Third Party
     Claim,  then the Indemnified Party may defend against the Third Party Claim
     at the expense of the Indemnifying  Party. If an Indemnified Party does not
     participate in the defense of the Third Party Claim, the Indemnified  Party
     may not bring a claim against the  Indemnifying  Party for  negligently  or
     otherwise failing to adequately defend against the Third Party Claim.

          (c) To the extent  that the  Indemnifying  Parties'  undertakings  set
     forth in this Article IX may be  unenforceable,  the  Indemnifying  Parties
     shall be obligated, jointly and severally, to contribute the maximum amount

                                       28
<PAGE>

     that it is permitted to contribute  under applicable Law to the payment and
     satisfaction  of all Losses incurred by the  Indemnified  Parties.

Section 9.05      Limitation of Liability.

     Except for Third Party  Claims of  infringement  on  Intellectual  Property
rights,  in no event will either party's  liability to indemnify the other party
pursuant to this Section 9 exceed the amount of $10,000,000.00.


                                  Article 10.
                             TERMINATION AND WAIVER

Section 10.01     Termination.

     This Agreement may be terminated at any time prior to the Closing:

          (a) by Purchaser  if,  between the date hereof and the time  scheduled
     for the Closing an event or  condition  occurs that has resulted in or that
     Purchaser reasonably believes may result in a Material Adverse Effect;

          (b) by  either  Seller  or  Purchaser  if the  Closing  shall not have
     occurred by June 30, 2000; provided,  however,  that the right to terminate
     this  Agreement  under this Section  10.01(b) shall not be available to any
     party whose failure to fulfill any obligation  under this  Agreement  shall
     have been the cause of, or shall  have  resulted  in,  the  failure  of the
     Closing to occur on or prior to such date;

          (c) by either  Purchaser or Seller in the event that any  Governmental
     Authority  shall have issued an order,  decree or ruling or taken any other
     action  restraining,  enjoining or otherwise  prohibiting the  transactions
     contemplated  by this  Agreement  and such order,  decree,  ruling or other
     action shall have become final and nonappealable; or

          (d) by the mutual written consent of Seller and Purchaser.

Section 10.02     Effect of Termination.

     In the event of termination of this Agreement as provided in Section 10.01,
this Agreement  shall  forthwith  become void and there shall be no liability on
the part of either party hereto  except (i) as set forth in Sections  5.03,  and
11.01 and (ii) that nothing herein shall relieve either party from liability for
any willful breach of this  Agreement.  Notwithstanding  the  foregoing,  if the
Closing  does not occur due to the  Purchaser's  breach of this  Agreement,  the
Purchaser  will pay the  Seller,  within 30 days of the  Purchaser's  failure to
close, the amount of $1,000,000 as and for liquidated damages.


                                       29
<PAGE>

Section 10.03     Waiver.

     Either party to this Agreement may (a) extend the time for the  performance
of any of the  obligations  or other  acts of the  other  party,  (b)  waive any
inaccuracies in the  representations and warranties of the other party contained
herein or in any document  delivered by the other party pursuant hereto,  or (c)
waive  compliance  with any of the  agreements  or conditions of the other party
contained herein.  Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party to be bound thereby.  Any waiver
of any term or condition  shall not be  construed as a waiver of any  subsequent
breach or a subsequent waiver of the same term or condition,  or a waiver of any
other term or condition,  of this Agreement.  The failure of any party to assert
any of its rights hereunder shall not constitute a waiver of any of such rights.


                                  Article 11.
                                 MISCELLANEOUS

Section 11.01     Expenses.

     Except as otherwise  specified in this  Agreement,  all costs and expenses,
including,  without  limitation,  fees and  disbursements of counsel,  financial
advisors and  accountants,  incurred in connection  with this  Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses, whether or not the Closing shall have occurred.

Section 11.02     Notices.

     All notices,  requests,  claims, demands and other communications hereunder
shall be in writing and shall be given or made (and shall be deemed to have been
duly given or made upon receipt) by delivery in person,  or by courier  service,
cable,  telecopy,  telegram,  or registered or certified mail (postage  prepaid,
return receipt  requested) to the respective  parties hereto at their  addresses
set forth on the signature pages to this Agreement (or at such other address for
a party hereto as shall be specified in a notice given in  accordance  with this
Section 11.02).

Section 11.03     Public Announcements.

     No party to this  Agreement  shall  make,  or cause to be made,  any  press
release or public  announcement in respect of this Agreement or the transactions
contemplated  hereby or otherwise  communicate  with any news media  without the
prior written  consent of the other party and the parties shall  cooperate as to
the timing and  contents of any such press  release or public  announcement.  No
such  announcement  shall be made at any time  prior  to the  execution  of this
Agreement.

                                       30
<PAGE>


Section 11.04     Headings.

     The descriptive headings contained in this Agreement are for convenience of
reference  only and shall not  affect in any way the  meaning,  construction  or
interpretation of this Agreement.

Section 11.05     Severability.

     If any term or other  provision of this  Agreement  is invalid,  illegal or
incapable  of being  enforced by any Law or public  policy,  all other terms and
provisions of this Agreement shall nevertheless  remain in full force and effect
so long as the  economic or legal  substance  of the  transactions  contemplated
hereby is not affected in any manner materially  adverse to any party. Upon such
determination that any term or other provision is invalid,  illegal or incapable
of being  enforced,  the parties hereto shall  negotiate in good faith to modify
this Agreement so as to effect the original  intent of the parties as closely as
possible in an  acceptable  manner in order that the  transactions  contemplated
hereby  are  consummated  as  originally  contemplated  to the  greatest  extent
possible.

Section 11.06     Entire Agreement.

     This Agreement (including the Annexes,  Exhibits and Disclosure  Schedules)
constitutes  the entire  agreement  of the parties  hereto  with  respect to the
subject matter hereof and supersedes all prior agreements  (including the Letter
of  Intent,  but  excluding  the  Confidentiality  Agreement)   representations,
undertakings  and  understandings,  both  written and oral,  between  Seller and
Purchaser with respect to the subject matter hereof.

Section 11.07     Assignment.

     This Agreement may not be assigned by operation of Law or otherwise without
the  express  written  consent of Seller and  Purchaser  (which  consent  may be
granted or withheld in the sole discretion of Seller and  Purchaser);  provided,
however,  that  Purchaser  may  assign its rights  under  this  Agreement  to an
Affiliate  of Purchaser  without the consent of Seller.  No such  assignment  by
Purchaser to its Affiliate will relieve  Purchaser of any of its  obligations or
duties under this Agreement.

Section 11.08     No Third Party Beneficiaries.

     This Agreement shall be binding upon and inure solely to the benefit of the
parties  hereto and their  permitted  assigns  and  nothing  herein,  express or
implied,  is  intended  to or shall  confer  upon any other  Person,  including,
without limitation,  any union or any employee or former employee of Seller, any
legal or equitable right, benefit or remedy of any nature whatsoever, including,
without limitation,  any rights of employment for any specified period, under or
by reason of this Agreement.


                                       31
<PAGE>

Section 11.09     Amendment.

     This Agreement may not be amended,  modified or supplemented  except (a) by
an instrument in writing signed by, or on behalf of, Seller and Purchaser or (b)
by a waiver in accordance with Section 10.03.

Section 11.10     Non-Solicitation.

     For a period of one year from the Closing Date, neither party shall solicit
the  employees of the other for  employment  on their own behalf or on behalf of
others,  including,  without limitation,  their Affiliates.  In addition,  for a
period of one year from the  expiration of the Sublease,  unless or until Seller
has ceased doing business,  Purchaser shall not solicit the employees of Seller.
Section 11.11 Governing Law.

     IN ALL  RESPECTS,  INCLUDING  ALL  MATTERS OF  CONSTRUCTION,  VALIDITY  AND
PERFORMANCE,  THIS AGREEMENT AND THE OBLIGATIONS OF EACH PARTY ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF CALIFORNIA  APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE,  WITHOUT REGARD TO THE PRINCIPLES  THEREOF REGARDING
CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

Section           11.12 Dispute Resolution; Arbitration.

     Any  controversy or claim (for purposes of this Section 11.12,  an "Issue")
arising out of or relating to this Agreement  (including  without limitation its
enforcement or  interpretation,  or because of an alleged  breach,  default,  or
misrepresentation  in  connection  with  any  of its  provisions)  or any of the
Ancillary Agreements, shall be subject to the following process, in order:

          (a) The Issue shall be presented to an officer of Purchaser  and Jerry
     Goedicke  for  review  and  deliberation.  If  such  persons  agree  on  an
     appropriate remedy,  Purchaser and Seller agree to be bound by such remedy.
     If not, then

          (b) The Issue shall be presented to the  President or Chief  Executive
     Officer of Purchaser, the Senior Engineer of Purchaser,  Jerry Goedicke and
     James  Hockett.  If a  majority  of such  persons  agree on an  appropriate
     remedy, Purchaser and Seller agree to be bound by such remedy. If not, then

          (c) The Issue shall be subject to non-binding mediation.  The mediator
     shall be selected  by mutual  agreement  of  Purchaser  and  Seller.  If no
     mediator can be mutually  agreed,  then each of Purchaser  and Seller shall
     select a mediator, and those mediators shall select a third mediator. If no
     agreement can be reached in mediation, then


                                       32
<PAGE>


          (d) The Issue shall be submitted to arbitration,  to be held in Orange
     County,  California,  in accordance  with  California  Civil Procedure Code
     ss.ss. 1282-1284.2.

     In the event either party  institutes  mediation or arbitration  under this
Agreement,  the party  prevailing in any such mediation or arbitration  shall be
entitled,  in  addition  to all other  relief,  to  reasonable  attorneys'  fees
relating to such mediation or  arbitration.  The  non-prevailing  party shall be
responsible  for all costs of the  mediation or  arbitration,  including but not
limited to, the mediation or arbitration fees, court reporter fees, etc.

     In the event that a party hereto seeks an  injunctive  or equitable  remedy
under this Agreement or the Ancillary Agreements, then a proceeding therefor may
be commenced and maintained in Orange County  Superior Court in California.  The
parties consent to and waive all objections to such jurisdiction.


Section 11.13     Counterparts.

     This  Agreement  may be  executed in one or more  counterparts,  and by the
different parties hereto in separate  counterparts,  each of which when executed
shall  be  deemed  to be an  original  but all of  which  taken  together  shall
constitute  one  and the  same  agreement.  Signatures  may be  transmitted  via
facsimile.



              [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]



                                       33
<PAGE>


     IN WITNESS  WHEREOF,  Seller and Purchaser have caused this Agreement to be
executed  as of the  date  first  written  above by  their  respective  officers
thereunto duly authorized.

                                            APPLICATION PARTNERS, INC.

                                            By_____________________________
                                               /s/Jerry Goedicke
                                                  President


                                            210 Porter Drive, Suite 120
                                            San Ramon, CA  94583
                                            Attention:  Jerry Goedicke
                                            Telephone:  (925) 552-8230
                                            Telecopy:   (925) 552-8231



                                            FILENET CORPORATION

                                            By_____________________________
                                               /s/Bruce Waddington
                                                  Executive Vice President

                                            3565 Harbor Boulevard
                                            Costa Mesa, CA 92626
                                            Attention:  Mary Carrington
                                            Telephone:  (714) 327-3956
                                            Telecopy:   (714) 327-3232

<PAGE>

                                     ANNEX A

                     DESCRIPTION OF BUSINESS/LIST OF ASSETS


I.   Division: Division shall mean the development, manufacture and distribution
     of all products listed in Part IV of this Annex A (the "Products")


II.  Included  Assets:  The Assets  include all assets and property  used in, or
     necessary for the operation of, the Division, including, without limitation
     goodwill, intangible assets and the assets and property described below:

          Approvals shall mean all permits, authorizations,  licenses (including
          software  licenses) and other  governmental and third party rights and
          privileges  necessary for proper ownership and operation of the Assets
          and/or the Division.

          Contracts  shall mean any and all  contracts and other rights used in,
          or  necessary  for the  ongoing  operation  of the  Assets  and/or the
          Division,  including  the  sublease  attached  as  Exhibit  C and  the
          assumption of the agreement with AAA (Missouri)  attached as Exhibit B
          .

          Documents   shall  mean  all  books,   records,   diskettes  or  other
          electronics  media,  logos and manuals owned or, to the extent legally
          transferable,  related to proper ownership and operation of the Assets
          and/or the Division  (subject to sharing and copyright  rights).  Such
          documentation  shall be delivered to Purchaser in  electronic  form on
          the Closing Date.

          Equipment  shall mean all  furniture,  fixtures and all equipment used
          for  the  operation  of the  Assets  and/or  the  Division  (including
          remanufactured  equipment)  including without limitation the equipment
          listed on Annex A-1.

          Intellectual  Property means that Intellectual  Property (as such term
          is defined in Article I of the Agreement) used primarily in connection
          with  the  ownership  and  operation  of the  Assets  and/or  Division
          including,  but not limited  to, the  patents,  copyrights,  logos and
          other Intellectual Property listed on Annex A-2. Intellectual Property
          shall be  delivered to  Purchaser  in  electronic  form on the Closing
          Date.

          Sequis    Computers   shall   mean   all   personal    computers   and
          computer-related  equipment  and  related  supplies  owned  or, to the
          extent legally  transferable,  used by Seller which are located at the
          real  property  Asset  locations  and  support  the Assets  and/or are
          necessary to operate the Division.


III. Excluded  Assets.  The Assets shall  exclude  those  assets not  identified
     above.


IV.  Products: Sequis(TM)


<PAGE>

Sequis  is a web  based  work  portal  for  managing  the  flow of work  through
insurance carriers, agents, customers, and suppliers.

Sequis includes the following modules (described with their commercial names):

Sequis Work Portal (Web Desktop);

Sequis Web Server (Web Server with Application Layer);

Sequis Data Server (Relational Database Server);

Sequis Administration (System Administration, Configuration and Security);

Sequis Scan (FileNET Scanning Upgrade);

Sequis Media Blender (Industrial  strength image and media routing);  and Sequis
WorkFlo: FileNET Visual WorkFlo Middleware.

See  Schedule  2.07(a)(i)  for specific  technical  and  functional  information
regarding the Sequis program.





<PAGE>


                                    ANNEX A-1

                     EQUIPMENT INCLUDED IN PURCHASED ASSETS






<PAGE>


                                    ANNEX A-2


                TRADEMARKS AND LOGOS INCLUDED IN PURCHASED ASSETS

                                   Sequis(TM)
                                  Logo Attached


<PAGE>


                                    ANNEX A-3


               INTELLECTUAL PROPERTY INCLUDED IN PURCHASED ASSETS

               1.   Sequis software, including source code and object code.

               2.   Sequis  trademark,  including  the  name  "Sequis"  and  the
                    related logo included in Annex A-2.


<PAGE>


                                     ANNEX B

                          ALLOCATION OF PURCHASE PRICE


     Plant, property and equipment                       US$         77,296.64

     Assumed Liabilities                                             (4,817.59)

     Intangible Assets, including Goodwill                       19,926,890.95

     Total                                                      $20,000,000.00


<PAGE>


                               Schedule 2.07(a)(1)

                          Release Readiness Objectives




<PAGE>


                               Schedule 2.07(a)(2)

                            Workers to be Transferred



              By July 30, 2000                  Quiping Lu
                                                Manoj Kumar Chandra
                                                Pradeep Sharma

              By October 1, 2000                Rekha Gupta
                                                Suraj Prakash




<PAGE>


                               Schedule 2.07(a)(3)

                                Worker Retention

                              Management Principals
                                  James Hockett
                                    Jun Huang

                           Employee Software Engineers
                                  Rambabu Uppu
                                   Qiuping Lu
                                 Pradeep Sharma
                                   Rekha Gupta
                                  Eric Vonheim
                                  Wes Thompson

                           Contract Software Engineers
                               Parameswaran Pavar
                             Parameswar Raidu Vuppu
                               Manoj Kumar Chandra
                                  Suraj Prakash
                                 Siddharth Khare