ASSET PURCHASE AGREEMENT





                                     between


                             WATKINS-JOHNSON COMPANY

                                       and

                           SAMSUNG SEMICONDUCTOR, INC.













                          dated as of December 31, 1997

<PAGE>











                            ASSET PURCHASE AGREEMENT




                  THIS IS AN ASSET PURCHASE  AGREEMENT  dated as of December 31,
1997 by and between WATKINS-JOHNSON COMPANY, a California corporation ("Buyer"),
and SAMSUNG SEMICONDUCTOR, INC., a California corporation ("Seller").



                               B A C K G R O U N D


                  Through its Samsung Microwave Semiconductor  Division,  Seller
owns and operates a gallium arsenide wafer and  semiconductor  devices business.
Buyer and Seller desire that Buyer purchase  substantially  all the tangible and
certain  other  assets of that  business.  The purpose of this  Agreement  is to
memorialize the terms and conditions under which that will take place.


ACCORDINGLY, THE PARTIES HEREBY AGREE AS FOLLOWS:



<PAGE>


                                    ARTICLE I

                               CERTAIN DEFINITIONS


                  As used in this  Agreement  and in addition to the other terms
defined before and after this Article I, where they appear with initial  capital
letters these terms have these meanings:


                  "Affiliate"  means,  as to any entity,  any other  entity that
directly or indirectly  Controls,  is  Controlled by or is under common  Control
with, such entity.


                  "Agreement" means this Asset Purchase Agreement (including all
its Schedules and Exhibits),  as it (and they) may be amended in accordance with
Section 9.6.


                  "Ancillary Agreements" means the License Agreement and the New
Sublease.


                  "Assets" has the meaning set forth in Section 2.3.


                  "Assumed  Obligations"  means the  obligations of Seller under
the Executory  Contracts,  to the extent those obligations are first required to
be performed by Seller after the Closing under the terms of those agreements.

                                       2
<PAGE>

                  "Buyer Indemnitee" has the meaning set forth in Section 7.1.


                  "Closing" has the meaning set forth in Section 2.8.


                  "Closing Date" has the meaning set forth in Section 2.8.


                  "Control"  and  correlative  terms  mean,  with  respect to an
entity,  the  direct  or  indirect  power  (whether  through  the  ownership  of
securities,  by  contract  or  otherwise)  to elect  more than 50 percent of the
directors or similar functionaries of that entity.


                  "Current  Sublease"  means the  Sublease  under  which  Seller
currently leases the Property from Harris Corporation.


                  "Customer  Agreements" means all the agreements (including all
amendments) to which Seller is a party  respecting  the sale of Products  (i.e.,
backlog), by Seller to customers of Seller (including agreements or arrangements
with  Affiliates of Seller and with divisions and business units of Seller other
than the GaAs  Business),  that are  wholly  or  partially  executory  as of the
Closing.

                                       3
<PAGE>

                  "Employees"  means  the  employees  of  Seller  whose  sole or
principal  responsibilities  with Seller  relate to Seller's GaAs  Business,  as
opposed to one or more of the other divisions or businesses of Seller.


                  "Environmental  Laws"  means  all  laws,  rules,  regulations,
standards,  permits,  licenses  and  orders,  whether  legislative,  judicial or
administrative,  that  relate to the  condition  of the air,  ground or  surface
water,  land or other  parts of the  environment;  to the  Release or  potential
Release of any Hazardous  Substance into the air, ground or surface water,  land
or other parts of the environment; to the presence of any Hazardous Substance or
of any substance that could become a Hazardous Substance; or to the manufacture,
processing,  distribution, use, treatment, storage, disposal,  transportation or
other handling of any Hazardous Substance.


                  "Environmental   Liability"   means  any   violation   of  any
Environmental Law arising from any act, omission, condition or circumstance that
occurred during the period indicated in the phrase or sentence in which the term
"Environmental  Liability"  is used,  as well as any  claim by any  Governmental
Authority or other "third party" asserting any such violation.

                                       4

<PAGE>

                  "Equipment   Leases"  means  all  the  leases  (including  all
amendments),  under which Seller leases the Leased Tangible  Property,  that are
wholly or partially executory as of the Closing.


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


                  "Escrow  Agreement"  means the escrow  agreement  among Buyer,
Seller and Escrow  Holder  dated as of  December  10,  1997  respecting  Buyer's
$500,000 deposit.


                  "Escrow  Holder"  means Union Bank of  California,  a National
Association.


                  "Excluded Assets" has the meaning set forth in Section 2.4.


                  "Executory  Contracts"  means  the  Customer  Agreements,  the
Equipment Leases, the Supply Agreements and the Other Executory Contracts.


                  "Expense Statements" has the meaning set forth in Section 3.4.

                                       5

<PAGE>

                  "Expiration  Date"  has the  several  meanings  set  forth  in
Section 7.4.


                  "GaAs Business" means the design, development, manufacture and
marketing of Products.


                  "Governmental  Authority" means any body or instrumentality of
any government.


                  "Hazardous Substance" means any hazardous,  toxic or dangerous
waste,  substance,  pollutant,  contaminant,  radiation  or material  defined or
effectively  characterized as such in any Environmental Law or other requirement
of any Governmental Authority relating to, or imposing liability or standards of
or for conduct concerning,  any hazardous,  toxic or dangerous waste, substance,
pollutant,   contaminant,   radiation   or   material,   or  any   petroleum  or
petroleum-based products.


                  "Indemnitee" has the meaning set forth in Section 7.3.


                  "Indemnitor" has the meaning set forth in Section 7.3.


                  "Inventories"  means  all  supplies,   materials,   parts  and
components  that were  acquired by Seller for use in, or in the


                                       6

<PAGE>

normal course of Seller's  business are held by Seller for use in, Seller's GaAs
Business,  all  work-in-process  of  Seller's  GaAs  Business  and all  finished
Products.

                  "Knowledge"  means  the  actual  knowledge  of any  management
Employee,  as well as  knowledge  that  such an  Employee  could  reasonably  be
expected to have.  However,  "Knowledge" as used in the License Agreement refers
only to the actual knowledge of at least one management Employee.


                  "Leased  Tangible  Property"  means the equipment,  furniture,
other  tangible  personal  property  and  fixtures  leased by Seller and used or
usable solely or primarily in Seller's GaAs Business.


                  "License  Agreement" means a license  agreement  between Buyer
and Seller in the form of Exhibit A.


                  "Lien" means any mortgage, deed of trust, pledge,  assessment,
security  interest,  lease,  adverse claim, levy, charge or other encumbrance of
any kind, or any conditional  sale contract,  title retention  contract or other
contract to grant or create any of the foregoing.

                                       7
<PAGE>

                  "Losses"  means  any  and  all  claims,   losses,   judgments,
liabilities,   settlements,  fines,  penalties,  interest,  costs  and  expenses
(including  all  reasonable  attorneys'  fees  and  disbursements   incurred  in
defending  third-party  claims).  "Losses"  include a diminution in value of any
Asset or the GaAs Business, even absent a claim by a third party.


                  "Material Adverse Effect" means any fact, circumstance,  event
or occurrence  that  materially  and adversely  affects or might  materially and
adversely  affect the Property or the Assets,  or the results of  operations  or
condition of Seller's GaAs Business.


                  "New  Sublease"  means a  sublease  agreement  respecting  the
Property between Buyer and Seller in the form of Exhibit B.


                  "Offerees" has the meaning set forth in Section 5.5.


                  "Other   Executory   Contracts"   means  all  the   agreements
(including all  amendments) of Seller that are not Customer  Agreements,  Supply
Agreements or Equipment  Leases,  which relate solely or primarily to the Assets
or the conduct of Seller's GaAs Business, that are wholly or partially executory
as of the Closing.  However,  "Other  Executory  Contracts" does not include

                                       8
<PAGE>


the agreements  that would meet this definition but which are included among the
Excluded Assets. See Section 2.4.


                  "Owned  Tangible  Property"  means the  equipment,  furniture,
other tangible personal property and fixtures owned by Seller and used or usable
solely or primarily in Seller's GaAs  Business,  except for the Leased  Tangible
Property and the Inventories.


                  "Parties" means Buyer and Seller.  See also Section 9.5.


                  "Permits" has the meaning set forth in Section 3.14.


                  "Person"  means any  individual or entity  including,  without
limitation, any Governmental Authority.


                  "Plan" has the meaning set forth in Section 3.11.


                  "Products"  means  all  gallium  arsenide  products  designed,
developed, manufactured or marketed by Seller including, without limitation, all
wafers,   transistors,   monolithic  microwave  integrated  circuits  and  other
semiconductor  devices,  as  well as  combinations  of such  devices  and  other

                                        9

<PAGE>

electronic components that form integrated components or assemblies.


                  "Property"  means the real estate,  improvements  and fixtures
consisting  of or located on the  premises  leased by Seller  under the  Current
Sublease.


                  "Regional  Board" means the California  Regional Water Quality
Control Board.


                  "Release" means any spill, leak, pumping,  pouring,  emitting,
emptying,  discharge,  injection, escape, leaching, dumping or other disposal in
any amount.


                  "Seller Indemnitees" has the meaning set forth in Section 7.2.


                  "Seller's  Consultant"  has the  meaning  set forth in Section
                  5.9.


                  "SHN" means SHN Consulting Engineers and Geologists.


                  "Supply  Agreements"  means all the agreements  (including all
amendments)  to which Seller is a party  (including  agreements or  arrangements
with  Affiliates of Seller and divisions and

                                       10
<PAGE>

business units of Seller other than the GaAs Business), respecting any supplies,
materials, parts or components that are acquired by Seller for use in, or in the
normal  course of Seller's  GaAs  Business  are held for use in,  Seller's  GaAs
Business, that are wholly or partially executory as of the Closing.


                  "Tangible  Property" means the Owned Tangible Property and the
Leased Tangible Property.


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


                  "Taxes"  means  all  taxes and  governmental  levies,  however
denominated,  including  any additions to tax,  interest and penalties  that may
become  payable  in respect  thereof,  imposed  by any  Governmental  Authority,
including  all income  taxes,  payroll and  employee  withholding  taxes,  other
withholding  taxes,  backup withholding taxes,  unemployment  insurance,  social
security,  sales and use taxes,  excise taxes, gross receipts taxes,  occupation
taxes, real, tangible and intangible property taxes,  transfer taxes,  penalties
and taxes  related to  information  reporting  with  respect to taxes,  workers'
compensation and other obligations of the same or similar nature.

                                       11

<PAGE>

                  "Third-Party Claim" has the meaning set forth in Section 7.3.


The  definitions  assigned  to the  terms  in this  Article  I apply to both the
singular  and plural of such terms.  Except as otherwise  expressly  provided in
this  Agreement,  all  references  in  this  Agreement  to  Articles,  Sections,
Subsections,  Schedules  and Exhibits are to  Articles,  Sections,  Subsections,
Schedules  and  Exhibits  of or to this  Agreement.  All dollar  figures in this
Agreement refer to U.S. dollars.

                                   ARTICLE II

                           PURCHASE, SALE AND CLOSING


         2.1 Purchase and Sale. At the Closing: (a) Buyer shall purchase all the
Assets from  Seller;  (b) Seller  shall sell all the Assets to Buyer;  (c) Buyer
shall pay for the Assets as provided  in Section 2.2 and (d) Buyer shall  assume
all  the  Assumed  Obligations.  At the  Closing,  the  Parties  shall  exchange
appropriate bills of sale and assumption documents to memorialize these events.


         2.2 Purchase  Price.  The purchase price payable by Buyer to Seller for
the Assets  shall be $6  million.  Buyer  shall pay that  purchase  price at the
Closing as follows: (a) pursuant to

                                       12

<PAGE>

joint written  instructions by Buyer and Seller to Escrow Holder,  Escrow Holder
shall wire transfer the $500,000  deposited  with Escrow Holder under the Escrow
Agreement,  together with all interest accrued on that deposit, to an account of
Seller  designated  by Seller  and (b) Buyer  shall  pay the  balance  of the $6
million  (i.e.,  $6 million  minus the amount of that  deposit and  interest) by
means of a wire  transfer to that same  account or, if time does not permit,  by
check.


         2.3 Description of the Assets.  The "Assets"  consist of all the assets
(other  than the  Excluded  Assets)  of any and every type  whatsoever  that are
solely or primarily  used or usable by Seller in  conducting  its GaAs  Business
including, without limitation:


                  (a)  all  the  Owned  Tangible  Property  (including,  without
limitation, the waste water treatment equipment that Seller had been leasing but
which Seller purchased on December 31, 1997);


                  (b) all of Seller's rights under the Executory Contracts;


                  (c) all the Inventories as of the Closing;

                                       13

<PAGE>

                  (d) all of Seller's rights under all insurance policies, other
rights to  indemnification  or contribution,  and warranty rights,  in each such
case relating to any of the Assets not described in this paragraph (d);


                  (e) the Permits,  to the extent they are transferable (but not
to the extent they are not transferable);


                  (f) a set of  originals  or copies of all of Seller's  records
and documents, including computerized records, used solely or primarily in or in
connection  with Seller's  GaAs Business  (including,  without  limitation,  all
management  information  systems data that are currently  embodied in software),
except  for  personnel  records  relating  to (i)  Employees  who do not  become
employees of Buyer and (ii) Employees who do become employees of Buyer but which
cannot be  lawfully  disclosed  to Buyer (it being  understood  that  Seller may
retain  originals or copies of all such items and may make reasonable use of the
information contained in those items) and


                  (g) the "deliverables"  specified in the License Agreement (it
being  understood  that the  rights  to  intellectual  property  embodied  by or
reflected in those  deliverables  or in the items  referenced  in paragraph  (f)
above are not Assets and

                                       14
<PAGE>

instead  are  being  addressed  in,  and  shall  be  governed  by,  the  License
Agreement).


         2.4 Excluded Assets. The Assets do not include the Excluded Assets. The
Excluded Assets consist of Seller's:


                  (a) cash, cash equivalents and receivables;


                  (b) rights to the  "Samsung"  name,  as well as all names that
use that name or could reasonably be expected to be confused with that name;


                  (c) rights under the Current  Sublease,  except that virtually
all of those rights are being conferred on Buyer by the New Sublease;


                  (d)  assets  that are not used or usable  by Seller  solely or
primarily in Seller's GaAs Business;


                  (e)   distributorship   agreements  or  sales   representative
agreements;


                  (f) rights under the Asset Purchase  Agreement dated April 26,
1993  between  Samsung  Electronics  Co.,  Ltd. and Harris  Corporation  and the
agreements  entered into in connection  

                                       15
<PAGE>

with the signing of, and closing under, that Asset Purchase Agreement and


                  (g) the intellectual  property and similar rights addressed in
the License Agreement.


         2.5 No Other  Assumptions.  Except for the Assumed  Obligations,  Buyer
shall not  assume  any  obligations  or  liabilities  of  Seller  of any  nature
whatsoever.


         2.6  Prorations.  All  expenses  (including,  without  limitation,  all
prepaid  expenses)  associated  with the  Assets  (for  example,  for  utilities
consumed at the Property) shall be prorated,  as between Seller and Buyer, as of
the close of business on the Closing Date. The prorations  shall be based on the
number of days  elapsed  during the relevant  period that  includes the close of
business  on the  Closing  Date,  unless that  methodology  would be  manifestly
unfair.


         2.7  Transfer  Taxes.  Seller  shall  pay any and all  sales  and other
transfer Taxes resulting from Seller's sale of the Assets to Buyer.  Buyer shall
exercise reasonable efforts to assist Seller in minimizing those Taxes.


                                       16
<PAGE>

         2.8  Closing.  The closing of the  purchase and sale of the Assets (the
"Closing")  shall take place as soon as possible  after this Agreement is signed
and each of the  conditions set forth in Article VI shall have been satisfied or
waived by the appropriate Party. The date the Closing takes place is referred to
in this  Agreement as the "Closing  Date".  The Closing  shall take place at the
offices of Heller Ehrman White & McAuliffe,  525 University  Avenue,  Palo Alto,
California, unless otherwise agreed by the Parties.


         2.9  Allocation  of Purchase  Price.  The Parties  have  allocated  the
purchase  price for the Assets among the various  classes of the Assets and have
initialed that  allocation.  The Parties have negotiated that allocation in good
faith.  They shall file their  respective  tax returns in  accordance  with that
allocation.


                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES
                                       OF
                                     SELLER


                  Seller hereby represents and warrants to Buyer that, except as
specifically  set  forth  as an  exception  to one or  more 

                                       17
<PAGE>

representations or warranties in one or more of the Schedules to this Agreement:


         3.1  Due  Organization.   Seller  is  a  California   corporation  duly
organized,  validly existing and in good standing under the laws of the State of
California  and has all  requisite  power and  authority  to own and operate the
Assets and to carry the GaAs Business as it is now being conducted.


         3.2 Authority and  Enforceability.  Seller has all requisite  power and
authority to enter into and perform this Agreement and the Ancillary Agreements.
The signing,  delivery  and  performance  of this  Agreement  and the  Ancillary
Agreements by Seller have been duly and validly  authorized by Seller's board of
directors.  Seller's sole shareholder need not approve the signing,  delivery or
performance of this Agreement or any of the Ancillary Agreements. This Agreement
constitutes a valid and binding obligation of Seller enforceable  against Seller
in  accordance  with  its  terms,  except  as  enforcement  may  be  limited  by
bankruptcy, insolvency, reorganization,  moratorium or other laws relating to or
affecting  creditors'  rights  generally and except as such  enforcement  may be
limited by general  principles  of equity.  When signed and delivered by Seller,
the Ancillary  Agreements will also constitute valid and binding  obligations of
Seller  enforceable  against  Seller in accordance  with their terms, 

                                       18
<PAGE>

except as enforcement may be limited by bankruptcy, insolvency,  reorganization,
moratorium or other laws relating to or affecting  creditors'  rights  generally
and except as enforcement may be limited by general principles of equity. Except
as  shown on  Schedule  3.3,  the  signing,  delivery  and  performance  of this
Agreement  and the  Ancillary  Agreements  by Seller does not and will not:  (a)
violate or conflict with the Articles of Incorporation or Bylaws of Seller;  (b)
violate, conflict with, result in a breach or termination of, otherwise give any
other Person the right to terminate, constitute a default under or result in the
loss of any benefit or right under, the terms of any of the Executory  Contracts
or any other agreement or instrument under which any of the Assets is bound; (c)
violate, conflict with, result in a breach or termination of, otherwise give any
other Person the right to terminate, constitute a default under or result in the
loss of any benefit or right  under,  the terms of any  contract  or  instrument
(other  than the  Executory  Contracts)  to which  Seller is a party or by which
Seller is bound if such violation,  conflict,  breach or other consequence would
or could have a Material Adverse Effect;  (d) result in the creation of any Lien
upon any of the Assets; (e) violate any judgment,  order, injunction,  decree or
award of any Governmental Authority binding upon any of the Assets or any 

                                       19
<PAGE>

aspect of Seller's GaAs Business or (f) constitute a violation of law by Seller.


         3.3 Consents and Approvals. Except as shown on Schedule 3.3, no consent
or approval of, or filing or registration  with, any  Governmental  Authority or
any other  Person,  by Seller,  is or will be necessary in  connection  with the
signing,  delivery  or  performance  by Seller of this  Agreement  or any of the
Ancillary  Agreements  or the use of the Assets by Buyer after the  Closing,  it
being  understood  that  this  Section  3.3 does not  address  any  consents  or
approvals that might be required under agreements to which Buyer is a party.


         3.4 Expense Statements and Changes. Schedule 3.4 includes statements of
the  "external"  expenses  incurred by Seller in  conducting  its GaAs  Business
during  each of the 21  months  beginning  with  January  1996 and  ending  with
September 1997 (the "Expense Statements").  The Expense Statements were prepared
on an accrual basis and correctly reflect such external expenses. The references
in this Section 3.4 to  "external"  are intended to exclude  payments or payment
obligations for goods and services obtained by Seller for its GaAs Business from
other business units of Seller or from Affiliates of Seller. However, salary and
other  compensation  paid  or  payable  to  employees  and  

                                       20
<PAGE>

consultants  are not  considered  "external"  for  this  purpose  and  thus  are
reflected on the Expense Statements.


         3.5 Taxes.  Neither  Buyer nor any  Affiliate  of Buyer  shall have any
liability for any Taxes payable by Seller or any entity that filed,  files,  was
required to file or is required to file a  consolidated  or combined  Tax Return
with Seller.


         3.6  Litigation.  Except as shown on Schedule  3.6, to the Knowledge of
Seller, there is no legal,  administrative,  governmental or other suit, action,
arbitration,  proceeding  or  investigation  pending  or  threatened  against or
affecting Seller, which alone or in the aggregate for all such matters could, if
adversely determined,  have a Material Adverse Effect. Schedule 3.6 sets forth a
summary description of all legal, administrative,  governmental and other suits,
actions,  arbitrations,  proceedings  and  investigations  pending or threatened
against or affecting  Seller in  connection  with  Seller's GaAs Business or any
Asset and of which Seller has  Knowledge.  Except as disclosed on Schedule  3.6,
there is no judgment,  decree, injunction or order of any Governmental Authority
outstanding  applicable to Seller in  connection  with Seller's GaAs Business or
any Asset.

                                       21
<PAGE>

         3.7 Title and  Condition.  Seller has good title to all the Assets,  in
each case free and clear of all  Liens,  and Buyer  will have such  title to the
Assets  immediately  after the Closing.  Schedule 3.7(a) contains a complete and
accurate  list,  as of July 31,  1997,  of all the  Tangible  Assets that had an
original cost, in each case in excess of $1,000. Since July 31, 1996, Seller has
not transferred or disposed of any Inventories or Tangible Property,  or shipped
or removed any Inventories or Tangible  Property from the Property (in each such
case,  including  to other  business  units of  Seller or to any  Affiliates  of
Seller),  except in the  ordinary  course of Seller's  business.  The  equipment
listed on Schedule 3.7(b) is in good working order and repair, ordinary wear and
tear excepted.


         3.8  Compliance  With  Laws.  Seller  has  conducted  and is  currently
conducting the GaAs Business in material compliance with all applicable laws.


         3.9 Brokers'  and  Finders'  Fees.  No agent,  broker,  finder or other
Person  acting on behalf  of  Seller  or any  Affiliate  of Seller is or will be
entitled to any  commission or brokers' or finders' fee in connection  with this
Agreement or any 

                                       22
<PAGE>

of the  transactions  it  contemplates by reason of the conduct of Seller or any
such Affiliate.


         3.10  Employee  Matters.  Schedule  3.10 sets forth the current rate of
compensation  paid to each  Employee and the amount and medium of any bonuses or
other special  compensation  paid to each Employee  since 1995.  Seller is not a
party to any collective bargaining agreement respecting any of the Employees. To
Seller's  Knowledge,  no labor union organizing  activities have occurred or are
occurring among any of the Employees.


         3.11  Employee  Benefits.  Schedule  3.11  sets  forth  a list  of each
employee  benefit  plan within the meaning of ERISA  Section 3(3) that is or was
maintained or contributed to by or on behalf of Seller for the benefit of any of
the  Employees  (a  "Plan").  To the  Knowledge  of  Seller,  each Plan has been
operated in material  compliance with its terms and materially complies with all
requirements applicable to that Plan under the Tax Code and ERISA. No Plan is or
was subject to Title IV of ERISA.


         3.12  Environmental  Matters.  Except as shown on Schedule 3.12, Seller
has no knowledge of any condition or  circumstance  present at or arising out of
the Property (including, but not limited to, the presence of asbestos-

                                       23
<PAGE>

containing materials,  the presence of underground storage tanks or a Release of
any Hazardous Substance) which,  individually or in the aggregate,  could have a
Material  Adverse  Effect.  Seller  has not  received  notification  (and has no
Knowledge that any other Person has received notification) from any Governmental
Authority  that, as to the Property or any business or activities ever conducted
on the  Property,  there exists or has  occurred a violation  of any  applicable
Environmental  Laws or a condition  or  circumstance  that  requires a response,
removal or  remedial  action.  Except as shown on Schedule  3.12,  Seller has no
Knowledge  of any  circumstance  or  condition  present at or arising out of the
Property  that may give  rise to any  Environmental  Liabilities.  Seller  is in
material  compliance with all applicable  Environmental Laws. Except as shown on
Schedule  3.12, to Seller's  Knowledge,  the Property is not or was not formerly
the site of a gasoline  service  station,  automotive  repair  facility or other
commercial  or  industrial  facility  involving  the use,  storage,  handling or
disposal of any Hazardous Substance.


         3.13 Executory Contracts. Schedule 3.13 contains a complete list of all
the  Executory  Contracts.  Seller has  furnished  Buyer with true and  complete
copies of all the Executory Contracts,  as well as the Current Sublease. All the
Executory  Contracts are binding and  enforceable  obligations of Seller and,

                                       24
<PAGE>

to the Knowledge of Seller,  the other parties thereto,  except (with respect to
enforcement)   as  enforcement   may  be  limited  by  bankruptcy,   insolvency,
reorganization,  moratorium  or other laws  relating to or affecting  creditors'
rights generally and except as enforcement may be limited by general  principles
of equity.  Seller and, to the Knowledge of Seller, all other parties to all the
Executory  Contracts  and the Current  Sublease  have in all  material  respects
performed  all  obligations  required  to be  performed  by them  and are not in
material default thereunder.


         3.14 Permits.  Schedule 3.14 sets forth a complete and accurate list of
all material  permits,  licenses,  waivers,  exemptions  and other  governmental
authorizations  and approvals required or used primarily or solely in connection
with the conduct of Seller's GaAs Business (the "Permits"). All the Permits have
been duly obtained and are in full force and effect. Except as shown on Schedule
3.14,  Seller  is in  material  compliance  with  the  requirements,  terms  and
conditions of all the Permits.


         3.15   Inventories.   Schedule  3.15  consists  of  a  summary  of  the
Inventories,  by type of item and quantity, as of October 31, 1997. That summary
is substantially  accurate.  Buyer  acknowledges  that the Inventories are being
sold to Buyer "as is"

                                       25
<PAGE>

and that the only representations and warranties Buyer is making with respect to
the Inventories are as set forth in the previous sentence and in Schedule 3.15.


         3.16 Intellectual  Property.  Representations  and warranties of Seller
regarding patents,  other "intellectual  property" and related matters appear in
the  License  Agreement.  This  Agreement  contains no such  representations  or
warranties.  However, as indicated in the License Agreement, Article VII of this
Agreement provides remedies regarding any breach of any of those representations
and warranties.


         3.17  Other  Material  Information.  There  is no fact or  circumstance
which,  to the  Knowledge  of Seller,  has or would be likely to have a Material
Adverse  Effect  which has not been set forth in this  Agreement  or the License
Agreement and is not otherwise  generally  known or knowable by the public or by
Buyer  from  sources  other  than  Seller  or the due  diligence  materials  and
information   made  available  by  Seller  to  Buyer  in  connection   with  the
transactions contemplated by this Agreement.


                                   ARTICLE IV

                     REPRESENTATIONS AND WARRANTIES OF BUYER


                                       26
<PAGE>

                  Buyer  hereby  represents  and  warrants  to  Seller  that the
following  representations  and warranties are true, accurate and complete as of
the date of this Agreement:


         4.1 Due  Organization.  Buyer is a corporation duly organized,  validly
existing and in good standing  under the laws of the State of California and has
all requisite  power and authority to own,  lease and operate its properties and
to carry on its business as it is now being conducted.


         4.2  Authority.  Buyer has all  requisite  power and authority to enter
into and perform  this  Agreement  and the  Ancillary  Agreements.  The signing,
delivery and performance of this Agreement and the Ancillary Agreements by Buyer
have been duly and validly  authorized by all necessary  corporate action on the
part of Buyer.  This  Agreement  constitutes  a valid and binding  obligation of
Buyer  enforceable  against Buyer in accordance  with its terms,  except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting creditors' rights generally and except as
such enforcement may be limited by general principles of equity. When signed and
delivered by Buyer,  the Ancillary  Agreements  will also  constitute  valid and
binding  obligations of Buyer enforceable against Buyer in accordance with their
terms,  except  as  enforcement  may  be  limited  by  bankruptcy, 

                                       27
<PAGE>

insolvency,  reorganization,  moratorium  or other laws relating to or affecting
creditors'  rights generally and except as enforcement may be limited by general
principles of equity.  The signing,  delivery and  performance of this Agreement
and the  Ancillary  Agreements  by Buyer do not and will  not:  (a)  violate  or
conflict  with the Articles of  Incorporation  or Bylaws of Buyer;  (b) violate,
conflict with,  result in a breach or termination  of,  otherwise give any other
Person the right to terminate,  constitute a default under or result in the loss
of any benefit or right under,  the terms of any contract or other instrument to
which  Buyer is a party or by which  Buyer or any of its  assets is  bound;  (c)
violate any judgment,  order,  injunction,  decree or award of any  Governmental
Authority  binding upon Buyer or any of its assets or (d) constitute a violation
of any law by Buyer.


         4.3 Financial Resources. Buyer has sufficient cash resources to pay the
entire purchase price for the Assets.


         4.4  Consents  and  Approvals  No consent or approval  of, or filing or
registration  with any Governmental  Authority or any other Person, by Buyer, is
or will be  necessary  in action with the signing,  delivery or  performance  by
Buyer of this Agreement or any of the Ancillary Agreements.


                                       28
<PAGE>

         4.5 Brokers' and Finders' Fees. Except for Alliant Partners,  no agent,
broker,  finder or other  Person  acting on behalf of Buyer or any  Affiliate of
Buyer is or will be entitled to any  commission  or brokers' or finders'  fee in
connection with this Agreement or the  transactions it contemplates by reason of
the  conduct  of Buyer or any  Affiliate  of Buyer.  Buyer  shall pay the fee of
Alliant Partners.


                                    ARTICLE V

                                CERTAIN COVENANTS


         5.1  Access  to   Information.   Seller  shall  afford  Buyer  and  its
representatives full access,  during normal business hours on reasonable notice,
to the Property,  the Assets and Seller's  reports,  books and records  relating
solely or  primarily  to the  Assets  and  Seller's  GaAs  Business.  Subject to
reasonable limitations imposed by Seller and to any confidentiality  obligations
of Seller to other Persons, Buyer shall have the right to make copies,  extracts
and  summaries of all such  reports,  books and  records.  Each Party shall keep
confidential all non-public  information obtained from the other Party and shall
not  disclose  or use  any  such  information  for  any  purpose  other  than in
connection  with  the  transactions  contemplated  by this  Agreement.  However,
subject to Section 8 of the License  Agreement,  nothing in this  Section 5.1 or
elsewhere  shall 

                                       29
<PAGE>

prohibit any use or disclosure by Buyer of any  confidential  information  about
the Assets or the GaAs Business as conducted by Buyer after the Closing.


         5.2 Conduct of the Business.  Before the Closing,  Seller shall use its
best  efforts:  (a) to conduct the GaAs  Business  only in the  ordinary  course
consistent  with past practice and applicable  law; (b) to preserve the goodwill
of the Employees and Seller's  suppliers,  customers and others with whom Seller
has  relationships  in connection with the GaAs Business and (c) to preserve the
value of the Assets and the GaAs Business.


         5.3 Certain Actions Prohibited. Before the Closing, except as expressly
permitted or required by this  Agreement or as consented to in writing by Buyer,
Seller shall refrain from:


                  (a) hiring any employees,  agents or consultants  for the GaAs
Business or increasing  the salary of, or benefits of or any other  compensation
payable to, any Employees;


                  (b) creating or suffering any Lien on any of the Assets;

                                       30
<PAGE>

                  (c)  selling,  transferring  or  otherwise  disposing  of  any
Assets, except Inventories in the ordinary course of Seller's GaAs Business;


                  (d)  modifying,  cancelling or waiving any claims or rights of
substantial value relating to any Asset or the GaAs Business;


                  (e) otherwise  entering into any  transaction  relating to the
GaAs  Business,  except in the usual and  ordinary  manner  and in the  ordinary
course of that business or


                  (f)  agreeing,  in  writing  or  otherwise,  to do  any of the
foregoing.


                  If and to the extent  there is a  perceived  conflict  between
this Section 5.3 and Section 5.2, this Section 5.3 shall prevail.


         5.4  Public   Announcements.   Any  press   releases  or  other  public
announcements before or in connection with the Closing by either Party regarding
this Agreement or any of the  transactions it contemplates  will be submitted to
the other Party for comment at least two business  days before it is released or
made.

                                       31
<PAGE>

         5.5 Employees.  Prior to, but in connection  with, the Closing,  Seller
shall permit Buyer to offer  employment to those  Employees whom Buyer indicates
it wishes to employ after the Closing (the  "Offerees").  Seller shall encourage
those Employees to accept  employment with Buyer.  Seller in all events shall be
responsible  for and pay all  obligations  and  liabilities to or respecting all
Offerees and other  Employees,  including any and all severance  obligations and
liabilities  resulting from their termination of employment with Seller,  except
that Buyer shall be responsible  for all obligations and liabilities of Buyer to
the Offerees that accept employment with Buyer and which first accrue after (but
not as a result of) the Closing.


         5.6 Future  Employment.  Without  Buyer's  prior written  consent:  (a)
during the 12 months after the Closing, Seller shall not, and Seller shall cause
its Affiliates not to, directly or indirectly  employ or otherwise  purchase the
services of any Offeree  hired by Buyer and (b) during the two years  thereafter
(in other words,  during the 24 months  beginning 12 months after the  Closing),
Seller  shall not  solicit any such  Offeree to become an employee or  otherwise
render  services to Seller or any Affiliate of Seller.  However,  nothing in the
previous sentence shall prevent Seller or any Affiliate of Seller from employing
or otherwise  purchasing  services  from any Offeree who, at that time, 

                                       32
<PAGE>

has not been an employee of and has not otherwise  rendered services to Buyer or
any  Affiliate  of Buyer  during any six  consecutive  months  beginning  on the
Closing Date.


         5.7 Warranties


                  (a)  Division  of  Responsibilities.   Subject  to  Subsection
5.7(b),  Seller shall be responsible for all customer warranties  respecting all
Products  shipped by Seller before the Closing.  Buyer shall be responsible  for
all  customer  warranties  respecting  all  Products  shipped by Buyer after the
Closing.


                  (b)  Warranty  Work by Buyer for  Seller.  After the  Closing,
Buyer shall  discharge  Seller's  warranty  obligations  described  in the first
sentence of Subsection 5.7(a) by repairing or (more likely) replacing  defective
Products.  For performing this function,  Seller shall pay Buyer an amount equal
to Buyer's  direct costs for time and  materials and shall  reimburse  Buyer for
those costs monthly within 30 days after Buyer submits an invoice.  Seller shall
have reasonable access to Buyer's cost records in order to verify those costs.


                                       33
<PAGE>


         5.8 Special Decommissioning, Closure and Equipment Obligations


                  (a) Storage Area. Seller has used a metal shed in a fenced-off
area  located at the rear of the  Property  adjacent to the parking lot to store
arsenic. Promptly after the Closing, Seller, at Seller's expense, shall take all
steps necessary to decommission  that storage area in accordance with applicable
law.  Decommissioning  may  require  submission  of a  decommissioning  plan for
approval by the City of Milpitas.  After Seller obtains any necessary  approvals
from the City, Seller shall promptly decommission the storage area, including in
accordance with the City-approved  decommissioning plan if there is such a plan.
If the storage area has not been  decommissioned  to the City's  satisfaction by
May 1, 1998, Buyer, at Buyer's option,  may complete the  decommissioning at any
time thereafter,  in which case Seller shall pay all of Buyer's reasonable costs
and expenses of doing so. However, Buyer's failure to exercise that option shall
not relieve Seller of the obligation to decommission the storage area.


                                       34
<PAGE>

                  (b) Old Waste Water Treatment System.  An acid  neutralization
system was  located  in a  below-ground  vault to the rear of the main  building
constituting  part of the  Property.  Promptly  after the  Closing,  Seller,  at
Seller's expense, shall take all steps necessary to complete the closure of that
acid  neutralization  system in  accordance  with  applicable  law.  Closure may
require submission of a closure plan for approval by the City of Milpitas. After
Seller  obtains any necessary  approvals  from the City,  Seller shall  promptly
implement  the  closure  of  the  system,   including  in  accordance  with  the
City-approved  closure plan if there is such a plan.  However,  Seller shall not
fill the below-ground  vault unless the City requires that it be filled.  If the
acid neutralization system has not been closed to the City's satisfaction by May
1,  1998,  Buyer,  at  Buyer's  option,  may  complete  the  closure at any time
thereafter,  in which case Seller shall pay all of Buyer's  reasonable costs and
expenses of doing so. However, Buyer's failure to exercise that option shall not
relieve Seller of the obligation to close the acid neutralization system.


         5.9 Special Environmental Covenant


                  (a)  Preliminary  Findings.  On behalf of Buyer in  connection
with Buyer's due diligence  relating to Buyer's

                                       35
<PAGE>

purchase of the  Assets,  SHN has  identified  the  presence  of acetone,  ethyl
benzene,  freon 113 and two isomers of xylene (the "four  chemicals") in shallow
soil and/or shallow  groundwater at the easterly area of the Property,  based on
SHN's  sampling at that location  during  December 1997.  However,  owing to the
preliminary nature of SHN's  investigation and the limited data SHN has acquired
to date,  SHN has indicated it has not been able to reach  reliable  conclusions
regarding  the source of the Release of the four  chemicals,  the  direction  of
groundwater  movement  beneath the Property or whether such  chemicals  might be
found in other  concentrations and locations beneath or adjacent to the Property
as a result of Releases,  if any,  originating  at the Property.  The purpose of
this  Section  5.9 is to set forth an action  plan  intended  to  resolve  those
uncertainties and to take remedial action if and to the extent appropriate under
applicable law.


                  (b) Further Investigation.  After the Closing, SHN, as Buyer's
consultant,  and an  environmental  consultant  selected  by  Seller  ("Seller's
Consultant")  shall  jointly  develop a report of the data SHN has  developed to
date and a proposed work plan designed to determine,  to a reasonable  degree of
certainty as may be required by the Regional Board,  the possible sources of the
Releases of the four chemicals and the concentrations and approximate  locations
of each at or near the 

                                       36
<PAGE>

Property.  SHN and Seller's  Consultant shall submit their joint report and work
plan to the  Regional  Board for the  Regional  Board's  approval and shall make
whatever  modifications  to, or extensions  of, that work plan that the Regional
Board may require from time to time. After the Regional Board approves the plan,
Seller's  Consultant  shall  implement  the  work  plan  subject  to  reasonable
oversight by SHN. If implementation  reveals the presence,  in the soil, surface
water or groundwater at the Property,  of detectable quantities of any Hazardous
Substances in addition to the four chemicals,  SHN and Seller's Consultant shall
report that presence to the Regional Board and shall extend their  investigation
to include those  additional  Hazardous  Substances in order to ascertain  their
sources,  concentrations and locations if and as may be required by the Regional
Board.  The  investigation  may also  extend  off-site  of the  Property  if the
Regional Board so requires. Seller and Buyer, with the assistance, respectively,
of  Seller's  Consultant  and SHN,  shall be  entitled  to contest or appeal the
Regional Board's conclusions or requirements  consistent with the principles and
purposes set forth in this Section 5.9.


                  (c)  Repair  and  Remediation.  Following  completion  of  the
investigation (or before completion if SHN and Seller's Consultant conclude that
is preferable or if they are so directed by the Regional  Board),  in accordance
with a work plan

                                       37
<PAGE>

jointly  prepared and  submitted to and approved by the Regional  Board,  Seller
shall cause  whatever  steps are required by the Regional  Board to be taken to:
(i) remediate the presence of any Hazardous  Substances  (whether  consisting of
any of the four  chemicals,  other  Hazardous  Substances  or  both),  which the
investigation  has  indicated  are present at the Property or have migrated from
the Property to off-site  locations  and (ii) complete any  monitoring  that the
Regional  Board may  require.  Seller  shall also obtain a "no  further  action"
letter  from  the  Regional  Board  with  respect  to  the  Property.   Seller's
remediation  obligations  under this  paragraph  shall extend to any of the four
chemicals and any other Hazardous  Substances released after the Closing pending
completion  of any  repairs  or  replacements  required  by the  next  sentence,
provided  that,  at  Seller's  expense,  Buyer  takes such  reasonable  steps to
mitigate those further Releases as Seller and Buyer agree. If the  investigation
indicates  that the  source of any  Release at the  Property  of any of the four
chemicals or other Hazardous  Substance is or was broken or otherwise  defective
equipment,  piping or other improvements at the Property,  then, irrespective of
whether those four chemicals or other Hazardous Substances are being released in
quantities  that have resulted in identified  concentrations  exceeding  maximum
concentration  levels,  Seller  shall cause that broken or  otherwise  defective
equipment, piping or other improvements to be repaired or replaced, so that they

                                       38
<PAGE>

will no longer be a source of such Releases.  All such steps shall be taken in a
manner  designed  to  minimize  the  disruption  to  Buyer's  operations  at the
Property.


                  (d)  Costs  and  Expenses.  Except  as  provided  in the  last
sentence  of this  paragraph,  Seller  shall  pay all the  reasonable  costs and
expenses   incurred  in  implementing   this  Section  5.9  including,   without
limitation,  all fees and costs of Seller's  Consultant,  and the investigation,
remediation  and repair  contemplated by this Section 5.9. Seller shall fund all
such costs and  expenses on a current  basis rather than  reimburse  Buyer after
Buyer advances funds. Buyer shall pay the fees and costs of SHN.


                  (e)  Relationship to Article VII.  Nothing in this Section 5.9
or in  Section  5.8 shall in any  manner  diminish  Seller's  obligations  under
Article VII.


         5.10 Good Faith  Efforts.  Buyer and Seller shall use their  respective
good faith efforts to cause each  condition  precedent to the  completion of the
transactions  contemplated  by this  Agreement  over which they have  control or
influence  to be  satisfied  as soon as is  reasonably  practicable  after  this
Agreement is signed. However, such efforts need not include the payment of money
or other  consideration  to other  Persons or

                                       39
<PAGE>

require  that any Party waive any  condition to its  obligation  to complete the
Closing set forth in Article VI.


         5.11  Further  Assurances.  At any time after the  Closing  and without
payment of any additional  consideration by Buyer, Seller shall sign and deliver
such further documents as may be reasonably  requested by Buyer in order to give
effect to the  provisions of this  Agreement and the  Ancillary  Agreements  and
shall also assist Buyer in obtaining any of the consents or approvals  listed or
required  to be  listed  on  Schedule  3.3 that  have not been  obtained  by the
Closing.  In the  meantime,  if any such  consents  or  approvals  have not been
obtained by the Closing, Seller shall exercise its reasonable good faith efforts
to assure  that Buyer  enjoys the full  economic  benefits of the Assets and the
Executory  Contracts  that it would have enjoyed if such  consents and approvals
had been  obtained by the Closing.  In addition,  during the 12 months after the
Closing but subject to reasonable  limitations  and  reimbursement  by Buyer for
Seller's reasonable,  documented,  out-of-pocket  expenses,  Seller shall assist
Buyer in  connection  with any lawsuit,  tax audit,  other  inquiry,  accounting
review or audit,  proceeding or other matter,  whether or not currently pending,
which to any  extent  arises out of events or  circumstances  that  precede  the
Closing.

                                       40
<PAGE>

                                   ARTICLE VI

                       CONDITIONS PRECEDENT TO THE CLOSING


         6.1 Condition to the  Obligation of Each Party.  The obligation of each
Party to this Agreement to complete the Closing is subject to the condition that
neither Party is subject to any order,  decree or injunction of any Governmental
Authority of competent  jurisdiction that enjoins or prohibits the completion of
any of the transactions contemplated by this Agreement.


         6.2 Additional Conditions to the Obligation of Buyer. The obligation of
Buyer to complete the Closing is further  subject to the  fulfillment of all the
following  conditions  (in addition to the  condition set forth in Section 6.1),
unless waived in writing by Buyer:


                  (a)  Accuracy  of   Representations   and   Warranties.   Each
representation  and warranty in Article III and in the License  Agreement  shall
have  been  true  and  correct  in all  material  respects  on the  date of this
Agreement and as of the Closing  Date,  with the same force and effect as though
made as of the Closing  Date,  provided  that the  reference in this sentence to
"material" shall be disregarded with respect to any 

                                       41
<PAGE>

representation or warranty that is already expressly qualified in some manner by
materiality.


                  (b)  Compliance  with  Agreement.  All the  covenants  in this
Agreement  required to be performed by Seller before the Closing shall have been
performed in all material respects.


                  (c)  Compliance  Certificate.  Seller  shall have  delivered a
certificate  to Buyer,  signed by Seller's  President,  dated the Closing  Date,
certifying to the  satisfaction,  as of the Closing Date, of the  conditions set
forth in Subsections 6.2(a) and (b).


                  (d)  Consents.  Seller  shall have  received  the consents and
approvals listed or required to be listed on Schedule 3.3.


                  (e) Opinion of Counsel.  Buyer shall have  received an opinion
of  Claudia  Carrington  or Gray Cary Ware &  Freidenrich,  counsel  to  Seller,
addressed to Buyer,  dated the Closing Date and containing the  conclusions  set
forth on Exhibit C.


                                       42
<PAGE>

                  (f)  Ancillary  Agreements.   Seller  shall  have  signed  and
delivered the  Ancillary  Agreements  and Oak Creek  Delaware,  Inc.  shall have
consented in writing to the New Sublease.


                  (g) Absence of Litigation. No action, suit or proceeding shall
be completed, pending or threatened before any Governmental Authority wherein an
unfavorable judgment, order, decree, stipulation, injunction or charge which, in
the  exercise  of  Buyer's  good  faith  judgment,  does or could:  (i)  prevent
completion of the Closing; (ii) cause Buyer's purchase of the Assets from Seller
to be  rescinded  or reversed  after the Closing or (iii)  adversely  affect the
legal  right or  practical  ability of Buyer to  operate  the Assets or the GaAs
Business in substantially the same manner they were operated before the Closing.


         6.3 Additional  Conditions to the Obligations of Seller. The obligation
of Seller to complete the Closing is further  subject to the  fulfillment of all
the  following  conditions  (in addition to the  condition  set forth in Section
6.1), unless waived in writing by Seller:


                  (a)  Accuracy  of   Representations   and   Warranties.   Each
representation  and  warranty  in Article IV shall have been 

                                       43
<PAGE>

true and correct in all material  respects on the date of this  Agreement and as
of the  Closing  Date with the same force and effect as though made on and as of
the Closing Date.


                  (b)  Compliance  with  Agreement.  All the  covenants  in this
Agreement  required to be performed by Buyer before the Closing  shall have been
performed in all material respects.


                  (c)  Compliance  Certificate.  Buyer  shall have  furnished  a
certificate to Seller,  signed by Buyer's President and Chief Executive Officer,
dated the Closing Date, certifying to the satisfaction,  as of the Closing Date,
of the conditions set forth in Subsections 6.3(a) and (b).


                  (d) Opinion of Counsel.  Seller shall have received an opinion
from Heller  Ehrman  White & McAuliffe,  counsel to Buyer,  addressed to Seller,
dated the Closing Date, containing the conclusions set forth on Exhibit D.


                  (e)  Ancillary   Agreements.   Buyer  shall  have  signed  and
delivered the  Ancillary  Agreements  and Oak Creek  Delaware,  Inc.  shall have
consented in writing to the New Sublease.

                                       44
<PAGE>

                  (f) Absence of Litigation. No action, suit or proceeding shall
be completed, pending or threatened before any Governmental Authority wherein an
unfavorable judgment, order, decree, stipulation, injunction or charge which, in
the  exercise  of  Seller's  good faith  judgment,  does or could:  (i)  prevent
completion of the Closing or (ii) cause  Seller's sale of the Assets to Buyer to
be rescinded or reversed after the Closing.


                                   ARTICLE VII

                                 INDEMNIFICATION

         7.1 By Seller.


                  (a) In General.  Subject to the balance of this  Article  VII,
Seller  shall  indemnify  Buyer  and  Buyer's  Affiliates  (collectively  "Buyer
Indemnitees")  and hold them  harmless  from and against any and all Losses that
constitute,  result from, arise out of or are otherwise  connected with: (i) any
Environmental Liabilities,  any obligations or liabilities of Seller relating to
Taxes and any other obligations or liabilities of Seller, other than the Assumed
Obligations, arising out of or otherwise connected with any event, occurrence or
condition   preceding  the  Closing  (including   preceding  the  date  of  this
Agreement),  whether  or not  accrued,  absolute,  contingent,  known,  unknown,
asserted or unasserted;  (ii) any breach of any  

                                       45
<PAGE>

representation or warranty set forth in Article III, in the License Agreement or
in any certificate submitted to Buyer in connection with the Closing;  (iii) any
claim by any "third party"  which,  if true,  would  demonstrate a breach of any
representation  or  warranty  set  forth in  Article  III or in any  certificate
submitted to Buyer in connection  with the Closing (but not, in the case of this
clause  (iii),  any breach of any  representation  or warranty  set forth in the
License  Agreement)  or (iv) any (A) claim or assertion  by Oak Creek  Delaware,
Inc. or Harris Corporation that the New Sublease resulted in the termination of,
or otherwise  impaired,  the five-year extension option in the Current Sublease,
as made available to Buyer under the New Sublease (the "Extension Option");  (B)
failure by Harris  Corporation to give Oak Creek Delaware,  Inc. a timely notice
of Buyer's  exercise of that option if Seller or Buyer  timely  notifies  Harris
Corporation that Harris Corporation should give such a notice (but not if Harris
Corporation  is the  subject of a chapter  proceeding  under the  United  States
Bankruptcy Code and the Bankruptcy  Court has confirmed a rejecton of the Master
Lease or the Sublease by Harris  Corporation;  (C) breach of the Master Lease by
Harris  Corporation  not caused by Buyer that results in the  termination of the
Master Lease or loss of the Extension Option or (D) loss of the Extension Option
due to Harris Corporation no longer being a validly existing  corporation or the
guaranty being unenforceable  against Harris Corporation for any

                                       46
<PAGE>

reason.  Seller shall have no  obligation  under  clause (i) of this  Subsection
7.1(a) with respect to any of the subjects addressed in Seller's representations
or warranties set forth in the License  Agreement that arise from Buyer's use of
the  "intellectual  property" and other rights licensed by Seller to Buyer under
the License Agreement.


                  (b) Threshold.  Notwithstanding  paragraph (a) of this Section
7.1, Seller shall not be required to indemnify the Buyer  Indemnitees under that
paragraph unless and until the total Losses under that paragraph exceed $25,000.
If that total does exceed $25,000,  Seller shall indemnify the Buyer Indemnitees
for all such Losses, not just the amount in excess of $25,000.


                  (c) Cap.  Notwithstanding  paragraph  (a) of this Section 7.1,
Seller  shall not be  required to  indemnify  the Buyer  Indemnitees  under that
paragraph for any Losses in excess of a total of $3 million, provided,  however,
that the  limitations  set forth in this  sentence  shall not apply to:  (i) any
obligation  or  liability  of Seller  under  clause (i) of that  paragraph  with
respect to any Taxes or  Environmental  Liabilities or (ii) any breach of any of
Seller's  representations  or warranties  set forth in Section  3.12.  The "cap"
specified  in this  paragraph  shall also apply to any  "off-contract"  remedies
available to any Buyer  Indemnitee in connection  with this  Agreement or any of
the 

                                       47
<PAGE>

transactions  to which it relates.  Except with respect to fraud and the matters
covered by Section 7.5, that "cap" shall be the limit of Seller's obligations to
all the Buyer  Indemnitees  under any contractual or other theories or causes of
action with  respect to this  Agreement or any of the  transactions  to which it
relates.

                                       48


<PAGE>

         7.2 By Buyer.


                  (a) In General.  Subject to the balance of this  Article  VII,
Buyer shall indemnify Seller and Seller's Affiliates (the "Seller  Indemnitees")
and hold them  harmless  from and against  any and all Losses  that  constitute,
result  from,  arise out of or are  otherwise  connected  with:  (i) the Assumed
Obligations;  (ii) any  Environmental  Liabilities  or any other  obligations or
liabilities  of Buyer  arising  out of or  otherwise  connected  with any event,
occurrence or condition after the Closing  relating to Seller's GaAs Business as
conducted  at the Property  and whether or not  accrued,  absolute,  contingent,
known,  unknown,  asserted or  unasserted or (iii) any breach (or any claim by a
"third party" which, if true, would demonstrate a breach) of any  representation
or warranty of Buyer set forth in Article IV.


                  (b) Threshold.  Notwithstanding  paragraph (b) of this Section
7.2, Buyer shall not be required to indemnify the Seller  Indemnitees under that
paragraph unless and until the total Losses under that paragraph exceed $25,000.
If that total does exceed $25,000,  Buyer shall indemnify the Seller Indemnitees
for all such Losses, not just the amount in excess of $25,000.


                                       49
<PAGE>

                  (c) Cap.  Notwithstanding  paragraph  (a) of this Section 7.2,
Buyer shall not be  required  to  indemnify  the Seller  Indemnitees  under that
paragraph for any Losses in excess of a total of $3 million, provided,  however,
that the limitation set forth in this sentence shall not apply to any obligation
or liability of Buyer under  clause (ii) of that  paragraph  with respect to any
Environmental  Liabilities.  The "cap"  specified in this  paragraph  shall also
apply to any  "off-contract"  remedies  available  to any Seller  Indemnitee  in
connection  with this Agreement or any of the  transactions to which it relates.
Except with respect to fraud and the matters  covered by Section 7.5, that "cap"
shall be the limit of Buyer's  obligations to all the Seller  Indemnitees  under
any  contractual  or other  theories  or causes of action  with  respect to this
Agreement or any of the transactions to which it relates.


         7.3 Indemnification  Procedure for Third-Party Claims. If any action or
claim (a  "Third-Party  Claim") is  commenced  against any Buyer  Indemnitee  or
Seller  Indemnitee  (in any case,  an  "Indemnitee"),  by a Person other than an
Indemnitee,  for  which  an  Indemnitee  is  entitled  to  seek  and  does  seek
indemnification  from one or more of the  Indemnitors  under  Section 7.1 or 7.2
(collectively,  as appropriate, the "Indemnitors"),  the Indemnitee shall notify
the Indemnitor in writing and summarize the nature

                                       50
<PAGE>

of the  Third-Party  Claim  and the basis  upon  which it  appears  to have been
asserted.  Any delay in giving such a notice  shall not affect the rights of the
Indemnitee  under  this  Article  VII,  unless  and then only to the  extent the
Indemnitor  demonstrates that such delay prejudiced the rights of the Indemnitor
with respect to the Third-Party Claim.  Within 10 days after an Indemnitee gives
such a notice, the Indemnitor shall notify the Indemnitee in writing whether the
Indemnitor  elects to defend the Third-Party  Claim. If the Indemnitor so elects
to defend,  it shall do so but shall not settle or  compromise  the  Third-Party
Claim without the Indemnitee's prior written consent. If the Indemnitor does not
so elect to defend or fails to defend, the Indemnitee shall be entitled, but not
obligated,  to defend.  Irrespective  of whether the  Indemnitor  defends or the
Indemnitee  defends,  the Indemnitor  shall pay and currently fund all costs and
expenses of the defense. Moreover, if the Indemnitor does not so elect to defend
or fails to defend,  the  Indemnitee,  after giving the Indemnitor at least five
days' prior written  notice of its intention to proceed with a settlement,  need
not consult the  Indemnitor  regarding  any  settlement  and shall  nevertheless
retain all rights to  indemnification  with respect to that  settlement that are
otherwise provided in this Article VII.


         7.4  Survival.  Except as provided in the balance of this  Section 7.4,
the indemnification  obligations set forth in this

                                       51
<PAGE>

Article VII shall survive for two years after the Closing.  The  indemnification
obligations   relating   to  Taxes  in  clause  (i)  of  Section   7.1  and  the
representations  and warranties set forth in Section 3.5 shall survive for seven
years  after  the  Closing.   The   indemnification   obligations   relating  to
Environmental Liabilities (clause (i) of Sections 7.1 and clause (ii) of Section
7.2) and the  representations  and  warranties  set forth in Section  3.12 shall
survive  for ten  years  after  the  Closing.  The  indemnification  obligations
relating  to the  representations  and  warranties  set  forth  in  the  License
Agreement  shall survive for five years after the Closing.  The last date of the
two-year,  five-year,  seven-year  and  ten-year  periods  specified  above  are
referred to as "Expiration Dates". The  indemnification  obligations shall be of
no further force and effect after the relevant  Expiration Date, unless and then
only to the extent that a claim or claims for indemnification have been asserted
in writing to the Indemnitor on or before the relevant Expiration Date.


         7.5  Covenants Not Covered.  The rules  regarding  indemnification  set
forth in this Article VII  (including,  for example,  the  thresholds,  caps and
survival  periods)  shall not govern any breach of any  covenant of either Party
set forth in Article V or any other Article or in the License Agreement. Rather,
in the event of any such breach,  the non-breaching  Party

                                       52
<PAGE>

shall have its normal  remedies  for breach of  contract  subject,  however,  to
Sections 9.4 and 9.5.


         7.6   Irrelevance  of  Due   Diligence.   Nothing  that  Buyer  or  its
representatives  learn in the course of their due  diligence,  whether before or
after  the  date of this  Agreement,  that is not  expressly  set  forth in this
Agreement including the Schedules, shall diminish or otherwise affect any of the
representations  or  warranties,   or  any  of  the   indemnification  or  other
obligations,  of Seller contained in this Agreement or in any document delivered
by Buyer in connection with the Closing.


                                  ARTICLE VIII

                                   TERMINATION


         8.1 Grounds for  Termination.  This  Agreement may be terminated at any
time before the Closing:


                  (a) by the mutual written consent of the Parties or


                  (b) at any time on or after December 31, 1997, by Buyer alone,
if Buyer  determines,  in the  exercise  of its good  faith  judgment,  that any
condition  set forth in  Section  6.1 or

                                       53
<PAGE>

6.2 has not been satisfied or waived,  unless Buyer has materially breached this
Agreement or


                  (c) at any time on or  after  December  31,  1997,  by  Seller
alone, if Seller  determines,  in the exercise of its good faith judgment,  that
any condition set forth in Section 6.1 or 6.3 has not been  satisfied or waived,
unless Seller has materially breached this Agreement.


         8.2 Certain Effects of  Termination.  Following any termination of this
Agreement under Section 8.1, neither Party shall have any liability to the other
Party for any breach of any  representation,  warranty or covenant  contained in
this Agreement unless that breach was willful.


                                       54

<PAGE>

                                   ARTICLE IX

                                  MISCELLANEOUS


         9.1 Notices. All notices and other  communications  required by or made
in  connection  with this  Agreement  shall be in writing and shall be deemed to
have been  duly  given on the date of  delivery,  if  delivered  in person or by
courier,  or three days after  mailing,  if mailed by first class mail,  postage
prepaid, addressed as follows:



     If to Buyer:          Watkins-Johnson Company
                           333 Hillview Avenue
                           Palo Alto, California 94304
                           Attention: Mr. Frank Emery

        with a copy to:    Heller Ehrman White & McAuliffe
                           333 Bush Street
                           San Francisco, California  94104
                           Attention:  Daniel E. Titelbaum, Esq.

     If to Seller:         Samsung Semiconductor, Inc.
                           3655 North First Street
                           San Jose, California 95134
                           Attention: Mr. Y.B. Rha

        with a copy to:    Samsung Semiconductor, Inc.
                           3655 North First Street
                           San Jose, California 95134
                           Attention: Claudia Carrington, Esq.

The names and  addresses  specified in this Section may be changed by means of a
notice given in accordance with this Section.

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<PAGE>

         9.2 Governing Law. This Agreement  shall be governed by the laws of the
State of California but without regard to its laws regarding conflicts of laws.


         9.3 Expenses.  Each Party shall pay all the costs and expenses incurred
by it in connection  with the negotiation and drafting of this Agreement and the
Ancillary Agreements, and the completion of the Closing.


         9.4  Arbitration.  Any and all  disputes  arising  under  or  otherwise
connected with this Agreement shall be finally settled by arbitration  under the
commercial rules of the American Arbitration  Association.  There shall be three
arbitrators,  one  appointed  by Seller,  one  appointed  by Buyer and the third
appointed by the two arbitrators so selected. If a third arbitrator has not been
appointed by the 15th day after the first  arbitrator  has been  appointed,  the
American Arbitration Association shall select that third arbitrator. The Parties
shall have all rights to discovery provided by Section 1283.05 of the California
Code of Civil Procedure. All awards and orders of the arbitration panel shall be
final and binding on both Parties.  Judgment upon any arbitration award or order
may be entered in any court having jurisdiction.  The arbitrators shall not have
the power to award  punitive  damages,  treble damages or any other

                                       56
<PAGE>

damages that are not compensatory even if permitted under the laws of California
or any other  applicable law. The  arbitration  shall be conducted in Palo Alto,
California.


         9.5 Costs of Enforcement.  In the event of any  arbitration  respecting
this  Agreement  or any of the matters to which it relates  (see Section 9.4) or
any  litigation  respecting  this  Agreement or any such  matters,  the Party or
Parties that  substantially  prevail in that  arbitration or litigation shall be
entitled to recover their reasonable  costs and expenses  incurred in connection
with that proceeding  (including their attorneys' fees and costs) from the Party
or  Parties  that did not  substantially  prevail.  In the  event of  "crossing"
indemnity  claims regarding  similar subject matter (for example,  Environmental
Liabilities  regarding or allegedly  regarding  events that occurred both before
and after the Closing  and, in the case of the latter,  for which  Seller is not
otherwise  responsible  under  Section  5.9),  such costs and expenses  shall be
reasonably  apportioned  based on the  outcome  of those  crossing  claims.  The
reference in this Section 9.5 to litigation shall not affect the  interpretation
of Section 9.4. The third party  beneficiaries  of this  Agreement  (see Section
9.9) shall be considered  "Parties" for purposes of Section 9.4 and this Section
9.5.

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<PAGE>

         9.6 Amendment. This Agreement may be amended only by means of a written
instrument signed by each Party.


         9.7 Assignment.  Except as provided in the next two sentences, no Party
to this  Agreement  may assign or  delegate  all or any portion of its rights or
obligations  under this Agreement without the prior written consent of the other
Party.  However,  before or after the Closing,  without the need for any further
consent,  Buyer may  assign its rights  under  this  Agreement  to any direct or
indirect  wholly-owned  subsidiary of Buyer,  it being  understood that any such
assignment shall not relieve Buyer of any obligation under this Agreement. Also,
after the Closing,  without the need for any further  consent,  Buyer may assign
its rights under  Article VII to any Person that  acquires all or a  substantial
portion of the Assets or Buyer's GaAs Business, it being understood, again, that
any such  assignment  shall  not  relieve  Buyer of any  obligation  under  this
Agreement.


                                       58

<PAGE>

         9.8  Counterparts.  For  convenience,  this  Agreement may be signed in
counterparts which together shall constitute one instrument.


         9.9  Third  Party   Beneficiaries.   Buyer's  Affiliates  and  Seller's
Affiliates shall be third party  beneficiaries of Article VII.  Otherwise,  this
Agreement  is for the sole benefit of the Parties and not for the benefit of any
other Person.


         9.10 Entire  Agreement.  This  Agreement and the  Ancillary  Agreements
contain the entire agreement and understanding between


                                       59
<PAGE>

         Buyer and Seller regarding their subject matter.


         IN  WITNESS  WHEREOF,  the  Parties  have  signed  and  delivered  this
Agreement as of the date that appears in its first paragraph.


                                    WATKINS-JOHNSON COMPANY



                                    By   s/W. Keith Kennedy
                                        -------------------
                                        W. Keith Kennedy,
                                        President and Chief
                                        Executive Officer




                                    By   s/Scott Buchanan
                                        -------------------
                                        Scott Buchanan,
                                        Vice President and Chief
                                        Financial Officer



                                    SAMSUNG SEMICONDUCTOR, INC.



                                    By   s/Y.B. Rha
                                        -------------------
                                        Y.B. Rha,
                                        President




                                    By   s/B.S. Cho
                                        -------------------
                                        B.S. Cho
                                        Vice President of Finance

                                       60