TAX ESCROW AGREEMENT


         THIS ESCROW AGREEMENT,  dated July 22, 1998  ("Agreement") by and among
Productivity  Technologies  Corp.,  a Delaware  corporation,  ("PTC"),  formerly
Production Systems  Acquisition  Corporation,  and the sole shareholder of Atlas
Technologies,  Inc.; Atlas Technologies,  Inc., a Michigan corporation ("Atlas,"
also sometimes referred to as the "Indemnitee");  Ronald M. Prime and Michael D.
Austin  ("Prime  and  Austin,"   sometimes   referred  to  collectively  as  the
"Indemnitor"),  and NBD/First of Chicago,  a Michigan  banking  corporation,  as
escrow agent ("Escrow Agent").

         WHEREAS,  PTC,  Prime and  Austin  entered  into a  certain  Settlement
Agreement  dated  July  22,  1998  ("Settlement  Agreement")  resolving  certain
outstanding issues concerning  bonuses under employment  contracts between Prime
and Austin and Atlas and other matters; and

         WHEREAS,  under paragraph 5 of the Settlement  Agreement,  specifically
entitled "Tax Indemnity and the  Establishment  of Tax Escrow," Prime and Austin
have jointly and severally  agreed to hold Atlas  harmless and  indemnify  Atlas
against  certain   Internal   Revenue  Service  ("IRS")  tax  liabilities   more
specifically defined herein;

         NOW,  THEREFORE,  in consideration of the premises and mutual covenants
contained herein, the parties hereby agree as follows:

         1.       Indemnification Obligation

                  Prime and  Austin  have  jointly  and  individually  agreed to
indemnify and hold Atlas harmless and reimburse  Atlas pursuant to the following
conditions:

                  A.       Atlas claimed on its tax returns the following
                           research tax credits:

                                                                Tax Credit
                           Tax Year                                Taken
                           ---------                            ----------   
                             1990                               $  75,381
                             1991                                  96,661
                             1992                                 221,782
                             1993                                 121,403
                             1994                                 142,639
                             1995                                 207,262
                                                                  -------

                           TOTAL                                $ 865,128

                           The  Internal   Revenue  Service  has  threatened  to
                           disallow  substantially all of the aforementioned tax
                           credits.

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                  B.       With   regard  to  each  of  the  aforementioned  tax
                           years, Prime  and  Austin  will  indemnify  Atlas for
                           any  disallowed  research    tax    credits   claimed
                           (including    additional    taxes,  penalties    and
                           interest  thereon  and  further including any of such
                           liabilities  arising  from  the  utilization  of said
                           credits    in   years    subsequent   to   June   30,
                           1995) ("Disallowed   Amounts");   provided,  however,
                           the  obligation  of   Prime  and  Austin to indemnify
                           Atlas  shall  apply  only  to  the  extent  that  the
                           aggregate  Disallowed  Amounts  exceeds  $187,000 and
                           provided    further,    that    the   indemnification
                           obligation  of  Prime  and  Austin  shall in no event
                           exceed  $560,000.00  plus  an  amount  equal  to  all
                           interest earned, less  expenses  and  losses, if any,
                           on the  Escrow  Amount  deposited in  escrow pursuant
                           to Section 2 of this Agreement.

         2.       Deposit of Escrow Funds

                  A. Upon the execution of this Agreement, Atlas will direct the
Escrow Agent to transfer  $560,000  (the "Escrow  Amount")  from a certain Bonus
Escrow  Account,  Account  No.  80-31485-00,   to  this  newly  established  Tax
Indemnification  Escrow  Account (NBD served as the escrow agent under the Bonus
Escrow   Account   and  will  also  serve  as  escrow   agent   under  this  Tax
Indemnification Escrow Account).

                  B. The Escrow  Agent  shall  invest  the  Escrow  Amount in an
account  identified  as  established  pursuant to this  Agreement  (the  "Escrow
Account").  The  Escrow  Agent  will hold the Escrow  Amount  together  with all
investments  thereof and all interest  accumulated  thereon and proceeds arising
therefrom (the "Escrow Funds") in escrow upon the terms and conditions set forth
in this Agreement and shall not withdraw or release the Escrow Funds or any part
thereof from the Escrow Account except as provided herein.

         3.       Investments

                  A. The Escrow  Agent shall  invest and  reinvest  from time to
time the Escrow Funds (i) in any  obligation  of, or  guaranteed as to principal
and  interest  by, the United  States or any agency or  instrumentality  thereof
(provided  that the full  faith and  credit of the United  States  supports  the
obligation  or guarantee of such agency or  instrumentality);  (ii) in any money
market fund that invests solely in such obligations or types described in clause
(i); or (iii) in any other investment  agreed to in writing by PTC and Prime and
Austin.  In the absence of  direction,  the Escrow Agent shall invest the Escrow
Funds in U.S. Treasury money market fund. Investments  may  be  executed  by the

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Escrow Agent's own bond  department.  To the extent the Escrow Agent invests any
funds in the manner  provided in this  Section,  no party hereto shall be liable
for any loss which may be incurred by reason of any such investment.

                  B. The Escrow  Agent  shall have the power to reduce,  sell or
liquidate the foregoing  investments whenever the Escrow Agent shall be required
to release all or any portion of the Escrow Funds  pursuant to Section 4 hereof.
The Escrow Agent shall have no liability  for any  investment  losses  resulting
from the  investment,  reinvestment,  sale or  liquidation of any portion of the
Escrow Funds,  except in the case of the gross negligence or willful  misconduct
of the Escrow Agent.

         4.       Claims Against the Escrow Funds

                  A. At any time and from time to time,  during the period  from
the signing of this Agreement  through the final settlement or other disposition
of any tax dispute relating to the research tax credits claimed,  Atlas, or PTC,
on behalf of Atlas,  may give to the Escrow Agent and to Prime and Austin one or
more notices stating that,  pursuant to this  Agreement,  Atlas is asserting its
right to indemnity  with respect to an obligation of Prime and Austin  hereunder
(a "Claim").  Should no objection be made by Prime and Austin within thirty (30)
days of any such notice, the Escrow Agent shall release to Atlas that portion of
the Escrow Funds claimed by Atlas.  In the event that Prime and Austin object to
the release of any part of the Escrow Funds by written notice to Atlas,  PTC and
the Escrow Agent given with such 30-day period,  Escrow Agent shall withhold the
release of such funds until it receives notice from Atlas, PTC, Prime and Austin
of agreement to any release of the Escrow Funds or it receives a certified order
from a court of competent jurisdiction directing such release.

         5.       Settlement Authority for the Underlying Tax Dispute With
                  the IRS

                  A.  Should  the IRS be  willing  to allow  Atlas not less than
$678,128 of the aforementioned  research tax credits claimed, Atlas and PTC may,
in their  joint  discretion,  settle any dispute  with the IRS  relating to said
credits  without  the  consent of Prime and Austin.  No  settlement  of any such
dispute  under  which the IRS allows  less than  $678,128  of the  research  tax
credits  claimed may be made  without the  unanimous  consent of Atlas,  PTC and
Prime and Austin.

                  B. Any  dispute  which may arise  under  this  Agreement  with
respect to the delivery  and/or  ownership or right to  possession of the Escrow
Funds or any part thereof, or the duties of the Escrow Agent hereunder, shall be
settled either by mutual agreement of Atlas, PTC and Prime and Austin (evidenced


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by  appropriate  instructions  in writing to the  Escrow  Agent,  signed by such
parties) or by a binding  arbitration award or a final order, decree or judgment
of any  appropriate  court located in the State of Michigan (the time for appeal
having  expired  and no appeal  having been  perfected),  each party or parties,
other than the Escrow Agent,  bearing its own costs and expenses with respect to
the dispute.  The Escrow Agent shall be under no duty whatsoever to institute or
defend any such  proceedings.  Prior to the settlement of any such dispute,  the
Escrow Agent is  authorized  and directed to retain in its  possession,  without
liability  to anyone,  that  portion of the Escrow Funds which is the subject of
such dispute.

         6.       Termination of Escrow Agreement

                  A. This  Agreement  shall  terminate upon the earlier to occur
of: (i) the  disbursement of all Escrow Funds to the  Indemnitee,  or (ii) three
months  after  the  date  of  settlement  or  other  final  and   non-appealable
disposition  of all issues  between the IRS and Atlas  arising under the matters
referred to in Section 1(A).

                  B. As soon as practicable  after the Escrow  Expiration  Date,
the Escrow  Agent shall  promptly  deliver to Prime and Austin out of the Escrow
Funds the excess, if any, of the total amount remaining in the Escrow Funds over
the sum of all amounts under  unresolved or unsettled  Claims then  outstanding,
and the Escrow  Agent  shall  continue  to retain in the  Escrow  Funds all such
amounts under  unresolved or unsettled Claims then  outstanding,  subject to the
terms of this Agreement until resolution of such Claims.

         7.       Concerning the Escrow Agent

                  A. The Escrow  Agent shall have no duties or  responsibilities
except  those  expressly  set forth  herein.  The Escrow  Agent may consult with
counsel and shall have no liability  hereunder  except for its own negligence or
willful  misconduct.  It may  rely  on  any  notice,  instruction,  certificate,
statement, request, consent,  confirmation,  agreement or other instrument which
it  reasonably  believes to be genuine and to have been signed or presented by a
proper person or persons.

                  B. The Escrow  Agent shall have no duties with  respect to any
agreement  or  agreements  with  respect to any or all of the Escrow Funds other
than as  provided  in this  Agreement.  In the  event  that any of the terms and
provisions of any other agreement  between any of the parties hereto conflict or
are  inconsistent  with any of the terms and provisions of this  Agreement,  the
terms and provisions of this Agreement shall govern and control in all respects.
Notwithstanding  any provision to the contrary contained in any other agreement,
the Escrow  Agent shall have no interest in the Escrow  Funds except as provided
in this Agreement.

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                  C. So long as the Escrow  Agent shall have any  obligation  to
pay any amount to the  Indemnitor  and/or the  Indemnitee  from the Escrow Funds
hereunder,  the Escrow Agent shall keep proper  books of record and account,  in
which full and correct entries shall be made of all receipts,  disbursements and
investment activity in the Escrow Account.

                  D. The Escrow Agent shall not be bound by any  modification of
this Agreement affecting the rights, duties and obligations of the Escrow Agent,
unless such  modification  shall be in writing  and signed by the other  parties
hereto and the Escrow  Agent.  The Escrow  Agent shall not be bound by any other
modification  of this  Agreement  unless the Escrow  Agent  shall have  received
written notice thereof.

                  E. The Escrow  Agent may resign as escrow agent at any time by
giving thirty (30) days written  notice by  registered or certified  mail to the
Indemnitee and Indemnitor and such  resignation  shall take effect at the end of
such thirty (30) days or upon earlier  appointment  of a successor.  A successor
escrow agent  hereunder may be appointed by designation in writing signed by the
Indemnitee  and  Indemnitor.  The  Indemnitee  and the  Indemnitor  undertake to
utilize their best efforts to arrange for the appointment of a successor  escrow
agent.  If any  instrument of  acceptance by a successor  escrow agent shall not
have been  delivered to the Escrow Agent within sixty (60) days after the giving
of such notice of resignation,  the resigning Escrow Agent may at the expense of
the Indemnitee and the Indemnitor  petition any court of competent  jurisdiction
for the appointment of a successor escrow agent.

                  F. If at any time hereafter the Escrow Agent shall resign,  be
removed,  be dissolved or otherwise become  incapable of acting,  or the bank or
trust company acting as the Escrow Agent shall be taken over by any governmental
official, agency, department or board, or the position of the Escrow Agent shall
become  vacant for any of the  foregoing  reasons or for any other  reason,  the
Indemnitee  and the  Indemnitor  shall appoint a successor  escrow agent to fill
such vacancy.

                  G. Every  successor  escrow agent  appointed  hereunder  shall
execute,  acknowledge and deliver to its predecessor, and also to the Indemnitee
and  the  Indemnitor  an  instrument  in  writing   accepting  such  appointment
hereunder,  and thereupon such successor escrow agent,  without any further act,
shall become fully  vested with all rights,  immunities  and powers and shall be
subject to all of the  duties and  obligations,  of its  predecessor;  and every
predecessor  escrow  agent  shall  deliver  all  property  and monies held by it
hereunder to its successor.



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                  H. The fee  charged by the  Escrow  Agent for  performing  its
services  hereunder  shall be paid by the  Indemnitee.  Except  as  provided  in
subsection  7(I) hereof,  the Indemnitee and the Indemnitor  shall share equally
any  reasonable  out-of-pocket  costs incurred by the Escrow Agent in performing
its duties hereunder. This covenant shall survive termination of this Agreement.

                  I. The Indemnitee and the Indemnitor  shall indemnify and hold
the Escrow  Agent  harmless  from and  against any and all  expenses  (including
reasonable attorneys' fees),  liabilities,  claims,  damages,  actions, suits or
other charges ("Agent Claims")  incurred by or assessed against the Escrow Agent
for  anything  done or  omitted by the Escrow  Agent in the  performance  of the
Escrow  Agent's  duties  hereunder,  except  such which  result  from the Escrow
Agent's bad faith, gross negligence or willful misconduct.  Agent Claims payable
hereunder  shall  be  paid  one-half  by  the  Indemnitee  and  one-half  by the
Indemnitor.  This indemnity shall survive the resignation of the Escrow Agent or
the termination of this Agreement.

                  J. To the extent any amount due to the Escrow  Agent  pursuant
to Sections 7(H) or 7(I) is not paid,  the Escrow Agent may deduct the same from
the Escrow Account.

                  K. The Escrow  Agent's  fees shall be Four  Hundred  ($400.00)
Dollars per year,  payable in advance on the date this  Agreement is executed by
the Escrow Agent and on each subsequent anniversary date thereof, as long as the
Escrow Agent is holding any of the Escrow Funds hereunder.

         8.       Miscellaneous

                  A.  This   Agreement   shall  be  construed  and  enforced  in
accordance  with and  governed  by the laws of the  State of  Michigan,  without
regard to such  jurisdiction's  conflicts of law  principles.  The parties agree
that venue for any suit,  action,  proceeding or litigation arising out of or in
relation to this  Agreement  shall be in any federal or state court in the State
of Michigan having subject matter jurisdiction.

                  B. This Agreement shall be binding upon and shall inure to the
benefit  of  the  heirs,  executors,   administrators,   legal  representatives,
successors and assigns of the parties hereto.

                  C. This Agreement may be executed in one or more  counterparts
which taken together shall constitute but one and the same instrument.

                  D. Section  headings  contained  herein have been inserted for
reference purposes only and shall not be construed as part of this Agreement.

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                  E. This Agreement may be modified or amended only by a written
instrument duly executed by all parties hereto or their respective successors or
assigns.

                  F. All  notices,  requests,  demands and other  communications
hereunder  shall be in  writing  and shall be  deemed  to have  been duly  given
(unless  otherwise  specifically  provided for herein) if  delivered  personally
(including by courier), telecopied (which is confirmed) or mailed (registered or
certified mail), postage prepaid:

                  If to Indemnitee:

                        Atlas Technologies, Inc.
                        Attention:
                        201 S. Alloy
                        Fenton, MI 48430
                        Telecopier No. (810) 714-0209

                  with a copy to:

                        Noah Scooler, Esq.
                        Graubard Mollen & Miller
                        600 Third Avenue
                        New York, NY 10016-2097
                        Telecopier No. (212) 818-8881


                  If to Indemnitor:

                        Ronald M. Prime
                        Michael D. Austin
                        201 S. Alloy
                        Fenton, MI  48430
                        Telecopier No. (810) 750-8805

                  with a copy to:

                        Robert H. Bancroft, Esq.
                        Hicks, Schmidlin & Bancroft, P.C.
                        2300 Austin Parkway, Suite 120
                        Flint, MI 48507
                        Telecopier No. (810) 232-5538


                  If to the Escrow Agent:

                        NBD/First of Chicago
                        Plaza One Financial Center
                        Attention: Pamela W. Taeckens
                        111 E. Court Street, Suite 100
                        Flint, MI  48502
                        Telecopier No. (810) 230-1510

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or to such other  addresses  or persons as any party may have  furnished  to the
other  parties in writing,  in  accordance  herewith,  provided,  however,  that
notices to the Escrow Agent shall be deemed effective only upon receipt.

                  G. The  Escrow  Agent  shall  not be  liable to pay tax on any
interest earned on the Escrow Amount,  it being the understanding of the parties
that  such  tax  shall  be  the  responsibility  of  the  Indemnitor.   The  tax
identification  number for the  Indemnitor  appear next to their  signatures set
forth below.

                  H. If any party hereto  refuses to comply with, or at any time
violates or attempts to violate,  any term,  covenant or agreement  contained in
this  Agreement,  any other party hereto may, by injunctive  action,  compel the
defaulting party to comply with, or refrain from violating,  such term, covenant
or agreement,  and may, by injunctive action, compel specific performance of the
obligations of the defaulting party.

                  I. Except as provided  herein,  the rights and  obligations of
the parties under this Agreement  shall not be assigned to any person or entity,
without the written consent of the other parties.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.

WITNESSES:                                  Atlas Technologies, Inc.

                                                 /s/ Ronald M. Prime 
                                            By: ______________________________
                                                    Ronald M. Prime
                                              Its: Chief Executive Officer


                                             /s/ Ronald M. Prime
                                            __________________________________
                                            Ronald M. Prime (###-##-####)

                                            /s/ Michael D. Austin
                                            __________________________________
                                            Michael D. Austin (###-##-####)

                                            Productivity Technologies Corp.

                                                 /s/ Jesse A. Levine
                                            By: _____________________________
                                                    Jesse A. Levine
                                                 Its: Chief Financial Officer

                                            ESCROW AGENT:

                                            NBD/First of Chicago

                                            By: ________________________

                                                Its: ______________


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