BY AND AMONG

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

ALLIANCE DATA SYSTEMS CORPORATION

HSI ACQUISITION CORP.,

AND

HARMONIC SYSTEMS INCORPORATED

August 14, 1998

TABLE OF CONTENTS

Page

ARTICLE 1
THE MERGER; CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . .1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . .2
1.3 Merger Consideration . . . . . . . . . . . . . . . . . . . . . .2
1.4 Common Stock; Preferred Shares; Conversion . . . . . . . . . . .2
1.5 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . .3
1.6 Company Warrants . . . . . . . . . . . . . . . . . . . . . . . .4
1.7 Company Convertible Debentures . . . . . . . . . . . . . . . . .4
1.8 Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . .4
1.9 Exchange of Merger Subsidiary Common Stock . . . . . . . . . . .4
1.10 Exchange of Company Stock. . . . . . . . . . . . . . . . . . . .5
1.11 Exchange of the Company Warrants and Company Debentures. . . . .6
1.12 Escrow Agreement; Shareholder Representative . . . . . . . . . .6
1.13 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
1.14 Articles of Incorporation of the Surviving Corporation . . . . .8
1.15 Bylaws of the Surviving Corporation. . . . . . . . . . . . . . .8
1.16 Directors and Officers of the Surviving Corporation. . . . . . .8

ARTICLE 2
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.1 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . .8
2.2 Filings at the Closing . . . . . . . . . . . . . . . . . . . . .9

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . . .9
3.1 Organization; Subsidiaries . . . . . . . . . . . . . . . . . . .9
3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Reports and Financial Statements . . . . . . . . . . . . . . . 11
3.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . 12
3.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 12
3.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 12

3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Absence of Material Adverse Changes. . . . . . . . . . . . . . 13
3.10 Environmental Laws and Regulations . . . . . . . . . . . . . . 13
3.11 Officers, Directors and Employees, Labor Relations . . . . . . 14
3.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.13 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.14 Title to Properties; Liens . . . . . . . . . . . . . . . . . . 16
3.15 Permits, Licenses, Etc . . . . . . . . . . . . . . . . . . . . 17
3.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.17 Intellectual Property Rights . . . . . . . . . . . . . . . . . 18
3.18 Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . 19
3.19 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . 23
3.20 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 23
3.21 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . 23
3.22 Product Liability Claims . . . . . . . . . . . . . . . . . . . 24
3.23 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.24 Relations with Suppliers . . . . . . . . . . . . . . . . . . . 24
3.25 Relations with Customers and Clients . . . . . . . . . . . . . 24
3.26 No Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.27 Minute Books and Stock Record Books. . . . . . . . . . . . . . 25
3.28 Use of Real Property . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUBSIDIARY. . . . . . . . . . . . . . . . . . . . . . 25
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 26
4.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 26
4.4 No Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 27

ARTICLE 5
COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1 Conduct of Business of the Company . . . . . . . . . . . . . . 27
5.2 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . 29
5.3 Access and Information . . . . . . . . . . . . . . . . . . . . 29
5.4 Approval of Shareholders . . . . . . . . . . . . . . . . . . . 30
5.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.7 Reasonable Best Efforts; Further Actions . . . . . . . . . . . 30
5.8 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . 31

5.9 Certain Notifications. . . . . . . . . . . . . . . . . . . . . 31
5.10 Indemnification, Exculpation and Insurance . . . . . . . . . . 31
5.11 Benefit Plans and Employee Matters . . . . . . . . . . . . . . 32

ARTICLE 6
CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1 Conditions to Obligations of Parent, Merger Subsidiary,
and the Company. . . . . . . . . . . . . . . . . . . . . . . . 32
6.2 Conditions to Obligations of Parent and Merger Subsidiary. . . 33
6.3 Conditions to Obligations of the Company . . . . . . . . . . . 34

ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Survival of Representations and Warranties . . . . . . . . . . 34
7.2 General Indemnity. . . . . . . . . . . . . . . . . . . . . . . 35
7.3 Limitations on Indemnification . . . . . . . . . . . . . . . . 36
7.4 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.5 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . 36

ARTICLE 8
TERMINATION AND ABANDONMENT. . . . . . . . . . . . . . . . . . . . . . . . 37
8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . 38

ARTICLE 9
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.1 Amendment and Modification . . . . . . . . . . . . . . . . . . 38
9.2 Waiver of Compliance; Consents . . . . . . . . . . . . . . . . 39
9.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.4 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.5 Governing Law; Dispute Resolution. . . . . . . . . . . . . . . 40
9.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.7 Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.8 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 41
9.9 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.10 Exclusivity of Remedies. . . . . . . . . . . . . . . . . . . . 42
9.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 42

iii

EXHIBITS:

Exhibit A - Form of Plan of Merger
Exhibit B - Form of Escrow Agreement
Exhibit C - Payment of Closing Cash Amount

TABLE OF DEFINED TERMS

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

CERCLA 3.10
Closing Cash Amount 1.3(a)
Closing Warrant Payment 1.6
Closing 2.1
Closing Debenture Payment 1.7
Closing Option Payment 1.8
Code 3.18(a)
Company Preamble
Company Intellectual Property 3.17(a)
Company Preferred Stock 3.3
Company Disclosure Schedule 3
Company Common Stock 1.4(a)
Company Preferred Stock 1.4(b)
Company Interim Financials 3.4
Company 1997 Financials 3.4
Company Option Plans 1.8
Company Warrants 1.6
Compensation Plans 3.18(d)
Computer Systems 3.17(c)
Convertible Debentures 1.7
Corporation 1.13
Damages 7.2(a)
Deferred Option Payment 1.8
Dissenting Shares 1.5
Effective Time 1.2
ERISA 3.18(a)
Escrow Deposit 1.3(b)
Escrow Agreement 1.3(b)
Facility 3.10
HSR Act 3.6
Indemnified Parties 5.10(b)
IRS 3.12
MBCA 1.1
Merger Subsidiary Preamble
Merger Recitals

Merger Consideration 1.3
Merger Subsidiary Common Stock 1.4(b)
Parent Preamble
Parent Disclosure Schedule 4.
PBGC 3.18(j)
Pension Plan 3.18(a)
Permits 3.15
Permitted Liens 3.14
Plan of Merger 1.2
Plan 3.18(i)
Product Liability 3.22
RCRA 3.10
Record Date 1.4(a)
XXXX 3.10
Shareholders' Representative 1.12(a)
Software 3.17(b)
Surviving Corporation Common Stock 1.4(b)
Surviving Corporation 1.1
Tax Qualified Plan 3.18(h)
Term Sheets 5.11(b)
Welfare Plan 3.18(d)

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT is dated as of August 14, 1998, by and among ALLIANCE DATA
SYSTEMS CORPORATION, a Delaware corporation ("Parent"), HSI ACQUISITION CORP., a
Minnesota corporation and wholly-owned subsidiary of Parent ("Merger
Subsidiary"), and HARMONIC SYSTEMS INCORPORATED, a Minnesota corporation (the
"Company").

WHEREAS, the Boards of Directors of Parent, Merger Subsidiary, and the
Company have approved the merger of Merger Subsidiary with and into the Company
(the "Merger") upon the terms and subject to the conditions set forth herein;
and

WHEREAS, the parties hereto desire to make certain representations,
warranties, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants, and agreements contained herein, the
parties hereto agree as follows:

ARTICLE 1
THE MERGER: CONVERSION OF SHARES

1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.2 hereof), Merger Subsidiary
shall be merged with and into the Company in accordance with the provisions of
the Minnesota Business Corporation Act (the "MBCA"), whereupon the separate
corporate existence of Merger Subsidiary shall cease, and the Company shall
continue as the surviving corporation (the "Surviving Corporation"). From and
after the Effective Time, the Surviving Corporation shall possess all the
rights, privileges, powers, and franchises and be subject to all the
restrictions, disabilities, and duties of the Company and Merger Subsidiary, all
as more fully described in the MBCA. Without limiting the generality of the
foregoing, it is understood and agreed that the conversion of Company Stock
provided for in this Agreement and Plan of Merger includes within it a
continuance of all rights, privileges, properties and powers of the Company
(including, but not limited to, trade secrets, confidential information, and
goodwill possessed by the Company) for the benefit of the Company, the Surviving
Corporation, Parent, and any subsidiaries, successors or assigns thereof. It is
acknowledged by the parties that part of the purpose and intent of any

noncompetition, nonsolicitation, and confidentiality agreements with Company's
employees and officers that are maintained or entered into in connection with
this Merger is the protection of the continued value of the Company's goodwill,
confidential information and trade secrets.

1.2 EFFECTIVE TIME. As soon as practicable after each of the
conditions set forth in Article 6 has been satisfied or waived, the Company and
Merger Subsidiary will file, or cause to be filed, with the Secretary of State
of the State of Minnesota Articles of Merger for the Merger, which Articles of
Merger shall be in the form required by and executed in accordance with the
applicable provisions of the MBCA and shall include as a part thereof a plan of
merger (the "Plan of Merger") substantially in the form attached hereto as
Exhibit A. The Merger shall become effective at the time such filing is made or,
if agreed to by Parent and the Company, such later time or date set forth in the
Articles of Merger (the "Effective Time").

1.3 MERGER CONSIDERATION. The consideration to be paid by Parent in
full payment for the consummation of the Merger (the "Merger Consideration")
shall consist of:

(a) An aggregate amount of $43,359,000 which shall be paid on
the Closing Date to the persons, in the manner and under the conditions
provided in this Article 1 (the "Closing Cash Amount"); PLUS

(b) An aggregate amount of $7,000,000 which shall be paid by
wire transfer of immediately available funds to the escrow agent under an
Escrow Agreement substantially in the form attached as Exhibit B (the
"Escrow Agreement") for the purpose of securing the indemnity obligations
of the Shareholders under Section 7.2(a)(i) (such amount deposited with
such escrow agent, the "Indemnification Escrow Deposit"); PLUS

(c) An aggregate amount of $1,641,000 which shall be paid by
wire transfer of immediately available funds to the escrow agent under
the Escrow Agreement for the purpose of securing the indemnity
obligations of the Shareholders under Section 7.2(a)(ii) (such amount
deposited with such escrow agent, the "Retention Payment Escrow Deposit"
and together with the Indemnification Escrow Deposit, the "Escrow
Deposit").

1.4 COMMON STOCK: PREFERRED SHARES: CONVERSION. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
share of capital stock of the Company or Merger Subsidiary:

(a) COMPANY STOCK; CLOSING CASH AMOUNT. (i) Each share of
common stock of the Company, par value $0.01 per share ("Company Common
Stock"), issued and outstanding on the date that is the one day prior to
the date hereof (the "Record Date") (except for Dissenting Shares, as
defined in Section 1.5 hereof) shall be converted into the right to
receive its Allocable Portion (as defined below) of the Closing Cash
Amount on the Closing Date, and the right to receive its Allocable
Portion of the Escrow Deposit in the manner, at the time or times, upon
the terms and subject to the conditions provided in the Escrow Agreement.

(ii) Each share of any other class of capital stock of the Company
(other than Company Common Stock) (the "Company Preferred Stock") issued
and outstanding at the Record Date (except for Dissenting Shares as
defined in Section 1.5 hereof) shall be converted into the right to
receive its Allocable Portion of the Closing Cash Amount on the Closing
Date, and the right to receive its Allocable Portion of the Escrow
Deposit in the manner, at the time or times, upon the terms and subject
to the conditions provided in the Escrow Agreement. The Company Common
Stock and Company Preferred Stock are sometimes collectively referred to
hereinafter as "Company Stock".

The term "Allocable Portion" shall mean, with respect to each share of
Company Common Stock or Company Preferred Stock, the percentage of the
Closing Cash Amount to be paid in respect of such share of Company Stock
as set forth on Exhibit C hereto.

(b) MERGER SUBSIDIARY STOCK. Each share of common stock of
Merger Subsidiary, par value $0.01 per share ("Merger Subsidiary Common
Stock"), issued and outstanding immediately prior to the Effective Time
shall be converted into one share of the common stock of the Surviving
Corporation, par value $0.01 per share ("Surviving Corporation Common
Stock").

1.5 DISSENTING SHARES. Notwithstanding any provision of this
Agreement to the contrary, each outstanding share of Company Stock, the
holder of which has demanded and perfected such holder's right to dissent
from the Merger and to be paid the fair value of such shares in accordance
with Sections 302A.471 ET SEQ. of the MBCA and, as of the Effective Time, has
not effectively withdrawn or lost such dissenters' rights ("Dissenting
Shares"), shall not be converted into or represent a right to receive the
Merger Consideration into which shares of Company Stock are converted
pursuant to Section 1.4 hereof, but the holder thereof shall be entitled only
to such rights as are granted by the MBCA. The Company shall give Parent (i)
prompt written notice of any notice of intent to demand fair value for any
shares of Company Stock, withdrawals of such notices, and

any other instruments served pursuant to the MBCA or any other provisions of
Minnesota law and received by the Company, and (ii) the opportunity to conduct
jointly all negotiations and proceedings with respect to demands for fair value
for shares of Company Stock under the MBCA. The Company shall not, except with
the prior written consent of Parent, voluntarily make any payment with respect
to any demands for fair value for shares of Company Stock or offer to settle or
settle any such demands.

1.6 COMPANY WARRANTS. On the Closing Date, by virtue of the Merger
and without any action on the part of the holders thereof, each warrant to
purchase Company Common Stock outstanding at the Record Date (the "Company
Warrants") shall be (a) converted into the right to receive that portion of the
Closing Cash Amount on the Closing Date as set forth on Exhibit C (the "Closing
Warrant Payment") and the right to receive that portion of the Escrow Deposit as
set forth on Exhibit C in the manner, at the time or times, upon the terms and
subject to the conditions provided in the Escrow Agreement and (b) canceled as
of the Effective Time.

1.7 COMPANY CONVERTIBLE DEBENTURES. On the Closing Date, by virtue of
the Merger and without any action on the part of the holders thereof, each
convertible debenture of the Company issued and outstanding at the Record Date
(the "Convertible Debentures") shall be (x) converted into the right to receive
that portion of the Closing Cash Amount on the Closing Date as set forth on
Exhibit C (the "Closing Debenture Payment"), and the right to receive that
portion of the Escrow Deposit as set forth on Exhibit C in the manner, at the
time or times, upon the terms and subject to the conditions provided in the
Escrow Agreement and (y) canceled as of the Effective Time.

1.8 STOCK OPTIONS. All stock options outstanding at the Record Date
under the Company's employee stock option plans (the "Company Option Plans")
shall, whether or not exercisable or vested, become fully exercisable and vested
on the Closing Date, and each option thereunder shall be converted into a right
to receive that portion of the Closing Cash Amount on the Closing Date as set
forth on Exhibit C corresponding to the name of the holder of such option (the
"Closing Option Payment"), and the right to receive that portion of the Escrow
Deposit as set forth on Exhibit C in the manner, at the time or times, upon the
terms and subject to the conditions provided in the Escrow Agreement (the
"Deferred Option Payment"). Each of the Company Option Plans and all options
issued and outstanding thereunder shall terminate effective as of the Effective
Time.

1.9 EXCHANGE OF MERGER SUBSIDIARY COMMON STOCK. From and after the
Effective Time, each outstanding certificate previously representing shares of
Merger Subsidiary Common Stock shall be deemed for all purposes to evidence
ownership of

and to represent the number of shares of Surviving Corporation Common Stock
into which such shares of Merger Subsidiary Common Stock shall have been
converted. Promptly after the Effective Time, the Surviving Corporation shall
issue to Parent a stock certificate or certificates representing such shares
of Surviving Corporation Common Stock in exchange for the certificate or
certificates that formerly represented shares of Merger Subsidiary Common
Stock, which shall be canceled.

1.10 EXCHANGE OF COMPANY STOCK. (a) The Company will instruct the
holders of the certificate representing Company Stock to deliver such
certificates at or after the Closing to Parent, duly endorsed for transfer to
the Company, for cancellation. At the Closing with respect to certificates so
delivered at or prior to the Closing, and as soon as practicable after delivery
with respect to certificates not delivered until after Closing, Parent shall pay
to each transferring holder thereof an amount of money equal to the Allocable
Portion of the Closing Cash Amount to which such surrendered shares are
entitled. Such payments shall be made by bank check delivered at Closing or
mailed to the recipient pursuant to instructions given by the recipient; or by
wire transfer of immediately available funds pursuant to instructions given by
the recipient. In the event of a transfer of ownership of Company Stock that is
not registered in the transfer records of the Company, it shall be a condition
to the payment that the Company Certificate(s) so surrendered shall be properly
endorsed or be otherwise in proper form for transfer and that such transferee
shall (i) pay to the Exchange Agent any transfer or other taxes required or (ii)
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.

(b) All cash paid in respect of the Closing Cash Amount and rights to
receive a portion of the Escrow Deposit distributed upon the surrender for
exchange of Company Stock in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Company Stock.

(c) After the Effective Time, there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Company Certificates representing such
shares are presented to the Surviving Corporation, they shall be canceled and
exchanged as provided in this Article 1. As of the Effective Time, the holders
of Company Certificates representing shares of Company Stock shall cease to have
any rights as shareholders of the Company, except such rights, if any, as they
may have pursuant to the MBCA. Except as provided above, until such Company
Certificates are surrendered for exchange, each such Company Certificate shall,
after the Effective Time, represent for all purposes only the rights to receive
the

Closing Cash Amount and Escrow Deposit to which the shares of Company Stock
shall have been converted pursuant to the Merger as provided in Section 1.3
hereof.

(d) In the event any Company Certificates shall have been lost,
stolen, or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen, or destroyed Company Certificates, upon the making of an affidavit of
that fact by the holder thereof, such as may be required pursuant to this
Article 1.

1.11 EXCHANGE OF THE COMPANY WARRANTS AND COMPANY DEBENTURES. (a) The
Company will instruct the holders of the Company Warrants and Company Debentures
to deliver the Company Warrants and Company Debentures at or after the Closing
to Parent, duly endorsed for transfer to the Company. At Closing, with respect
to Company Warrants and Company Debentures so delivered at or prior to the
Closing, and as soon as practicable after delivery, with respect to Company
Warrants and Company Debentures not delivered until after Closing, Parent shall
pay to each transferring holder thereof an amount of money equal to the Closing
Warrant Payment to which such surrendered Company Warrants are entitled and the
Closing Debenture Amount to which the Company Debentures are entitled. Such
payments shall be made by bank check delivered at Closing or mailed to the
recipient pursuant to instructions given by the recipient; or by wire transfer
of immediately available funds pursuant to instructions given by the recipient.

(b) All cash paid and rights to receive Escrow Deposits distributed
upon surrender for exchange of Company Warrants and Company Debentures shall be
deemed to have been issued in full satisfaction of all rights pertaining
respectively to such Company Warrants and Company Debentures.

1.12 ESCROW AGREEMENT: SHAREHOLDER REPRESENTATIVE. (a) The shareholders
of the Company, by approving the Merger, agree to be bound by the terms of the
Escrow Agreement referred to in Section 1.3, including, without limitation, the
provisions thereof appointing Xxxxx X. Xxxxx to act as the representative (the
"Shareholders' Representative") of the shareholders of the Company Stock and the
holders of the Company Options, Company Warrants and Company Debentures
(together, the "Shareholders") for the purpose of (i) administering and entering
into the Escrow Agreement, (ii) settling on behalf of the Shareholders claims
made by Parent thereunder, (iii) representing the Shareholders in any
proceedings relating to this Agreement and (iv) performing any other actions
specifically delegated to the Shareholders' Representative under the terms of
this Agreement. The Shareholders, by approving the Merger, will be bound by any
and all actions taken by the Shareholders' Representative on their behalf.
Acceptance by Shareholders of the Shareholders' Representative is a condition of
the

Merger. The Shareholders, by approving the Merger, will be bound by the fact
that, and agree that, neither the Shareholders' Representative nor any member of
the Committee (as defined below) shall have any liability whatsoever to any of
the Shareholders for any action taken by him or her pursuant to this Agreement
or the Escrow Agreement which action is not grossly negligent and is taken by
him or her in good faith or is taken by him or her at the written direction of a
committee made up of members who will be appointed by the Board of Directors of
the Company immediately prior to the Effective Time (the "Committee"). The
Committee shall have the authority to direct the Shareholders' Representative in
connection with all actions, or failures to act, relating to the Shareholders'
Representatives' duties and obligations pursuant to this Agreement and the
Escrow Agreement. The Committee shall act by a majority of a quorum, and a
majority of the members of the Committee shall constitute a quorum. The
Shareholders' Representative shall not be a member of the Committee.

(b) The Shareholders' Representative may be removed or a new
Shareholders' Representative may be appointed by either (a) a vote of the
Shareholders holding a majority of the voting Company Stock (as defined below)
or (b) if the Board of Directors of the Company so authorizes the Committee
prior to the Effective Time, a unanimous vote of the Committee. If a
Shareholders' Representative is removed by action of the Shareholders or the
Committee, as the case may be, such removal shall be effective only upon
appointment of a new Shareholders' Representative. If the Shareholders'
Representative resigns or is no longer able to serve, a new Shareholders'
Representative shall be appointed by the Shareholders or the Committee, as the
case may be, within thirty (30) days after receipt of such resignation or notice
of the existing Shareholders' Representative's inability to serve. The
appointment of a new Shareholders' Representative is effective upon the
Committee and the new Shareholders' Representative giving notice to both Parent
and the prior Shareholders' Representative of the new Shareholders'
Representative's appointment.

For the purpose of this Section 3.2(b), the phrase "a vote of the
Shareholders holding a majority of the voting Company Stock" shall mean (x) if
the vote occurs prior to the Effective Time, a vote of the Shareholders holding
a majority of the voting Company Stock on a fully-diluted basis at the time of
such vote, and (y) if the vote occurs on or after the Effective Time, a vote of
the Shareholders which held immediately prior to the Effective Time more than a
majority of the voting Company Stock on a fully-diluted basis.

not taken by Parent in reliance upon the actions taken or not taken or
communication or writings given or executed by the Shareholders'
Representative. Until Parent receives notice of appointment of a new
Shareholders' Representative, Parent may rely upon actions taken by the prior
Shareholders' Representative.

1.13 EXPENSES. Not later than two business days prior to the Closing
Date, the Company may by action of a majority of the Board of Directors of the
Company amend and restate the amounts (but not the percentages) set forth on
Exhibit C to provide for payment out of the Merger Consideration on the Closing
Date of certain expenses incurred or expected to be incurred by the Company, the
Shareholders' Representative or the Shareholders in connection with the Merger
and the other transactions contemplated hereby and a proportionate reduction of
the amount of the Closing Cash Amount to be received by each of the
Shareholders, all as to be provided in Exhibit C.

1.14 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of Merger Subsidiary, as in effect immediately prior
to the Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law.

1.15 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger
Subsidiary, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.

1.16 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors
and officers of Merger Subsidiary immediately prior to the Effective Time shall
be the directors and officers, respectively, of the Surviving Corporation until
their respective successors shall be duly elected and qualified.

ARTICLE 2
CLOSING

2.1 TIME AND PLACE. Subject to the satisfaction or waiver of the
provisions of Article 6, the closing of the Merger (the "Closing") shall take
place at 9 a.m., local time, on such date as Parent and the Company may mutually
agree that is within five (5) business days after all of the conditions to
Closing contained in Article 6 have been satisfied or waived, or on such other
date and/or at such other time as Parent and the Company may mutually agree. The
date on which the Closing actually occurs is herein referred to as the "Closing
Date." The Closing shall take place at the offices of

Xxxxxxxxxx & Xxxxx, P.A., 1100 International Centre, 000 Xxxxxx Xxxxxx Xxxxx,
Xxxxxxxxxxx, Xxxxxxxxx 00000, or at such other place or in such other manner
(E.G., by facsimile exchange of signature pages with originals to follow by
overnight delivery) as the parties hereto may agree.

2.2 FILINGS AT THE CLOSING. At the Closing, subject to the provisions
of Article 6, Parent, Merger Subsidiary, and the Company shall cause Articles of
Merger to be filed in accordance with the provisions of Section 302A.615 of the
MBCA, and take any and all other lawful actions and do any and all other lawful
things necessary to cause the Merger to become effective.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in a document of even date herewith, referring
specifically to the representations and warranties in this Agreement which
identifies by section number to which such disclosure relates (the "Company
Disclosure Schedule"), the Company hereby makes the following representations
and warranties to Parent and Merger Subsidiary:

3.1 ORGANIZATION; SUBSIDIARIES. (a) The Company is a corporation duly
organized and validly existing under the laws of the State of Minnesota and has
all requisite corporate power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to do business in each jurisdiction in which
the property owned, leased, or operated by it or the nature of the business
conducted by it makes such qualification necessary and where the failure to
qualify could reasonably be expected to have a Company Material Adverse Effect
(as defined below). "Company Material Adverse Effect" means an effect that,
individually or in the aggregate with other effects, has a materially adverse
effect: (i) on the business, properties, liabilities, results of operation, or
financial condition of the Company; or (ii) to the Company's ability to perform
any of its obligations under this Agreement or to consummate the Merger, but
shall exclude any effect relating to or resulting from generally applicable
economic conditions or the Company's industry in general. The jurisdictions in
which the Company is qualified are listed on the Company Disclosure Schedule.
The Company has heretofore delivered to Parent complete and accurate copies of
the Articles of Incorporation, as amended, and Bylaws of the Company as
currently in effect.

(b) The Company owns a subsidiary, Harmonic Technology Licensing,
Inc., a corporation duly organized and validly existing under the laws of the
State of Minnesota. All issued and outstanding shares of the capital stock of
such subsidiary are owned by the Company, free and clear of all Liens and have
been duly authorized and validly issued and are fully paid and non-assessable.
There are no outstanding options, warrants, conversion or other rights or
agreements of any kind for the purchase or acquisition from, or the sale or
issuance by, the Company or its subsidiary of any shares of capital stock of
such subsidiary, and no authorization therefor has been given. Such subsidiary
owns no assets and conducts no business and has no liabilities, contingent or
otherwise. Other than such subsidiary, the Company does not, directly or
indirectly, own or control or have any capital, equity, partnership,
participation, or other ownership interest in any corporation, partnership,
joint venture, or other business association or entity.

3.2 AUTHORIZATION. The Company has full corporate power and authority
to execute, deliver and perform this Agreement and, subject to obtaining the
necessary approval of its shareholders, to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by the Company's Board of
Directors, no other corporate proceedings on the part of the Company are
necessary to recommend and submit this Agreement to the Company's shareholders,
and, subject to obtaining the approval of the Company's shareholders, no other
corporate action on the part of the Company is necessary to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to laws of general application relating to bankruptcy,
insolvency, and the relief of debtors and rules of law governing specific
performance, injunctive relief, or other equitable remedies.

3.3 CAPITALIZATION. As of June 30, 1998, the authorized capital stock
of the Company consists of (i) 30,000,000 shares of Company Common Stock, par
value $.01 of which 4,899,677 are issued and outstanding, (ii) 2,333,776 shares
of Series A convertible preferred stock, of which 2,333,776 are issued and
outstanding; (iii) 603,302 shares of Series B convertible preferred stock, of
which 603,302 are issued and outstanding; (iv) 292,000 shares of Series C
convertible preferred stock, of which 62,000 are issued and outstanding; (v)
1,200,000 shares of Series D convertible preferred stock, of which 1,200,000 are
issued and outstanding; (vi) 3,433,334 shares of Series E convertible preferred
stock, of which 2,060,000 are issued and outstanding; (vii) 2,262,816 shares of
Series F convertible preferred stock, of which none is issued and outstanding;
(viii) 5,648,825 shares of Series G convertible preferred stock, of which

5,648,825 are issued and outstanding; and (ix) 54,225,947 undesignated shares,
none of which have been designated or issued. (The shares of preferred stock of
Series A through G are collectively referred to as "Company Preferred Stock.")
All issued and outstanding shares of Company Common Stock and Company Preferred
Stock have been validly issued, are fully paid and nonassessable, and have not
been issued in violation of and are not currently subject to any preemptive
rights. There are not any outstanding or authorized subscriptions, options,
warrants, calls, rights, convertible securities, commitments, restrictions,
arrangements, or any other agreements of any character to which the Company is a
party that, directly or indirectly, (i) obligate the Company to issue any shares
of capital stock or any securities convertible into, or exercisable or
exchangeable for, or evidencing the right to subscribe for, any shares of
capital stock, (ii) call for or relate to the sale, pledge, transfer, or other
disposition or encumbrance by the Company of any shares of its capital stock, or
(iii) to the knowledge of the Company, relate to the voting or control of such
capital stock, in each case, other than those set forth on the Company
Disclosure Schedules. The Company Disclosure Schedule sets forth a complete and
accurate list of all stock options, warrants, debentures, and other rights to
acquire Company Common Stock, including the name of the holder, the date of
grant, acquisition price, expiration date, number of shares, exercisability
schedule, and, in the case of options, the type of option under the Code. The
Company Disclosure Schedule also sets forth the restrictions to which any shares
of Company Common Stock issued pursuant to the Company Option Plans or otherwise
are currently subject and also sets forth the restrictions to which such shares
will be subject immediately after the Effective Time. No consent of holders or
participants under the Company Option Plans is required to carry out the
provisions of Section 1.8. All actions, if any, required on the part of the
Company under the Company Option Plans to allow for the treatment of Company
Options as is provided in Section 1.8, has been, or prior to the Closing will
be, validly taken by the Company.

3.4 REPORTS AND FINANCIAL STATEMENTS. The audited financial statements
and unaudited interim financial statements included in the Company Disclosure
Schedule and delivered subsequent to the date hereof pursuant to the terms
hereof, including but not limited to, when delivered, the Company's audited
financial statements at and for the year ended December 31, 1997 (the "Company
1997 Financials") and the Company's unaudited financial statements for the
quarterly periods ending March 31, 1998 and June 30, 1998 (the "Company Interim
Financials"), (i) were prepared or, when delivered, will have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated therein or in the
notes thereto), and (ii) fairly present or, when delivered, will fairly present
in all material respects the consolidated financial position of the Company as
of the dates

thereof and the income, cash flows, and changes in shareholders'
equity for the periods covered thereby.

3.5 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations of any nature (whether absolute, accrued, contingent, or
otherwise) except (a) liabilities which do not have a Company Material Adverse
Effect and (b) liabilities or obligations required by generally accepted
accounting principles to be recognized or disclosed on a balance sheet of
Company or in the notes thereto that are accrued or reserved against in the
audited balance sheet of the Company as of December 31, 1997 contained in the
Company 1997 Financials and (c) liabilities or obligations arising since
December 31, 1997 in the ordinary course of business and consistent with past
practice.

3.6 CONSENTS AND APPROVALS. Except for (i) the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976 and the regulations thereunder (the "HSR
Act"), (ii) approval by the Company's shareholders, (iii) the filing and
recordation of appropriate merger documents as required by the MBCA, (iv)
compliance with Chapter 302A of the MBCA regarding dissenters' rights, and (v)
any items disclosed on the Company Disclosure Schedule, the execution, delivery
and performance of this Agreement by the Company, and the consummation of the
transactions contemplated hereby will not: (a) violate any provision of the
Articles of Incorporation, as amended, or Bylaws of the Company; (b)violate any
statute, rule, regulation, order, or decree of any federal, state, local, or
foreign body or authority by which the Company or any of its properties or
assets may be bound; (c) require any filing with or permit, consent, or approval
of any federal, state, local, or foreign public body or authority; or (d) result
in any violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default under, result in the loss of any material
benefit under, or give rise to any right of termination, cancellation, increased
payments, or acceleration under, or result in the creation of any Lien (as
defined in Section 3.14) on any of the properties or assets of the Company
under, any of the terms, conditions, or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, authorization, agreement, or other
instrument or obligation to which the Company is a party, or by which it or any
of its properties or assets may be bound, except, in the case of clause (d), for
any such violations, breaches, defaults, or other occurrences that would not
prevent or delay consummation of any of the transactions contemplated hereby in
any material respect, or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect.

3.7 COMPLIANCE WITH LAWS. All activities of the Company have been, and
are currently being, conducted in compliance with all applicable federal, state,
local, and foreign laws, ordinances, regulations, interpretations, judgments,
decrees, injunctions, permits, licenses, certificates, governmental
requirements, orders, and other similar items

of any court or other governmental entity, the failure to comply with which
would reasonably be expected to have a Company Material Adverse Effect.

3.8 LITIGATION. No investigation or review by any federal, state,
local, or foreign body or authority with respect to the Company is pending or,
to the Company's knowledge, threatened, nor has any such body or authority
indicated to the Company an intention to conduct the same. There are no claims,
actions, suits, or proceedings by any private party that would have a Company
Material Adverse Effect, or by any governmental body or authority against or
affecting the Company, pending or, to the knowledge of the Company, threatened,
at law or in equity, or before any federal, state, local, foreign, or other
governmental department, commission, board, bureau, agency, or instrumentality
except any investigation, review, claim, action, suit, or proceeding that would
not have a Company Material Adverse Effect.

3.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Since December 31, 1997 there
has not been any (a) change or circumstance that would have a Company Material
Adverse Effect; (b) action by the Company that, if taken on or after the date of
this Agreement, would require the consent or approval of Parent pursuant to
Sections 5.1(a)-(c) and (e)-(m) hereof, except for actions as to which consent
or approval has been given as provided therein; (c) change by the Company in
accounting methods or principles used for financial reporting purposes, except
as required by a change in generally accepted accounting principles and
concurred with by the Company's independent public accountants; or (d) other
than in the ordinary course of business and consistent with past practice,
create, incur, or assume any indebtedness for borrowed money, or assume,
guarantee, endorse, or otherwise become liable or responsible (whether directly
contingently, or otherwise) for the obligations of any other person.

3.10 ENVIRONMENTAL LAWS AND REGULATIONS. The Company has obtained, and
maintained in full force and effect, all required environmental permits and
other governmental approvals and is in compliance with all applicable
Regulations (as defined below), except where the failure to so obtain and
maintain or to be in compliance would not have a Company Material Adverse
Effect. The Company has (i) not received any written notice or Claim (as defined
below) alleging potential liability under any of the Regulations or alleging a
violation of the Regulations and (ii) has no knowledge of any basis therefor.
The Company has no knowledge of any notices to or Claims against any persons
alleging potential liability under any of the Regulations with respect to any
office facility or other real property owned, leased or operated by the Company
(a "Facility"), or any adjoining properties or which would reasonably be
expected to affect such Facility. The Company has (i) not been nor is it
presently subject to or, to the knowledge of the Company, threatened with any
administrative or judicial proceeding pursuant to

the Regulations, and (ii) no information that it may be subject to or, to the
knowledge of the Company, threatened with such a proceeding in the future. No
Hazardous Materials have been or are threatened to be discharged, emitted, or
released into the air, water, soil, or subsurface at or from any Facility by
the Company or, to the Company's knowledge, by any other person.

For purposes of this Section 3.10, the following terms shall have the
following meanings: (i) "Hazardous Materials" means asbestos, urea formaldehyde,
polychlorinated biphenyls, nuclear fuel or materials, chemical waste,
radioactive materials, explosives, known human carcinogens, petroleum products
or other substances or materials listed, identified, or designated as toxic or
hazardous or as a pollutant or contaminant in, or the use, release or disposal
of which is regulated by, the Regulations; (ii) "Regulations" means the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
as amended by the Superfund Amendments and Reauthorization Act of 1986 ("XXXX"),
42 U.S.C. Sections 9601 ET SEQ.; the Federal Resource Conservation and Recovery
Act of 1976 ("RCRA"), 42 U.S.C. Sections 6901 ET SEQ.; the Clean Water Act, 33
U.S.C. Sections 1321 ET SEQ.; the Clean Air Act, 42 U.S.C. Sections 7401 ET
SEQ., and any other federal, state, county, local, foreign, or other
governmental statute, regulation, or ordinance, as now in existence, that
relates to or deals with pollution or the environment including, but not limited
to, the use, generation, discharge, transportation, disposal, record keeping,
notification, and reporting of Hazardous Materials; and (iii) "Claim" means any
and all claims, demands, causes of actions, suits, proceedings, administrative
proceedings, losses, judgments, decrees, debts, damages, liabilities, court
costs, penalties, attorneys' fees, and any other expenses incurred, assessed,
sustained or alleged by or against the Company.

3.11 OFFICERS, DIRECTORS AND EMPLOYEES. LABOR RELATIONS. The Company
has previously provided in writing a list of the name and current annual salary
rate of each officer or employee of the Company whose salary for the last fiscal
year was, or for the current fiscal year has been set at, in excess of $75,000,
together with a summary of the bonuses, commissions, additional compensation,
and other like benefits, if any, paid or payable to such persons for the last
fiscal year and proposed for the current fiscal year. The Company Disclosure
Schedule completely and accurately sets forth the names of the officers (with
all positions and titles indicated) and directors of the Company. No unfair
labor practice complaint against the Company is pending or to the knowledge of
the Company, threatened, before the National Labor Relations Board, and there is
no labor strike, slowdown or stoppage pending or, to the knowledge of the
Company, threatened against or involving the Company. No unionizing efforts
have, to the knowledge of the Company, been made by employees of the Company,
the Company is not a party to or subject to any collective bargaining agreement,
and no collective bargaining agreement is

currently being negotiated by the Company. There is no labor dispute pending
or, to the knowledge of the Company, threatened between the Company and its
employees.

3.12 TAXES. The Company has previously furnished to Parent complete and
accurate copies of all federal income tax returns actually filed by the Company
for each of the fiscal years ended December 31, 1995 and 1996 and has made
available for review by Parent complete and accurate copies of all other tax or
assessment reports and tax returns (including any applicable information
returns) required by any law or regulation (whether United States, foreign,
state, local or other jurisdiction) and filed by the Company for the fiscal
years ended December 31, 1995 or 1996. The Company has filed, or has obtained
extensions to file (which extensions have not expired without filing and are
described in the Company Disclosure Schedule), all state, local, United States,
foreign, or other tax reports and returns required to be filed by it. All such
reports and returns were correct as filed and correctly reflect the facts
regarding the income, business, assets, operations, activities and status of the
Company as well as all taxes required to be paid by the Company. The Company has
timely paid all taxes (including estimated taxes) that are due and payable or
that it is obligated to withhold from any person with respect to such reports
and returns, and has established, consistent with past practice, an adequate
reserve on its June 30, 1998 balance sheet contained in the Company Interim
Financials for the payment of all taxes not yet due for any taxable period or
portion thereof ending on or prior to the Effective Time. There are no Liens (as
defined in Section 3.14), other than Permitted Liens, for taxes upon any
property or asset of the Company. The Company is not delinquent in the payment
of any tax assessment (including, but not limited to, any applicable withholding
taxes). None of the tax returns or reports for the tax periods ended December
31, 1995 and 1996 have been audited by the Internal Revenue Service (the "IRS")
or by any other taxing authority. Further, to the knowledge of the Company, no
state of facts exists or has existed that would subject the Company to an
additional material tax liability for any taxes assessable by either the IRS or
any separate state, local, foreign, or other taxing authority with respect to
any reports or returns filed on or before the date hereof (other than extension
requests for which returns have not been filed as of the date hereof). The
Company has not (i) received notification of any pending or proposed examination
by either the IRS or any state, local, foreign, or other taxing authority, (ii)
received notification of any pending or proposed deficiency by either the IRS or
any state, local, foreign, or other taxing authority, or (iii) granted any
extension of the limitations period applicable to any claim for taxes.

For the purposes of this Section 3.12, "tax" shall mean and include
taxes, additions to tax, penalties, interest, fines, duties, withholdings,
assessments, and charges assessed or imposed by any governmental authority,
including but not limited to all

federal, state, county, local, and foreign income, profits, gross receipts,
import, ad valorem, real and personal property, franchise, license, sales,
use, value added, stamp, transfer, withholding, payroll, employment, excise,
custom, duty, and any other taxes, obligations and assessments of any kind
whatsoever and any interest, penalties or surcharges in respect of any of the
foregoing; "tax" shall also include any liability arising as a result of
being (or ceasing to be) a member of any affiliated, consolidated, combined,
or unitary group as well as any liability under any tax allocation, tax
sharing, tax indemnity, or similar agreement.

3.13 CONTRACTS. The Company Disclosure Schedule lists, and the Company
has heretofore furnished to Parent complete and accurate copies of (a) every
independent sales representative, noncompetition (except only for unmodified
noncompetition agreements entered into with the Company's employees, the copies
of which have been provided to Parent), loan, credit, escrow, security,
mortgage, guaranty, pledge, buy-sell, letter of credit, OEM, supply,
distribution, manufacturers' representative, dealer, agency, lease (except for
immaterial personal property leases), licensing (except for immaterial licenses,
which include, without limitation, licenses for off-the-shelf software),
franchise, development, joint development, joint venture, research and
development, or other contract or agreement material to the Company and to which
the Company is a party or is bound, except where the dollar amount involved in
any such contract is less than $50,000, (b) every material employment or
consulting agreement or arrangement with or for the benefit of any director,
officer, employee, other person or shareholder of the Company and (c) every
agreement or contract between the Company and any of the Company's officers,
directors, or more than 5% shareholders. The Company has performed all
obligations required to be performed by it under any listed contract, plan,
agreement, understanding, or arrangement made or obligation owed by or to the
Company, except where the failure would not have a Company Material Adverse
Effect; there has not been any event of default (or any event or condition
which with notice or the lapse of time, both or otherwise, would constitute an
event of default) thereunder on the part of the Company or, to the Company's
knowledge, any other party to any thereof that would have a Company Material
Adverse Effect; the same are in full force and effect and valid and enforceable
by the Company in accordance with their respective terms subject to laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors and rules or law governing specific performance, injunctive relief, and
other equitable remedies; and the performance of any such contracts, plans,
agreements, understandings, arrangements, or obligations would not have a
Company Material Adverse Effect.

3.14 TITLE TO PROPERTIES: LIENS. The Company has good and valid title
to all personal properties and assets, and good and marketable title to all real
property,

reflected on the Company's December 31, 1997 balance sheet contained in the
Company 1997 Financials or acquired after the date thereof (other than any
assets or properties disposed of in the ordinary course of business after
such date), subject only to (a) statutory Liens arising or incurred in the
ordinary course of business with respect to which the underlying obligations
are not delinquent, (b) with respect to personal property, the rights of
customers of the Company with respect to inventory or work in progress under
orders or contracts entered into by the Company in the ordinary course of
business, (c) Liens specifically disclosed in the Company 1997 Financials,
the Company Interim Financials, or the Company Disclosure Schedule, (d) Liens
for taxes not yet due and payable, and (e) any minor defects in title that do
not adversely impact the Company's use of such assets (collectively, the
"Permitted Liens"). The term "Lien" as used in this Agreement means any
mortgage, pledge, security interest, encumbrance, lien, claim, or charge of
any kind. All properties and assets purported to be leased by the Company are
subject to valid and effective leases that are in full force and effect, and
there does not exist any material default or event that with notice or lapse
of time, or both, would constitute a material default under any such leases.
All assets and other property of the Company reflected on the Company's
December 31, 1997 balance sheet included in the Company 1997 Financials or
acquired after the date thereof (other than any assets or properties disposed
of in the ordinary course of business after such date), including all
tangible and intangible personal property, fixtures and equipment of the
Company comprising the assets of the Company, are in a good state of repair
(ordinary wear and tear excepted) and operating condition and are sufficient
and adequate to conduct the business of the Company as currently conducted.

3.15 PERMITS. LICENSES. ETC. The Company has all rights, permits,
certificates, licenses, consents, franchises, approvals, registrations, and
other authorizations (collectively, "Permits") necessary to sell its products
and services and otherwise carry on and conduct its business and to own, lease,
use, and operate its properties and assets at the places and in the manner now
conducted and operated, except those the absence of which would not have a
Company Material Adverse Effect. The Company Disclosure Schedule lists all
Permits held by the Company that are material to the business of the Company as
currently conducted, other than Permits generally applicable to all businesses
(such as occupancy and sales tax permits), and all such Permits are in full
force and effect. The business of the Company is being conducted in compliance
in all material respects with all such Permits. The consummation of the
transactions contemplated hereby will not result in the loss, suspension or
adverse modification of any Permit.

3.16 LEASES. Set forth in the Company Disclosure Schedule is
description of all leases of real or personal property involving payments in
excess of $50,000 per annum to which the Company is a party, either as lessee or
lessor.

3.17 INTELLECTUAL PROPERTY RIGHTS. (a) The Company Disclosure Schedule
contains a complete and accurate list of all material patents, trademarks, trade
names, service marks, registered copyrights (other than commercially available
software), and all applications for or registrations of any of the foregoing as
to which the Company is the owner or a licensee. The Company owns, free and
clear of any Lien (as defined in Section 3.14), or has the right to use, all
patents, trademarks, trade names, service marks, registered copyrights,
applications for or registrations of any of the foregoing, processes,
inventions, designs, technology, formulas, computer software programs, know-how,
and trade secrets which are used in or necessary for the conduct of its business
as currently conducted (the "Company Intellectual Property"). No claim has been
asserted or, to the knowledge of the Company, threatened by any person with
respect to the use of the Company Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement with
respect thereto. To the knowledge of the Company, neither the use of the Company
Intellectual Property by the Company in the present conduct of its business nor
any product or service of the Company infringes on the intellectual property
rights of any person. To the knowledge of the Company, no person or entity nor
such person's or entity's business or products has infringed, misused, or
misappropriated any Company Intellectual Property or currently is infringing,
misusing, or misappropriating any Company Intellectual Property. No other person
or entity has any right to receive from the Company or to the knowledge of the
Company, any obligation to pay a royalty with respect to any Company
Intellectual Property or any product or service of the Company other than any
royalty or payment obligations that are reflected on the Company 1997 Financials
and the Company Interim Financials.

(b) The Company Disclosure Schedule lists all material operating,
management, developmental and applications computer programs, software, and
database platforms owned or licensed by the Company (collectively, the
"Software"), except for commercially available or "off-the-shelf" software
generally available to the public at a per unit cost or license fee not in
excess of $10,000. The Software includes all software, applications and database
platforms used in the conduct of the business of the Company, as currently
conducted. The Company has taken and is taking reasonable precautions consistent
with industry practices to protect any material trade secrets and other
confidential information included in the Software.

(c) The Company has conducted an inventory of all computer software
programs owned or licensed by it as well as the hardware and embedded
microcontrollers

in non-computer equipment used by the Company in its products or in
connection with providing its services, in each case sold to customers of the
Company (collectively, the "Computer Systems") in order to determine which
parts of the Computer Systems are not Year 2000 Compatible (as defined
below). Based on the above-referenced inventory, the Company represents and
warrants that the Computer Systems are either Year 2000 Compatible or that it
is the reasonable expectation of the Company that they will be Year 2000
Compatible prior to July 1, 1999, other than any failure to be Year 2000
Compatible which would not reasonably be expected to have a Company Material
Adverse Effect. "Year 2000 Compatible" means that the Computer Systems to the
extent required for their particular use (i) correctly perform date data
century recognition, and calculations that accommodate same century and
multi-century formulas and date values; (ii) operate or are expected to
operate on a basis comparable to their current operation during and after
calendar year 2000 A.D., including but not limited to leap years; and (iii)
shall not end abnormally or provide invalid or incorrect results as a result
of date data which represents or references different centuries or more than
one century.

3.18 BENEFIT PLANS. (a) Neither the Company nor any ERISA Affiliate
sponsors, maintains, contributes to, is a party to, nor has either sponsored,
maintained, or contributed to or been required to contribute to, any "employee
pension benefit plan" ("Pension Plan"), as such term is defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, solely for the purpose of this subsection, a plan excluded from
coverage by Section 4(b)(5) of ERISA. Each such Pension Plan presently
maintained by the Company is, in all material respects, in compliance with
applicable provisions of ERISA, the Code, and other applicable law. For purposes
of this Agreement, "ERISA AFFILIATE" means all persons and entities which are
treated as being under common control with the Company, its subsidiaries or any
ERISA affiliate under Section 414(b), (c), (m) or (o) of the Internal Revenue
Code of 1996, as amended ("Code").

(b) Neither the Company nor any ERISA Affiliate sponsors, maintains,
contributes to, is contingently liable for, nor has either sponsored,
maintained, or contributed to or been required to contribute to, any Pension
Plan that is a "Multiemployer Plan" within the meaning of Section 4001(a)(3) of
ERISA.

(c) Neither the Company nor any ERISA Affiliate (i) maintains,
sponsors, contributes to, is actually or contingently liable for (directly or
indirectly) and (ii) has ever maintained, sponsored, contributed to, been
actually or contingently liable for, any plan that is or was subject to Section
412 of the Code or Title IV of ERISA.

(d) The Company does not sponsor, maintain, contribute to, nor has it
sponsored, maintained, contributed to, or been required to contribute to, any
"employee welfare benefit plan" ("Welfare Plan"), as such term is defined in
Section 3(1) of ERISA, whether insured or otherwise, and any such Welfare Plan
presently maintained by the Company is, in all material respects, in compliance
with the applicable provisions of ERISA, the Code, and all other applicable
laws. The Company has not established or contributed to any "voluntary
employees' beneficiary association" within the meaning of Section 501(c)(9) of
the Code. The Company does not currently maintain or contribute to any oral or
written bonus, profit-sharing, compensation (incentive or otherwise),
commission, stock option, or other stock-based compensation, retirement,
severance, change of control, vacation, sick or parental leave, dependent care,
deferred compensation, disability, hospitalization, medical, death, retiree,
insurance, or other benefit or welfare or other similar plan, policy, agreement,
trust, fund, or arrangement providing for the remuneration or benefit of all or
any employees or shareholders or any other person, that is neither a Pension
Plan nor a Welfare Plan (collectively, the "Compensation Plans").

(e) Each Welfare Plan that provides welfare benefits has been
operated in material compliance with all applicable requirements of Section
601 through 608 of ERISA and of (i) Section 162(i)(2) and (k) of the Code and
regulations thereunder (prior to 1989) and of (ii) Section 4980B of the Code
and regulations thereunder after 1988, relating to the continuation of
coverage under certain circumstances in which coverage would otherwise cease.
Neither the Company, any subsidiary of the Company, nor any ERISA Affiliate
has contributed to a nonconforming group health plan (as defined under Code
Section 5000(c)) and no ERISA Affiliate has incurred a tax under Section
5000(a) of the Code which could become a liability of the Company, or any
ERISA Affiliate. The Company or any ERISA Affiliate does not and has not
maintained, sponsored or provided post-retirement medical benefits,
post-retirement death benefits or other post-retirement welfare benefits to
its current employees or former employees, except as required by Section
4980B of the Code and at the sole expense of the participant or the
beneficiary of the participant. The Company and its subsidiaries have
complied in all material respects with the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996 with respect to
each Plan that provides welfare benefits. The Company does not maintain any
Welfare Plan that has provided any "disqualified benefit" (as such term is
defined in Section 4976(b) of the Code) with respect to which an excise tax
could be imposed under Section 4976.

(f) The Company and its ERISA Affiliates do not sponsor, maintain,
or contribute to, nor have they sponsored, maintained, or contributed to, a
"self-insured

medical reimbursement plan" within the meaning of Section 105(h) of the Code
and the regulations thereunder.

(g) Neither any Pension Plans nor Welfare Plans nor any trust created
or insurance contract issued thereunder nor any trustee, fiduciary, custodian,
or administrator thereof, nor any officer, director, or employee of the Company,
custodian, or any other "disqualified person" within the meaning of Section
4975(e)(2) of the Code, or "party in interest" within the meaning of Section
3(14) of ERISA, with respect to any such plan has engaged in any act or omission
that could reasonably be expected to subject the Company, either directly or
indirectly, to a liability for breach of fiduciary duties under ERISA or a tax
or penalty imposed by Section 502 of ERISA.

(h) Full and timely payment has been made of all amounts that the
Company is required, under applicable law, with respect to any Pension Plan,
Welfare Plan, or Compensation Plan, or any agreement relating to any Pension
Plan, Welfare Plan, or Compensation Plan, to have paid as a contribution to each
Pension Plan, Welfare Plan, or Compensation Plan. To the extent required by
generally accepted accounting principles, the Company has made adequate
provisions for reserves to meet contributions that have not been made because
they are not yet due under the terms of any Pension Plan, Welfare Plan, or
Compensation Plan or related agreements. There will be no change on or before
the Closing Date in the operation of any Pension Plan, Welfare Plan, or
Compensation Plan or documents under which any such plan is maintained that
will result in an increase in the benefit liabilities under such plan, except as
may be required by law. Each Plan that is intended to be a tax qualified plan
under Section 401(a) of the Code ("Tax Qualified Plan") has been determined by
the Internal Revenue Service to qualify under Section 401 of the Code, and the
trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the Code, and nothing has occurred, including the
adoption of or failure to adopt any Plan amendment, which would adversely affect
its qualification or tax-exempt status. The Company has provided to Parent
complete and accurate copies of all Pension Plans, Welfare Plans, Compensation
Plans, and related agreements, annual reports (Form 5500), favorable
determination letters, current summary plan descriptions, and all employee
handbooks or manuals.

(i) Except as contemplated herein or required by law, the execution of
this Agreement and the consummation of the transactions contemplated hereby, do
not constitute a triggering event under any Pension Plan, Welfare Plan and
Compensation Plan (collectively, the "Plan") which (either alone or upon the
occurrence of any additional or subsequent event) will result in any obligation
of the Company, its subsidiaries or any ERISA Affiliates to make any payment
(whether of severance pay,

including, and not limited to, salary, related vacation pay, pension pay and
other similar payments and costs, or otherwise) or to accelerate, vest or
increase the amount of benefits payable to any employee or former employee or
director of the Company, its subsidiaries or any ERISA Affiliates. No Plan or
agreement provides for the payment of severance benefits upon the termination
of any employee's employment.

(j) True and complete copies of the following documents with
respect to any Plan of the Company, its subsidiaries, and each ERISA
Affiliate, as applicable, have been delivered to Parent (i) the most recent
Plan document and trust agreement (including any amendments thereto and prior
plan documents, if amended within the last two years), (ii) the last two IRS
Form 5500 filings and schedules thereto, (iii) the most recent IRS
determination letter, (iv) all summary plan descriptions, (v) a written
description of each material non-written Plan, (vi) each written
communication to employees intended to describe a Plan or any benefit
provided by such Plan, (vii) the most recent actuarial report and (viii) all
correspondence with the IRS, the Department of Labor and the Pension Benefit
Guaranty Corporation ("PBGC") concerning any controversy. Each report
described in clause (vii) accurately reflects the funding status of the Plan
to which it relates and subsequent to the date of such report there has been
no adverse change in the funding status of financial condition of such Plan.

(k) There are no pending or threatened claims, actions or lawsuits,
other than routine claims for benefits in the ordinary course, asserted or
instituted against (i) any Plan or its assets, (ii) any ERISA Affiliate with
respect to any Plan, or (iii) any fiduciary with respect to any Plan for which
the Company, or any ERISA Affiliate may, directly or indirectly, be liable,
through indemnification obligations or otherwise.

(l) Neither the Company nor any ERISA Affiliate has engaged, directly
or indirectly, in a non-exempt prohibited transaction (as defined in Section
4975 of the Code or Section 406 of ERISA) in connection with any Plan.

(m) There is no unfunded liability with respect to any Plan that is a
non-tax qualified deferred compensation plan.

(n) Since December 31, 1997 there have been no amendments to any Plan,
no written interpretation or announcement (whether or not written) by the
Company or any ERISA Affiliate relating to any Plan, there have been and are no
negotiations, demands, or proposals which are pending that concern any Plan, nor
has any Plan been established, which resulted in or could result in a material
increase in (i) the accrued or promised benefits of any employees of the Company
or any ERISA Affiliate and (ii) any material increase in the level of expense
incurred in respect thereof. There are no binding oral

modifications to the Company Stock Option Plan and, from and after the
Effective Time, there will be no outstanding or new contingent liabilities or
obligations pursuant to any amendments to the Company Stock Option Plan.

(o) Any surrender, finance or penalties charges (and the total dollar
amount thereof) that would be imposed on the investments held by any tax
qualified plan (including plans with a cash or deferred arrangement under
Section 401(k) of the Code) on the liquidation of the investments in such plans
is reflected on the Company Disclosure Schedule.

3.19 INSURANCE POLICIES. The Company Disclosure Schedule sets forth a
complete and accurate list of all material policies of insurance maintained by
the Company. The Company has previously delivered to Parent complete and
accurate copies of all such policies of insurance. All such policies of
insurance are in full force and effect, have been issued for the benefit of the
Company and/or its directors, officers and employees by properly licensed
insurance carriers, and are customary for the assets, business, and operations
of the Company. All such policies are in such amounts and against such risks as
is customary for companies engaged in similar businesses to the Company to
protect the employees, properties, assets, businesses and operations of the
Company. None of such policies will in any way be affected by, or terminate or
lapse by reason of, any of the transactions contemplated hereby and may be
canceled without penalty. All premiums with respect thereto covering all periods
up to and including the date as of which this representation is being made have
been paid, and no notice of cancellation or termination has been received with
respect to any such policy. The Company has promptly and properly notified its
insurance carriers of any and all claims known to it with respect to its
operations or products for which it is insured.

3.20 BANK ACCOUNTS. The Company Disclosure Schedule sets forth a list
of each bank, broker, or other depository with which the Company has an account
or safe deposit box (other than those having a balance or value not exceeding
$5,000 individually or $25,000 in the aggregate), the names and numbers of such
accounts or boxes and the names of all persons authorized to draw thereon or
execute transactions.

3.21 POWERS OF ATTORNEY. The Company Disclosure Schedule sets forth the
names of all persons, if any, holding powers of attorney from the Company
relating to authority for actions taken in the United States and a description
of the scope of each such power of attorney (other than powers of attorney
granted in the ordinary course of business). The Company has delivered to Parent
prior to the date hereof complete and accurate copies of all such powers of
attorney.

3.22 PRODUCT LIABILITY CLAIMS. During the three-year period preceding
the date hereof, the Company has not received a claim, or incurred any uninsured
or insured liability, for or based upon breach of product warranty (other than
warranty service or repair claims in the ordinary course of business not
material in amount or significance), strict liability in tort, negligent
provision of services or any other allegation of liability arising from the sale
of its products or from the provision of services (hereafter collectively
referred to as "Product Liability"). To the knowledge of the Company, no basis
for any claim based upon alleged Product Liability exists that would have a
Company Material Adverse Effect.

3.23 INVENTORIES. All inventories owned by the Company consist of items
of merchantable quality and quantity usable or salable in the ordinary course of
business, are salable at prevailing market prices that are not less than the
book value amounts thereof or the price customarily charged by the Company
therefor, conform to the specifications established therefor, except to the
extent that the failure of such inventories so to consist, be saleable, or
conform, would not have a Company Material Adverse Effect. The quantities of all
inventories, materials, and supplies of the Company (net of any reserve therefor
shown on the Company Interim Financials and determined in the ordinary course of
business consistent with past practice) are not obsolete, damaged, or defective,
except to the extent that the failure of such inventories to be in such
conditions would not have a Company Material Adverse Effect. The Company
Disclosure Schedule sets forth a true and complete list of the addresses of all
warehouses or other facilities in which inventories of the Company are located.

3.24 RELATIONS WITH SUPPLIERS. No material current supplier of the
Company has canceled any contract or order for provision of, and, to the
knowledge of the Company, there has been no threat by or basis for any such
supplier not to provide, raw-materials, products, supplies, or services to the
businesses of the Company.

3.25 RELATIONS WITH CUSTOMERS AND CLIENTS. Since December 31, 1997, no
customer or client of the Company has canceled or terminated, or notified the
Company of its intent to cancel or terminate, any product or service contract or
arrangement with the Company, and the Company has no knowledge of any intention
on the part of any of its current customers or clients to do so.

3.26 NO FINDERS. No act of the Company has given or will give rise to
any claim against any of the parties hereto for a brokerage commission, finder's
fee, or other like payment in connection with the transactions contemplated
herein, except payments to those parties identified on the Company Disclosure
Schedule who have acted as a finder for the Company or have been retained by the
Company as financial advisors

pursuant to the agreements or other documents described in the Company
Disclosure Schedule.

3.27 MINUTE BOOKS AND STOCK RECORD BOOKS. The corporate minute books
and stock record books of the Company are complete and correct and accurately
reflect the actions taken at all meetings of the stockholders and the Board
of Directors of the Company and each committee of the Board of Directors in
all material respects. The stock record books of the Company are complete and
correct and accurately reflect and record the issuance and transfer of all
shares of capital stock of the Company.

3.28 USE OF REAL PROPERTY. All Facilities are used and operated by
the Company in all material respects in compliance with all applicable
leases, contracts, commitments, licenses and permits, except for any failure
in compliance that would not reasonably be expected to have a Company
Material Adverse Effect.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUBSIDIARY

Except as set forth in a document of even date herewith, referring
specifically to the representations and warranties in this Agreement which
identifies by section number to which such disclosure relates (the "Parent
Disclosure Schedule"), Parent and Merger Subsidiary hereby jointly and severally
make the following representations and warranties to the Company:

4.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Delaware. Merger
Subsidiary is a corporation duly organized and validly existing under the laws
of the state of Minnesota. Each of Parent and Merger Subsidiary has all
requisite corporate power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. Each of Parent
and Merger Subsidiary is duly qualified and in good standing to do business in
each jurisdiction in which the property owned, leased, or operated by it or the
nature of the business conducted by it makes such qualification necessary and
where the failure to qualify could reasonably be expected to have a Parent
Material Adverse Effect (as defined below). "Parent Material Adverse Effect"
means an effect that, individually or in the aggregate with other effects, has a
materially adverse effect: (i) to the business, properties, liabilities, results
of operation, or financial condition of Parent and its subsidiaries, considered
as a whole, or (ii) to Parent's ability to perform any of its obligations under
this Agreement or to consummate the Merger, but shall

exclude any effect relating to or resulting from generally applicable
economic conditions or the Parent's industry in general.

4.2 AUTHORIZATION. Each of Parent and Merger Subsidiary has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Parent and Merger Subsidiary and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Boards of Directors of Parent and Merger Subsidiary and by
Parent as the sole shareholder of Merger Subsidiary, and no other corporate
proceedings on the part of Parent and Merger Subsidiary are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
each of Parent and Merger Subsidiary and constitutes the valid and binding
obligation of Parent and Merger Subsidiary, enforceable against each of them
in accordance with its terms, subject to laws of general application relating
to bankruptcy, insolvency, and the relief of debtors and rules of law
governing specific performance, injunctive relief, or other equitable
remedies.

4.3 CONSENTS AND APPROVALS. Except for (i) the HSR Act and (ii) the
filing and recordation of appropriate merger documents as required by the MBCA,
the execution and delivery of this Agreement by Parent and Merger Subsidiary and
the consummation of the transactions contemplated hereby will not: (a) violate
any provision of the Articles of Incorporation or Bylaws of Parent or Merger
Subsidiary; (b) violate any statute, rule, regulation, order, or decree of any
public body or authority by which Parent or any of its subsidiaries or any of
their respective properties or assets may be bound; (c) require any filing with
or permit, consent, or approval of any public body or authority; or (d) result
in any violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default under, result in the loss of any material
benefit under, or give rise to any right of termination, cancellation, increased
payments, or acceleration under, or result in the creation of any Lien on any of
the properties or assets of Parent or its subsidiaries under, any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, or other instrument or obligation to which Parent
or any of its subsidiaries is a party, or by which any of them or any of their
respective properties or assets may be bound, except, in the case of clause (d),
for any such violations, breaches, defaults, or other occurrences that would not
prevent or delay consummation of any of the transaction contemplated hereby in
any material respect, or otherwise prevent Parent from performing its
obligations under this Agreement in any material respect.

4.4 NO FINDERS. No act of Parent or Merger Subsidiary has given or
will give rise to any claim against any of the parties hereto for a brokerage
commission, finder's fee, or other like payment in connection with the
transactions contemplated herein.

ARTICLE 5
COVENANTS

5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, the Company will conduct its operations according to its ordinary and
usual course of business and consistent with past practice, and the Company will
use all reasonable efforts to preserve intact its business organizations, to
maintain its present business, to keep available the services of its officers
and employees and to maintain satisfactory relationships with licensors,
licensees, suppliers, contractors, distributors, consultants, customers, and
others having business relationships with it. Further, except as otherwise
expressly provided in or contemplated by this Agreement, prior to the Effective
Time, the Company will not, without the prior written consent of Parent:

(a) amend its Articles of Incorporation, as amended, or Bylaws;

(b) authorize for issuance, issue, sell, pledge, or deliver
(whether through the issuance or granting of additional options,
warrants, commitments, subscriptions, rights to purchase, or otherwise
other than in the ordinary course of business consistent with past new
hire practices) any stock of any class or any securities convertible into
shares of stock of any class (other than the issuance of the number of
shares of Company Common Stock indicated in Section 3.3 hereof upon the
exercise in accordance with the current terms of the stock options listed
in the Company Disclosure Section with respect to Section 3.3 hereof as
outstanding on the date of this Agreement);

(c) split, combine, or reclassify any shares of its capital
stock, declare, set aside, or pay any dividend or other distribution
(whether in cash, stock, or property or any combination thereof) in
respect of its capital stock; or redeem or otherwise acquire any shares
of its capital stock or other securities; or amend or alter any material
term of any of its outstanding securities;

(d) create, incur, or assume any indebtedness for borrowed
money, or assume, guarantee, endorse, or otherwise become liable or
responsible (whether directly, contingently, or otherwise) for the
obligations of any other person which involve

indebtedness for borrowed money or obligations that individually exceed
$25,000 or, in the aggregate, exceed $50,000;

(e) (i) increase the compensation of any of its directors,
officers, employees, shareholders, or consultants, except in the ordinary
course of business and consistent with past practice or consistent with
existing contractual commitments; (ii) pay or accelerate or otherwise
modify the payment, vesting, exercisability, or other feature or
requirement of any pension, retirement allowance, severance, change of
control, stock option, or other employee benefit not required by any
existing plan, agreement, or arrangement to any such director, officer,
employee, shareholder, or consultant, whether past or present; (iii)
except for normal increases in the ordinary course of business in
accordance with its customary past practices or consistent with existing
contractual commitments, commit itself to any additional or increased
pension, profit-sharing, bonus, incentive, deferred compensation, stock
purchase, stock option, stock appreciation right, group insurance,
severance, change of control, retirement or other benefit, plan,
agreement, or arrangement; or (IV) adopt or amend any Plan;

(f) except in the ordinary course of business and consistent
with past practice, or pursuant to contractual obligations existing on
the date hereof, (i) sell, transfer, mortgage, or otherwise dispose of or
encumber any real or personal property, (ii) pay, discharge, or satisfy
claims, liabilities, or obligations (absolute, accrued, contingent, or
otherwise), or (iii) cancel any debts or waive any claims or rights,
commence, settle or compromise any litigation, which involve payments or
commitments to make payments that individually exceed $10,000 or, in the
aggregate, exceed $50,000;

(g) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any portion of the assets of, or by any other manner, any
business of any corporation, partnership, joint venture, association, or
other business organization or division thereof,

(h) make or agree to make any new capital expenditure or
expenditures that, individually, is in excess of $25,000 or, in the
aggregate, are in excess of $50,000 unless in the ordinary course of
business consistent with the Company's 1998 budget;

(i) enter into, amend, or terminate any joint ventures or any
other agreements, commitments, or contracts that, individually or in the
aggregate, are material to the

Company (except agreements, commitments, or contracts expressly
provided for or contemplated by this Agreement or for the purchase,
sale, or lease of goods, services, or properties in the ordinary
course of business, consistent with past practice or capital
expenditures or inventory purchases consistent with the 1998 budget);

(j) enter into or terminate, or amend, extend, renew, or
otherwise modify (including, but not limited to, by default or by failure
to act) any material distribution, independent sales representative,
noncompetition, licensing, franchise, research and development, supply,
or similar contract, agreement, or understanding (except agreements,
commitments, or contracts expressly provided for or contemplated by this
Agreement or for the purchase, sale, or lease of goods, services, or
properties in the ordinary course of business, consistent with past
practice);

(k) remove or permit to be removed from any building, facility,
or real property any machinery, equipment, fixture, vehicle, or other
personal property or parts thereof, except in the ordinary course of
business;

(l) alter or revise its accounting principles, procedures,
methods, or practices, except as required by a change in generally
accepted accounting principles and concurred with by the Company's
independent public accountants; or

(m) agree to do any of the foregoing.

5.2 NO SOLICITATION. Neither the Company nor any of its officers,
directors, employees, representatives, agents, or affiliates (including, but not
limited to any investment banker, attorney, or accountant retained by the
Company), shall, directly or indirectly, solicit, encourage, initiate, or
participate in any way in discussions or negotiations with, or knowingly provide
any information to, any corporation, partnership, person, or other entity or
group (other than Parent or any affiliate or agent of Parent) concerning any
merger, sale or licensing of any significant portion of the assets, sale of
shares of capital stock (including without limitation any proposal or offer to
the Company's shareholders), or similar transactions involving the Company.

5.3 ACCESS AND INFORMATION. FINANCIAL STATEMENTS. (a) The Company
shall afford to Parent, and to Parent's accountants, officers, directors,
employees, counsel, and other representatives, reasonable access during normal
business hours, from the date hereof through the Effective Time, to all of its
properties, books, contracts, commitments, and records, and, during such period,
the Company shall furnish promptly

to Parent all information concerning the Company's businesses, prospects,
properties, liabilities, results of operations, financial condition,
officers, employees, distributors, customers, suppliers, and others having
dealings with the Company as Parent may reasonably request. During the period
from the date hereof to the Effective Time, the parties shall in good faith
meet and correspond on a regular basis for mutual consultation concerning the
conduct of the Company's businesses.

(b) Within five (5) business days after the date hereof, the Company
will deliver to Parent a true and correct copy of the audited financial
statements at and for the year ended December 31, 1997.

5.4 APPROVAL OF SHAREHOLDERS. The Company shall promptly take all
action necessary in accordance with Minnesota law and the Company's Articles of
Incorporation, as amended, and Bylaws to cause a special meeting of the
Company's shareholders to be duly called and held as soon as reasonably
practicable following the date hereof for the purpose of voting upon the Merger.
The shareholder vote or consent required for approval of the Plan of Merger and
the Merger shall be no greater than that set forth in the MBCA and the Company's
Articles of Incorporation, as amended, as previously provided to Parent. The
Company shall use all reasonable efforts to obtain the approval by the Company's
shareholders of this Agreement, the Plan of Merger, and the Merger.

5.5 CONSENTS. The Company will use all reasonable efforts to obtain
all approvals and consents of all third parties necessary on the part of the
Company to consummate the transactions contemplated hereby. Parent agrees to
cooperate with the Company in connection with obtaining such approvals and
consents. Parent will use all reasonable efforts to obtain all approvals and
consents of all third parties necessary on the part of Parent to consummate the
transactions contemplated hereby. The Company agrees to cooperate with Parent in
connection with obtaining such approvals and consent.

5.6 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and expenses,
except that the Parent alone will bear the filing fees required under the HSR
Act.

5.7 REASONABLE BEST EFFORT: FURTHER ACTIONS. Subject to the terms and
conditions herein provided and without being required to waive any conditions
herein (whether absolute, discretionary, or otherwise), each of the parties
hereto agrees to use its reasonable best efforts to take, or cause to be taken,
all action, and to do, or cause to be

done, all things necessary, proper, or advisable to consummate and make
effective the transactions contemplated by this Agreement within 60 days of
the date of this Agreement. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action.

5.8 REGULATORY APPROVALS. The Company and Parent will take all
reasonable action as may be necessary under federal or state securities laws or
the HSR Act applicable to or necessary for, and will file as soon as reasonably
practicable and, if appropriate, use all reasonable efforts to have declared
effective or approved all documents and notifications with governmental or
regulatory bodies that they deem necessary or appropriate for, the consummation
of the Merger and the transactions contemplated hereby, and each party shall
give the other information reasonably requested by such other party pertaining
to it and its subsidiaries and affiliates to enable such other party to take
such actions.

5.9 CERTAIN NOTIFICATIONS. The Company shall promptly notify Parent in
writing of the occurrence of any event that will or could reasonably be expected
to result in the failure by the Company or its affiliates to satisfy any of the
conditions specified in Section 6. 1 or 6.2. Parent shall promptly notify the
Company in writing of the occurrence of any event that will or could reasonably
be expected to result in the failure by Parent or its affiliates to satisfy any
of the conditions specified in Section 6.1 or 6.3.

5.10 INDEMNIFICATION. EXCULPATION AND INSURANCE. (a) The articles of
incorporation and the by-laws of the Surviving Corporation shall contain the
provisions with respect to indemnification and exculpation from liability set
forth in the Company's Articles of Incorporation, as amended, and By-laws on the
date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who on
or prior to the Effective Time were directors, officers, employees or agents of
the Company, unless such modification is required by law. Parent shall guarantee
the obligations of the Surviving Corporation with respect to the indemnification
provisions contained in the Surviving Corporation's certificate of incorporation
and by-laws.

(b) In the event Parent, the Surviving Corporation or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of

Parent or the Surviving Corporation, as the case may be, shall assume the
obligations set forth in this Section 5.10.

(c) This Section 5.10 shall survive the consummation of the Merger at
the Effective Time, is intended to benefit the Company, Parent, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all successors
and assigns of Parent and the Surviving Corporation.

5.11 BENEFIT PLANS AND EMPLOYEE MATTERS. (a) From the Effective Time
through and including December 31, 1998, Parent agrees that it will not cause or
permit the Company to terminate or modify, in any manner materially detrimental
to the employees of the Company (except as required by applicable law), any
health and welfare benefit plan and 401(k) pension plan included in the Plans
presently maintained by the Company.

(b) The parties hereto acknowledge that Parent, on the one hand, and
each of Xxxxxx X. Xxxxxxx and Xxxxxxxx Xxxx, on the other hand, have agreed as
of the date hereof upon term sheets containing the terms mutually agreed-upon by
them in respect of employment and other matters relating to Xxxxxx X. Xxxxxxx
and Xxxxxxxx Xxxx (collectively, the "Term Sheets"). Parent agrees to use all
reasonable efforts that may be necessary to enter into definitive agreements
with each of Xxxxxx X. Xxxxxxx or Xxxxxxxx Xxxx consistent with such Term Sheets
and containing such other mutually-agreeable terms and conditions as may be
customary to be included in such agreements on or prior to August 18, 1998, or
as soon as possible thereafter, and the Company shall use all reasonable efforts
to assist and cooperate with the same.

(c) With reference to the Employment Agreement, dated September 20,
1993, together With the Addendum to Harmonic Systems Incorporated Employment
Agreement relating to Pre-Employment Activities, dated __________, 1993, and
Amendment to Employment Agreement, dated May 20, 1998, between Harmonic
Systems Incorporated and Xxxxx X. Xxxxx (such Amendment, the "Xxxxx Xxxxx
Amendment"), on or prior to the Effective Time, the Company shall notify
Xxxxx X. Xxxxx that it is, conditioned upon the occurrence of the Effective
Time, exercising the option contained in paragraph 4 of such Xxxxx Xxxxx
Amendment to extend the Non-Competition covenants set forth in and
contemplated by Article 3 of such Xxxxx Xxxxx Amendment for an additional
twelve (12) months. For clarification, any obligations arising out of such
option being exercised shall be subject to the obligations of the
Shareholders set forth in Section 7.2(a)(ii) hereof.

ARTICLE 6
CLOSING CONDITIONS

6.1 CONDITIONS TO OBLIGATIONS OF PARENT MERGER SUBSIDIARY AND THE
COMPANY. The respective obligations of each party to consummate the Merger shall
be subject to the fulfillment at or prior to the Closing of the following
conditions:

(a) NO INJUNCTION. None of Parent, Merger Subsidiary, or the
Company shall be subject to any final order, decree, or injunction of a
court of competent jurisdiction within the United States that (i)
prevents or materially delays the consummation of the Merger, or (ii)
would impose any material limitation on the ability of Parent effectively
to exercise full rights of ownership of the Company or the assets or
business of the Company.

(b) WAITING PERIODS. The waiting periods applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.

(c) EMPLOYMENTS AND OTHER AGREEMENTS. Parent shall have entered
into a definitive agreement with each of Xxxxxx X. Xxxxxxx and Xxxxxxxx
Xxxx that is consistent with the relevant Term Sheet, PROVIDED that this
Section 6.1(c) shall not be a condition to the obligations of Parent or
Merger Subsidiary to consummate the Merger if Parent, on the one hand,
and either Xxxxxx X. Xxxxxxx or Xxxxxxxx Xxxx, on the other hand, fail to
enter into their respective definitive agreement due to Parent proposing
to include any terms in such definitive agreement which terms are
materially inconsistent with the terms contained in the Term Sheet.

6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY. The
respective obligations of Parent and Merger Subsidiary to consummate the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions:

(a) REPRESENTATIONS AND WARRANTIES TRUE. Each representation
and warranty of the Company contained in this Agreement shall be true and
correct in all respects (in the case of any representation or warranty
containing any materiality qualification) or in all material respects (in
the case of any representation or warranty without any materiality
qualification) on the date hereof and on the Closing Date as though such
representations and warranties were made on such date (except those
representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date).

(b) PERFORMANCE. The Company shall have performed and complied
in all material respects with all agreements, obligations, and conditions
required by this Agreement to be performed or complied with by it on or
prior to the Closing, and Parent shall have received a certificate to
such effect signed by the Chief Executive Officer of the Company.

(c) CONSENTS. The Company shall have obtained all permits,
authorizations, consents, and approvals required on its part to perform
its obligations under, and consummate the transactions contemplated by,
this Agreement, in form and substance satisfactory to Parent, and Parent
and Merger Subsidiary shall have received evidence satisfactory to them
of the receipt of such permits, authorizations, consents, and approvals.

(d) OPINION OF COUNSEL FOR THE COMPANY. Parent and Merger
Subsidiary shall have received an opinion of Xxxxxxxxxx & Xxxxx, P.A.,
counsel to the Company, dated the Closing Date, in form and substance
reasonably satisfactory to Parent as to matters set forth in Sections
3.1(a), 3.2 and 3.3.

(e) RESIGNATIONS. Such officers and directors of the Company as
shall have been specified by Parent shall have tendered their respective
resignations effective as of the Effective Time.

6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to consummate the Merger shall be subject to the fulfillment at or prior
to the Closing of the following additional conditions:

(a) REPRESENTATIONS AND WARRANTIES TRUE. Each representation
and warranty of Parent contained in this Agreement shall be true and
correct in all respects (in the case of any representation or warranty
containing any materiality qualification) or in all material respect (in
the case of any representation or warranty without any materiality
qualification) on the date of this Agreement and on the Closing Date as
though such representations and warranties were made on such date (except
those representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date).

(b) PERFORMANCE. Parent and Merger Subsidiary shall have
performed and complied in all material respects with all agreements,
obligations, and conditions required by this Agreement to be performed or
complied with by them on or prior to the Closing, and the Shareholders'
Representative (as defined below) shall have

received a certificate to such effect signed by the Chief Executive
Officer of the Company.

(c) CONSENTS. Parent and Merger Subsidiary shall have obtained
all permits, authorizations, consents, and approvals required on their
part to perform their obligations under, and consummate the transactions
contemplated by, this Agreement, in form and substance satisfactory to
the Company, and the Company shall have received evidence satisfactory to
it of the receipt of such permits, authorizations, consents, and
approvals.

(d) OPINION OF COUNSEL FOR PARENT. The Company shall have
received an opinion of Reboul, MacMurray, Xxxxxx, Xxxxxxx & Kristol,
counsel to Parent dated the Closing Date, in form and substance
reasonably satisfactory to the Company as to the matters set forth in
Sections 4.1 and 4.2.

ARTICLE 7
INDEMNIFICATION

7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by any and party hereto in this Agreement or pursuant hereto
shall survive until March 31, 2000. A party may maintain a claim or action for
indemnity pursuant to Article 7 after the expiration of the representation and
warranty under Article 3 and Article 4, as the case may be, only if the party
made the claim in writing on or prior to March 31, 2000.

7.2 GENERAL INDEMNITY. (a) BY SHAREHOLDERS. Subject to the terms and
conditions of this Article 7, each Shareholder, severally but not jointly,
indemnifies and holds harmless Parent and, following the Effective Time, the
Company from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including without
limitation interest, penalties and reasonable attorneys' fees and expenses
(hereinafter collectively, the "Damages"), asserted against, resulting to,
imposed upon or incurred by Parent or, following the Effective Time, the
Company, by reason of, resulting from or arising out of (j) a breach of any
representation, warranty, covenant or agreement of the Company contained in or
made pursuant to this Agreement, except, in each case, as and to the extent that
Section 7.2(b) or 7.2(c) shall be applicable thereto, in which case the
provisions of said Section 7.2(b) or 7.2(c), as the case may be, shall govern,
and (ii) the employment, retention and other agreements listed on Schedule
7.2(a)(ii), except as otherwise specified in such Schedule 7.2(a)(ii).

(b) TAX INDEMNITY BY SHAREHOLDERS. Each Shareholder, severally but not
jointly, indemnifies and holds harmless Parent and, following the Effective
Time, the Company from and against (i) any and all taxes incurred by, imposed
upon or attributable to the Company with respect to any tax period (or
portion thereof) ending on or prior to the date of the Effective Time and
(ii) reasonable legal and accounting fees and expenses and other
out-of-pocket expenses incurred by Parent or, following the Effective Time,
the Company or any party hereto in connection with assessment or collection
of the taxes referred to in clause (i) of this Section 7.2(b). For purposes
of this Section 7.2(b), any interest, penalty or additional charge included
in Taxes shall be deemed to be a tax for the period to which the item or
event giving rise to such interest, penalty or additional charge is
attributable, and not a tax for the period during which such interest,
penalty or additional charge accrues. Any taxes, legal fees and expenses
subject to indemnification under this Section 7.2(b) shall not be subject to
indemnification under Section 7.2(a) hereof.

(c) ERISA INDEMNITY BY SHAREHOLDERS. Each Shareholder, severally but
not jointly, indemnifies and holds harmless Parent from and against and in
respect of any Damages (including, without limitation, sanctions that arise
under ERISA) imposed upon, incurred by, assessed against Parent and
affiliates or plan fiduciaries and any of their employees arising by reason
of or relating to any failure of Company prior to the Effective Time to
comply with the requirements of ERISA with respect to any employee benefit
plan, including retirement and welfare benefit plans in existence prior to
the Closing Date. For the purposes of this provision, references to ERISA
refer to all sections of ERISA, including, but not limited to the applicable
provisions of the Code, as may be amended from time to time.

(d) BY PARENT. Subject to the terms and conditions of this Article 7,
Parent will indemnify, defend and hold the Shareholders harmless from and
against all Damages asserted against, resulting to, imposed upon or incurred
by them by reason of or resulting from or arising out of a breach of (i) any
representation, warranty, covenant or agreement of Parent or the Merger
Subsidiary contained in or made pursuant to this Agreement; and (ii) any
Damages relating to the conduct of the business of the Company and its
affiliates after the Closing.

(e) PROCEDURE. Procedures for making a claim for indemnity are set
forth in the Escrow Agreement.

7.3 LIMITATIONS ON INDEMNIFICATION. Notwithstanding the foregoing, the
maximum aggregate liability of each of the Shareholders, on the one hand, and
Parent and, following the Effective Time, the Company, on the other, for (a)
indemnification

payments pursuant to Section 7.2(a)(i) hereof shall not exceed the amount of
the Indemnification Escrow Deposit and (b) indemnification payments pursuant
to Section 7.2(a)(ii) hereof shall not exceed the amount of the Retention
Payment Escrow Deposit. In the case of the Shareholders, the Shareholders
will have no liability for indemnification under this Article 7 except to the
extent of the unreleased amount of the Indemnification Escrow Deposit or the
Retention Payment Escrow Deposit, as the case maybe.

7.4 ADJUSTMENTS. Any Damages subject to indemnification under this
Article 7 (i) shall be net of an amount equal to (x) any insurance proceeds
realized by and paid to the party to be indemnified minus (y) any related
costs and expenses, including the aggregate cost of pursuing any related
insurance claims plus any increases in insurance premiums or other charge
backs directly related to such claims, and (ii) shall be (A) reduced by an
amount equal to the tax benefits, if any, attributable to such claim and (B)
increased by an amount equal to the taxes, if any, attributable to the
receipt of such indemnity payment, but only to the extent that such tax
benefits are actually realized, or such taxes are actually paid, as the case
may be.

7.5 THIRD PARTY CLAIMS. The respective obligations and liabilities of
the Shareholders, on the one hand, and Parent and, following the Effective
Time, the Company, on the other hand (herein sometimes called the
"indemnifying party"), to the other (herein sometimes called the "party to be
indemnified") under Section 7.2 hereof with respect to claims resulting from
the assertion of liability by third parties shall be subject to the following
terms and conditions:

(i) within 30 days after receipt of notice of commencement of
any action or the assertion of any claim by a third party, the party to
be indemnified shall give the indemnifying party written notice thereof
together with a copy of such claim, process or other legal pleading
(provided that failure so to notify the indemnifying party of the
assertion of a claim within such period shall not affect its indemnity
obligation hereunder except as and to the extent that such failure shall
adversely affect the defense of such claim), and the indemnifying party
shall have the right to undertake the defense thereof by representatives
of its own choosing;

(ii) in the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the
tenth day preceding the day on which an answer or other pleading must
be served in order to prevent judgment by default in favor of the
person asserting such claim), does not elect to defend against such
claim, the party to be indemnified will (upon further notice to the
indemnifying party) have the right to undertake the defense, compromise
or settlement of such

claim on behalf of and for the account and risk of the indemnifying
party, subject to the right of the indemnifying party to consent to
any settlement or compromise thereof by the party to be indemnified;
and

(iii) in connection with any such indemnification, the party to
be indemnified will cooperate in all reasonable requests of the
indemnifying party.

ARTICLE 8
TERMINATION AND ABANDONMENT

8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the shareholders of the
Company, only:

(a) by mutual written consent duly authorized by the Board of
Directors of Parent and the Board of Directors of the Company;

(b) by either Parent or the Company if the Merger shall not have
been consummated on or before the date 90 days following the date
hereof; provided, however, that the terminating party shall not have
breached in any material respect its obligations under this Agreement in
any manner, including such party's obligations under Section 5.8 hereof,
that shall have been the proximate cause of, or resulted in, the failure
to consummate the Merger by such date;

(c) by either Parent or the Company if a court of competent
jurisdiction or an administrative, governmental, or regulatory authority
has issued a final nonappealable order, decree, or ruling, or taken any
other action, having the effect of permanently restraining, enjoining,
or otherwise prohibiting the Merger;

(d) by Parent if (i) Parent is not in material breach of its
obligations under this Agreement and (ii) there has been a breach by the
Company of any of its representations, warranties, or obligations under
this Agreement such that the conditions in Section 6.2 will not be
satisfied, and the breach is not curable or, if curable, is not cured by
the Company within 30 calendar days after receipt by the Company of
written notice from Parent of such breach;

(e) by the Company if (i) the Company is not in material breach of
its obligations under this Agreement and (ii) there has been a breach by
Parent of any of its representations, warranties, or obligations under
this Agreement such that the

conditions in Section 6.3 will not be satisfied, and the breach is not
curable or, if curable, is not cured by Parent within 30 calendar days
after receipt by Parent of written notice from the Company of such
breach;

8.2 EFFECT OF TERMINATION. Except as provided in the next sentence of
this paragraph, in the event of the termination of this Agreement pursuant to
any paragraph of Section 8.1, the obligations of the parties to consummate the
Merger will expire, and none of the parties will have any further obligations
under this Agreement except pursuant to Section 5.6 and Article 9. In the event
of the termination of this Agreement pursuant to any paragraph of Section 8.1
that is caused by a breach of a party, the party whose breach was the basis for
the termination will not be relieved from any liability for its breach, and the
other party will have no further obligations under this Agreement except as
provided in Section 5.6 and Article 9.

ARTICLE 9
MISCELLANEOUS

9.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified, or supplemented only by written agreement
of Parent, Merger Subsidiary, and the Company at any time prior to the
Effective Effective Time with respect to any of the terms contained herein.
This Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.

9.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Parent or Merger
Subsidiary on the one hand, or the Company on the other hand, to comply with
any obligation, covenant, agreement, or condition herein may be waived by the
Company or Parent, respectively, only by a written instrument signed by an
officer of the party granting such waiver, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement, or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, such consent shall be given in
writing. Merger Subsidiary agrees that any consent or waiver of compliance
given by Parent hereunder shall be conclusively binding upon Merger
Subsidiary, whether or not given expressly on its behalf.

9.3 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given when delivered personally by commercial
courier service or otherwise, or by telecopier, or three days after such
notice is mailed by

registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):

(a) if to Parent or Merger Subsidiary, to it at:

Alliance Data Systems
0000 Xxxxxx Xxxxxx Xxxx, Xxxxx 000X
Xxxxxx, XX 00000
FAX: (000) 000-0000
Attention: Xxxxxxx Xxxxx

with separate copies thereof addressed to

Alliance Data Systems
000 Xxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
FAX: (000) 000-0000
Attention: Xxxxxxx Xxxxxx, General Counsel

(b) If to the Company, to it at:

Harmonic Systems Incorporated
000 0xx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000
FAX: (000) 000-0000
Attention: Xxxxx X. Xxxxx

with a copy to:

Xxxxxxxxxx & Xxxxx, P.A.
1100 International Centre
000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000-0000
FAX: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx

9.4 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests, or obligations hereunder shall be assigned by
any of the parties hereto without the prior

written consent of the other parties, nor is this Agreement intended to
confer upon any other person except the parties hereto any rights or remedies
hereunder except that Parent shall have the right to assign this Agreement to
any of its affiliates or subsidiaries without the prior consent of any other
party hereto.

9.5 GOVERNING LAW; DISPUTE RESOLUTION. (a) This Agreement shall be
governed by the laws of the State of Minnesota (regardless of the laws that
might otherwise govern under applicable Minnesota principles of conflicts of
law).

(b) Any dispute, controversy or claim arising out of, relating to, or
in connection with, this Agreement or any breach, termination or validity
thereof shall be finally settled by arbitration. The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect at the time of the arbitration, except as
they may be modified herein or by mutual agreement of the parties. The seat
of the arbitration shall be Minneapolis, Minnesota and it shall be conducted
in the English language. The arbitration shall be conducted by three
arbitrators. The party initiating arbitration ("the Claimant") shall appoint
its arbitrator in its request for arbitration (the "Request"). The other
party ("the Respondent") shall appoint its arbitrator within thirty (30) days
of receipt of the Request and shall notify the Claimant of such appointment
in writing. If the Respondent fails to appoint an arbitrator within such
30-day period, the arbitrator named in the Request shall decide the
controversy or claim as a sole arbitrator. Otherwise, the two arbitrators
appointed by the parties shall appoint a third arbitrator within thirty (30)
days after the Respondent has notified Claimant of the appointment of the
Respondent's arbitrator. When the arbitrators appointed by the Claimant and
Respondent have appointed a third arbitrator and the third arbitrator has
accepted the appointment, the two arbitrators shall promptly notify the
parties of the appointment of the third arbitrator. If the two arbitrators
appointed by the parties fail or are unable so to appoint a third arbitrator
or so to notify the parties, then the appointment of the third arbitrator
shall be made by President of the American Arbitration Association which
shall promptly notify the parties of the appointment of the third arbitrator.
The third arbitrator shall act as Chairman of the panel. The arbitral award
shall be in writing and shall be final and binding on the parties. The award
may include an award of costs, including reasonable attorneys' fees and
disbursements. Judgment upon the award may be entered by any court having
jurisdiction thereof or having jurisdiction over the parties or their assets.
This Section 9.5(b) shall in no way affect the right of either party hereto
to seek interim relief in any court of competent jurisdiction, and a request
for such interim relief shall not be deemed incompatible with, or a waiver
of, the agreement to arbitrate contained herein.

9.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.

9.7 KNOWLEDGE. As used in this Agreement or the instruments,
certificates or other documents required hereunder, the term "knowledge"
shall mean, as to any individual, the actual knowledge of such person or, as
to any entity, the actual knowledge of such entity's directors and executive
officers.

9.8 INTERPRETATION. The Table of Contents, article and section
headings contained in this Agreement are inserted for reference purposes only
and shall not affect the meaning or interpretation of this Agreement. This
Agreement shall be construed without regard to any presumption or other rule
requiring the resolution of any ambiguity regarding the interpretation or
construction hereof against the party causing this Agreement to be drafted.

9.9 PUBLICITY. Upon Parent entering into and executing definitive
agreements with Xxxxxx X. Xxxxxxx, Xxxxxxxx Xxxx and Xxxxx X. Xxxxx as
provided for and pursuant to Section 5.11(b), Parent and the Company shall
jointly issue a press release, as agreed upon by them. The parties intend
that all future statements or communications to the public or press regarding
this Agreement or the Merger will be mutually agreed upon by them. Neither
party shall, without such mutual agreement or the prior consent of the other,
issue any statement or communication to the public or to the press regarding
this Agreement, or any of the terms, conditions, or other matters with
respect to this Agreement, except as required by law or the applicable rules
of the relevant stock exchange(s) and then only (a) upon the advice of such
party's legal counsel; (b) to the extent required by law or stock exchange
rules; and (c) following prior notice to, and consultation with, the other
party (which notice shall include a copy of the proposed statement or
communication to be issued to the press or public). The foregoing shall not
restrict Parent's or the Company's communications with their employees,
consultants, agents or customers in the ordinary course of business.

9.10 EXCLUSIVITY OF REMEDIES. Indemnification pursuant to the
provisions of this Article 7 shall be the exclusive remedy of the parties for
any misrepresentation or breach of representation, warranty, obligation or
agreement hereunder, PROVIDED that nothing herein shall limit the rights of
either party to seek and obtain injunctive relief to specifically enforce the
other party's obligation or assert any matter which is the subject of the
preceding sentence, other than a claim of fraud or intentional
misrepresentation, shall be a contract action to enforce, or to recover
damages for the breach of, this Article 7. The indemnifying party shall not
be liable for any consequential, special or incidental

Damages, including without limitation Damages for lost profits or Damages for
lost business opportunity.

9.11 SEVERABILITY. If any provision, including any phrase, sentence,
clause, section or subsection, of this Agreement is invalid, inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering such provision in question invalid, inoperative or unenforceable in
any other case or circumstance, or of rendering any other provision herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.

9.12 ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto and the Confidentiality Agreement previously entered into
between the parties, embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This
Agreement and the Confidentiality Agreement supersede all prior agreements
and the understandings between the parties with respect to such subject
matter.

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

ALLIANCE DATA SYSTEMS CORPORATION

By /s/ Xxxxxxx Xxxxx
----------------------------------
Its Executive Vice President
------------------------------

HSI ACQUISITION CORP.

By /s/ Xxx Xxxxxx
----------------------------------
Its President
------------------------------

HARMONIC SYSTEMS INCORPORATED

By /s/ Xxxxx X. Xxxxx
----------------------------------
Its Chairman & CEO
------------------------------

The undersigned consents to its appointment as Shareholders' Representative
under this Merger Agreement, agrees to serve in such capacity at and after the
Effective Time (subject to removal or resignation as permitted under the
Agreement) and agrees to be bound by the terms of this Agreement and shall have
the rights and benefits provided to the Shareholders' Representative in this
Agreement.

Xxxxx X. Xxxxx, as Shareholders' Representative

By: /s/ Xxxxx X. Xxxxx
------------------

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

ALLIANCE DATA SYSTEMS CORPORATION

By
----------------------------------
Its
--------------------------

HSI ACQUISITION CORP.

By
----------------------------------
Its
--------------------------

HARMONIC SYSTEMS INCORPORATED

By /s/ Xxxxx X. Xxxxx
----------------------------------
Its Chairman & CEO
--------------------------

The undersigned consents to its appointment as Shareholders' Representative
under this Merger Agreement, agrees to serve in such capacity at and after
the Effective Time (subject to removal or resignation as permitted under the
Agreement) and agrees to be bound by the terms of this Agreement and shall
have the rights and benefits provided to the Shareholders' Representative in
this Agreement.

Xxxxx X. Xxxxx, as Shareholders' Representative

By: /s/ Xxxxx X. Xxxxx
------------------

EXHIBIT A

PLAN OF MERGER

ARTICLE 1

NAMES OF CONSTITUENT
CORPORATIONS AND SURVIVING CORPORATION

1.1 The names of the Constituent Corporations are HSI Acquisition
Corp. ("Merger Subsidiary"), a Minnesota corporation and wholly-owned
subsidiary of Alliance Data Systems Corporation ("Parent"), a Delaware
corporation and Harmonic Systems Incorporated (the "Company"), a Minnesota
corporation. The Constituent Corporations shall be combined by the merger of
the Merger Subsidiary with and into the Company as the Surviving Corporation
(the "Merger") pursuant to the Agreement and Plan of Merger dated
August________ , 1998, by and among the Merger Subsidiary, Parent and the
Company (the "Merger Agreement") and pursuant to the applicable provisions of
the Minnesota Business Corporation Act ("MBCA").

ARTICLE 2
THE MERGER; CONVERSION OF SHARES

2.1 THE MERGER. Subject to the terms and conditions of the Merger
Agreement, at the Effective Time (as defined in Section 2.2 hereof), Merger
Subsidiary shall be merged with and into the Company in accordance with the
provisions of the MBCA, whereupon the separate corporate existence of Merger
Subsidiary shall cease, and the Company shall continue as the surviving
corporation (the "Surviving Corporation"). From and after the Effective Time,
the Surviving Corporation shall possess all the rights, privileges, powers,
and franchises and be subject to all the restrictions, disabilities, and
duties of the Company and Merger Subsidiary, all as more fully described in
the MBCA.

2.2 EFFECTIVE TIME. The Merger shall become effective at the time
at which the Articles of Merger and this Plan of Merger are duly filed with
the Minnesota Secretary of State or, if agreed to by Parent and the Company,
such later time or date set forth in the Articles of Merger (the "Effective
Time").

2.3 MERGER CONSIDERATION. The consideration to be paid by Parent in
full payment for the consummation of the Merger (the "Merger Consideration")
shall consist of:

(a) An aggregate amount of [$43,359,000] which shall be paid
on the Closing Date to the persons, in the manner and under the
conditions provided in this Article 2 (the "Closing Cash Amount"); PLUS

Agreement") (such amount deposited with such escrow agent, the
"Indemnification Escrow Deposit").

(c) An aggregate amount of [$1,641,000] which shall be paid by
wire transfer of immediately available funds to the escrow agent under
the Escrow Agreement (such amount deposited with such escrow agent, the
"Retention Payment Escrow Amount"). (The Indemnification Escrow Deposit,
the Retention Payment Escrow Amount and Earnings (as defined in the
Escrow Agreement) together are referred to in the Escrow Agreement and
herein as the "Escrow Amount".)

2.4 COMMON STOCK; PREFERRED SHARES; CONVERSION. At the Effective
Time, by virtue of the Merger and without any action on the part of any
holder of any share of capital stock of the Company or Merger Subsidiary:

(a) COMPANY STOCK; CLOSING CASH AMOUNT. (i) Each share of
common stock of the Company, par value $0.01 per share ("Company Common
Stock"), issued and outstanding on the date that is the one day prior to
the date hereof (the "Record Date") (except for Dissenting Shares, as
defined in Section 1.5 hereof) shall be converted into the right to
receive its Allocable Portion (as defined below) of the Closing Cash
Amount at the Effective Time, and the right to receive its Allocable
Portion of the Escrow Amount in the manner, at the terms and under the
conditions provided in the Escrow Agreement.

(ii) Each share of any other class of capital stock of the
Company (other than Company Common Stock) (the "Company Preferred
Stock") issued and outstanding at the Record Date (except for
Dissenting Shares as defined in Section 2.5 hereof) shall be converted
into the right to receive its Allocable Portion of the Closing Cash
Amount at the Effective Time, and the right to receive its Allocable
Portion of the Escrow Amount in the manner, at the time or times and
under the conditions provided in the Escrow Agreement. The Company
Common Stock and Company Preferred Stock are sometimes collectively
referred to hereinafter as "Company Stock".

The term "Allocable Portion" shall mean, with respect to each share of
Company Stock, that portion of the Closing Cash Amount which is
designated as the Company Stock Allocable Portion on Exhibit C-1 to the
Merger Agreement.

(b) MERGER SUBSIDIARY STOCK. Each share of common stock of
Merger Subsidiary, par value $.01 per share ("Merger Subsidiary Common
Stock"), issued and outstanding immediately prior to the Effective Time
shall be converted into one share of the common stock of the Surviving
Corporation, par value $.01 per share ("Surviving Corporation Common
Stock").

2.5 DISSENTING SHARES. Notwithstanding any provision of the Merger
Agreement to the contrary, each outstanding share of Company Stock, the
holder of which has demanded and perfected such holder's right to dissent
from the Merger and to be paid the fair value of such

shares in accordance with Sections 302A.471 ET SEQ. of the MBCA and, as of
the Effective Time, has not effectively withdrawn or lost such dissenters'
rights ("Dissenting Shares"), shall not be converted into or represent a
right to receive the Merger Consideration into which shares of Company Stock
are converted pursuant to Section 2.4 hereof, but the holder thereof shall be
entitled only to such rights as are granted by the MBCA. The Company shall
give Parent (i) prompt written notice of any notice of intent to demand fair
value for any shares of Company Stock, withdrawals of such notices, and any
other instruments served pursuant to the MBCA or any other provisions of
Minnesota law and received by the Company, and (ii) the opportunity to
conduct jointly all negotiations and proceedings with respect to demands for
fair value for shares of Company Stock under the MBCA. The Company shall not,
except with the prior written consent of Parent, voluntarily make any payment
with respect to any demands for fair value for shares of Company Stock or
offer to settle or settle any such demands.

2.6 COMPANY WARRANTS. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders thereof, each
warrant to purchase Company Common Stock outstanding at the Record Date (the
"Company Warrants") shall be converted into the right to receive that portion
of the Closing Cash Amount at the Effective Time as set forth on Exhibit C-2
of the Merger Agreement (the "Closing Warrant Amount"), and the right to
receive that portion of the Escrow Amount in the manner, at the time or
times, and under the conditions provided in the Escrow Agreement.

2.7 COMPANY CONVERTIBLE DEBENTURES. At the Effective Time, by
virtue of the Merger and without any action on the part of the holders
thereof, each convertible debenture of the Company issued and outstanding at
the Record Date (the "Convertible Debentures") shall be converted into the
right to receive that portion of the Closing Cash Amount at the Effective
Time as set forth on Exhibit C-3 of the Merger Agreement (the "Closing
Debenture Payment"), and the right to receive that portion of the Escrow
Amount in the manner, at the time or times, and under the conditions provided
in the Escrow Agreement.

2.8 STOCK OPTIONS. All stock options outstanding at the Record Date
under the Company's employee stock option plans (the "Company Option Plans")
shall, whether or not exercisable or vested, become fully exercisable and
vested at the Effective Time, and each option thereunder shall be converted
into a right to receive that portion of the Closing Cash Amount at the
Effective Time as set forth an Exhibit C-4 of the Merger Agreement
corresponding to the name of the holder of such option (the "Closing Option
Payment"), and the right to receive that portion of the Escrow Amount, in the
manner, at the time or times, and under the conditions set forth on Exhibit
C-4 of the Merger Agreement corresponding to the name of the holder of such
option (the "Deferred Option Payment"). Each of the Company Option Plans and
all options issued and outstanding thereunder shall terminate effective as of
the Effective Time.

2.9 EXCHANGE OF MERGER SUBSIDIARY COMMON STOCK. From and after the
Effective Time, each outstanding certificate previously representing shares
of Merger Subsidiary Common Stock shall be deemed for all purposes to
evidence ownership of and to represent the number of shares of Surviving
Corporation Common Stock into which such shares of Merger Subsidiary Common
Stock shall have been converted. Promptly after the Effective Time, the
Surviving

Corporation shall issue to Parent a stock certificate or certificates
representing such shares of Surviving Corporation Common Stock in exchange
for the certificate or certificates that formerly represented shares of
Merger Subsidiary Common Stock, which shall be canceled.

2.10 EXCHANGE OF COMPANY STOCK. (a) The Company will instruct the
holders of the certificate representing Company Stock to deliver such
certificates at or after the Closing to Parent, duly endorsed for transfer to
the Company, for cancellation. At the Closing with respect to certificates so
delivered at or prior to the Closing, and as soon as practicable after
delivery with respect to certificates not delivered until after Closing,
Parent shall pay to each transferring holder thereof an amount of money equal
to the Allocable Portion of the Closing Cash Amount to which such surrendered
shares are entitled. Such payments shall be made by bank check delivered at
Closing or mailed to the recipient pursuant to instructions given by the
recipient; or by wire transfer of immediately available funds pursuant to
instructions given by the recipient. In the event of a transfer of ownership
of Company Stock that is not registered in the transfer records of the
Company, it shall be a condition to the payment that the Company
Certificate(s) so surrendered shall be properly endorsed or be otherwise in
proper form for transfer and that such transferee shall (i) pay to the
Exchange Agent any transfer or other taxes required or (ii) establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.

(b) All cash paid in respect of the Closing Cash Amount and rights
to receive payments out of the Escrow Amount distributed upon the surrender
for exchange of Company Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Company Stock.

(c) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Stock that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Company
Certificates representing such shares are presented to the Surviving
Corporation, they shall be canceled and exchanged as provided in this Article
2. As of the Effective Time, the holders of Company Certificates representing
shares of Company Stock shall cease to have any rights as shareholders of the
Company, except such rights, if any, as they may have pursuant to the MBCA.
Except as provided above, until such Company Certificates are surrendered for
exchange, each such Company Certificate shall, after the Effective Time,
represent for all purposes only the rights to receive the Closing Cash Amount
and Escrow Amount to which the shares of Company Stock shall have been
converted pursuant to the Merger as provided in Section 2.3 hereof.

(d) In the event any Company Certificates shall have been lost,
stolen, or destroyed, the Exchange Agent shall issue in exchange for such
lost, stolen, or destroyed Company Certificates, upon the making of an
affidavit of that fact by the holder thereof, such as may be required
pursuant to this Article 2.

2.11 EXCHANGE OF THE COMPANY WARRANTS AND COMPANY DEBENTURES. (a)
The Company will instruct the holders of the Company Warrants and Company
Debentures to deliver the Company Warrants and Company Debentures at or after
the Closing to Parent, duly endorsed for

transfer to the Company, At Closing, with respect to Company Warrants and
Company Debentures so delivered at or prior to the Closing, and as soon as
practicable after delivery, with respect to Company Warrants and Company
Debentures not delivered until after Closing, Parent shall pay to each
transferring holder thereof an amount of money equal to the Closing Warrant
Payment to which such surrendered Company Warrants are entitled and the
Closing Debenture Amount to which the Company Debentures are entitled. Such
payments shall be made by bank check delivered at Closing or mailed to the
recipient pursuant to instructions given by the recipient; or by wire
transfer of immediately available funds pursuant to instructions given by the
recipient.

(b) All cash paid and rights to receive Escrow Amounts distributed
upon surrender for exchange of Company Warrants and Company Debentures shall
be deemed to have been issued in full satisfaction of all rights pertaining
respectively to such Company Warrants and Company Debentures.

2.12 ESCROW AGREEMENT; SHAREHOLDER REPRESENTATIVE. (a) The
shareholders of the Company, by approving the Merger, agree to be bound by
the terms of the Escrow Agreement referred to in Section 2.3, including,
without limitation, the provisions thereof appointing a person to act as the
representative (the "Shareholders' Representative") of the shareholders of
the Company Stock and the holders of the Company Options, Company Warrants
and Company Debentures (together, the "Selling Group") for the purpose of(i)
administering and entering into the Escrow Agreement, settling on behalf of
the Shareholders' claims made by Parent thereunder, (iii) representing the
Shareholders in any proceedings relating to the Merger Agreement and (iv)
performing any other actions specifically delegated to the Shareholders'
Representative under the terms of the Merger Agreement. The Shareholders, by
approving the Merger, will be bound by any and all actions taken by the
Shareholders' Representative on their behalf. Acceptance by Shareholders of
the Shareholders' Representative is a condition of the Merger.

(b) A Committee appointed by the Board of Directors of the Company
immediately prior to the Effective Time (the "Committee") may remove the
Shareholders' Representative by unanimous vote of the Committee. If the
Shareholders' Representative resigns or is no longer able to serve, the
Committee must unanimously vote to appoint a new Shareholders' Representative
within thirty (30) days after the resignation or notice of his, her or its
inability to serve. A vote to appoint a new Shareholders' Representative is
effective when (i) the Committee so elects to appoint a new Shareholders'
Representative and (ii) the new Shareholders' Representative gives notice to
Parent and the prior Shareholders' Representative of such vote.

(c) Parent is entitled to rely exclusively upon communications or
writings given or executed by the Shareholders' Representative with respect
to the matters described in the Escrow Agreement and is not liable in any
manner whatsoever for any action taken or not taken in reliance upon the
actions taken or not taken or communication or writings given or executed by
the Shareholders' Representative. Until Parent receives notice of appointment
of a new Shareholders' Representative, Parent may rely upon actions taken by
the prior Shareholders' Representative.

2.13 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of Merger Subsidiary, as in effect immediately
prior to Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended in accordance with applicable
law; provided, however, that upon the Effective Time, Article I of the
Articles of Incorporation of the Surviving Corporation shall be amended to
read in its entirety as follows: "The name of the corporation is Harmonic
Systems Incorporated, Inc. (hereinafter referred to as the "Corporation")."

2.14 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger
Subsidiary, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation until thereafter amended in
accordance with applicable law.

2.15 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors and officers of Merger Subsidiary immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation until their respective successors shall be duly elected
and qualified.

HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998
---------------

Total
Shares Gross Allocated Exercise Net
Warrant Holders Exercised Proceeds Expenses Proceeds Proceeds
--------------- --------- -------- -------- -------- --------

Series D Warrants
-----------------
NORWEST VENTURE W 198,237 $ 511,673.55 $ 24,510.62 $ 450,000.00 $ 37,162.93

Series F Warrants
-----------------
Xxxxxx X. Xxxxxxx Revocable Trust 69,444 $ 179,242.57 $ 8,586.23 $ 96,248.98 $ 74,407.36
Xxxxx S. & Xxxxx Xxxxx 9,470 $ 24,442.42 $ 1,170.86 $ 13,125.00 $ 10,146.56
Xxxxxxx X. & Xxxxxx X. Xxxxxxxx 26,256 $ 67,771.16 $ 3,246.43 $ 36,391.49 $ 28,133.23
T.W. Ireland 71,910 $ 185,608.77 $ 8,891.19 $ 99,667.48 $ 77,050.10
Floor Seal Technology Profit Sharing 6,106 $ 15,760.47 $ 754.97 $ 8,463.00 $ 6,542.50
Xxxxxxx Xxxxx 31,566 $ 81,475.67 $ 3,902.92 $ 43,750.49 $ 33,822.27
Xxxxx X. Xxxxx Xx. 14,498 $ 37,420.65 $ 1,792.56 $ 20,094.00 $ 15,534.10
Xxxxxxx Xxxxxxxx 31,566 $ 81,475.67 $ 3,902.92 $ 43,750.49 $ 33,822.27
Xxxxxx X. Xxxxxx Xx. 41,957 $ 108,295.29 $ 5,187.65 $ 58,151.99 $ 44,955.65
Xxxxx X. & Xxxxx X. Xxxxx 7,210 $ 18,609.76 $ 891.46 $ 9,993.00 $ 7,725.30
Xxxxxxx X. Xxxxxxxx 632,934 $ 1,633,678.43 $ 78,257.84 $ 877,246.32 $ 678,174.28
Xxxxxx Xxxx 41,036 $ 105,918.09 $ 5,073.78 $ 56,875.49 $ 43,968.83
Norwest Equity Partners, IV 31,566 $ 81,475.67 $ 3,902.92 $ 43,750.49 $ 33,822.27
Norwest Equity Partners, V 63,131 $ 162,948.55 $ 7,805.70 $ 87,499.48 $ 67,643.37
Xxxxxx X. Xxxx Revocable Living Trust 2,525 $ 6,517.05 $ 312.19 $ 3,499.50 $ 2,705.36
Xxxxx X. Xxxxxxxxxx 11,359 $ 29,319.73 $ 1,404.50 $ 15,744.00 $ 12,171.24
Xxxxxx X. Xxxxx 9,470 $ 24,442.42 $ 1,170.86 $ 13,125.00 $ 10,146.56
Advanta Partners LP 791,936 $ 2,044,082.07 $ 97,917.34 $ 1,097,623.27 $ 848,541.46
------------------------------------------------------------------------------------------

Total F Warrants 1,893,939 $ 4,888,484.46 $ 234,172.29 $ 2,624,999.45 $ 2,029,312.72

Series G Warrants
-----------------
Third Coast Capital 28,408 $ 73,324.47 $ 3,512.45 $ 49,500.00 $ 20,312.02
------------------------------------------------------------------------------------------
Total Warrants 2,120,584 $ 5,473,482.48 $ 262,195.36 $ 3,124,499.45 $ 2,086,787.67

Escrow Escrow First Second
Warrant Holders % $'s Distribution Distribution
--------------- ------ ------ ------------ ------------

Series D Warrants
-----------------
NORWEST VENTURE W 0.07607% $ 5,324.59 $ 31,838.35 $ 5,324.59

Series F Warrants
Xxxxxx X. Xxxxxxx Revocable Trust 0.15230% $ 10,660.85 $ 63,746.51 $ 10,660.85
Xxxxx S. & Xxxxx Xxxxx 0.02077% $ 1,453.77 $ 8,692.80 $ 1,453.77
Xxxxxxx X. & Xxxxxx X. Xxxxxxxx 0.05758% $ 4,030.84 $ 24,102.39 $ 4,030.84
T.W. Ireland 0.15771% $ 11,039.49 $ 66,010.61 $ 11,039.49
Floor Seal Technology Profit Sharing 0.01339% $ 937.39 $ 5,605.12 $ 937.39
Xxxxxxx Xxxxx 0.06923% $ 4,845.95 $ 28,976.32 $ 4,845.95
Xxxxx X. Xxxxx Xx. 0.03180% $ 2,225.68 $ 13,308.42 $ 2,225.68
Xxxxxxx Xxxxxxxx 0.06923% $ 4,845.95 $ 28,976.32 $ 4,845.95
Xxxxxx X. Xxxxxx Xx. 0.09202% $ 6,441.10 $ 38,514.55 $ 6,441.10
Xxxxx X. & Xxxxx X. Xxxxx 0.01581% $ 1,106.86 $ 6,618.45 $ 1,106.86
Xxxxxxx X. Xxxxxxxx 1.38809% $ 97,166.64 $ 581,007.64 $ 97,166.64
Xxxxxx Xxxx 0.09000% $ 6,299.71 $ 37,669.12 $ 6,299.71
Norwest Equity Partners, IV 0.06923% $ 4,845.95 $ 28,976.32 $ 4,845.95
Norwest Equity Partners, V 0.13845% $ 9,691.73 $ 57,951.64 $ 9,691.73
Xxxxxx X. Xxxx Revocable Living Trust 0.00554% $ 387.62 $ 2,317.75 $ 387.62
Xxxxx X. Xxxxxxxxxx 0.02491% $ 1,743.86 $ 10,427.38 $ 1,743.86
Xxxxxx X. Xxxxx 0,02077% $ 1,453.77 $ 8,692.80 $ 1,453.77
Advanta Partners LP 1.73680% $ 121,576.31 $ 726,965.15 $ 121,576.31
-----------------------------------------------------------------------

Total F Warrants 4.15362% $ 290,753.43 $ 1,738,559.28 $ 290,753.43

Series G Warrants
-----------------
Third Coast Capital 0.04157% $ 2,910.24 $ 17,401.78 $ 2,910.24
-----------------------------------------------------------------------
Total Warrants 4.27126% $ 298,988.26 $ 1,787,799.41 $ 298,988.26

HARMONIC SYSTEMS INCORPORATED
-----------------------------
SUMMARY OF OPTIONS POST SPLIT
8/10/98
-------

Options
Outstanding Gross Allocated Exercise Net Escrow
8/10/98 Proceeds Expenses Proceeds Proceeds %
------- -------- -------- -------- -------- ------

Total Qualified Options 1,177,626 $ 3,039,594.41 $ 145,605.21 $ 1,904,076.80 $ 989,912.41 2.02616%

Total Non-Qualified Options 100,000 $ 258,112.03 $ 12,364.30 $ 147,150.00 $ 98,597.73 0.20181%

----------------------------------------------------------------------------------------------
Total 1,277,626 $ 3,297,706.45 $ 157,969.51 $ 2,051,226.80 $ 1,088,510.14 2.22798%

Escrow First Second
$'s Distribution Distribution
--- ------------ ------------

Total Qualified Options $ 141,831.48 $ 848,080.92 $ 141,831.48

Total Non-Qualified Options $ 14,126.77 $ 84,470.97 $ 14,126.77

-----------------------------------------------------------
Total $ 155,958.25 $ 932,551.89 $ 155,958.25

HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98

Options
Exercise Outstanding Gross Allocated Exercise Net
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds Proceeds
------- ----- ------- -------- -------- -------- --------

Xxxxxxx Xxxxx $ 0.75 74,000 $ 191,002.90 $ 9,149.58 $ 55,500.00 $ 126,353.32
Xxxxxxx Xxxxx $ 2.50 - $ - $ - $ - $ -
----------------------------------------------------------------------------------------------
Sub-total 74,000 $ 191,002.90 $ 9,149.58 $ 55,500.00 $ 126,353.32

Xxxxxx Xxxx $ 0.875 50,000 $ 129,056.02 $ 6,182.15 $ 43,750.00 $ 79,123.87

Xxxxxx Xxxxx $ 0.875 50,000 $ 129,056.02 $ 6,182.15 $ 43,750.00 $ 79,123.87
Xxxxxx Xxxxx $ 2.50 - $ - $ - $ - $ -
Xxxxxx Xxxxx $ 1.80 1,500 $ 3,871.68 $ 185.46 $ 2,700.00 $ 986.22
----------------------------------------------------------------------------------------------
Sub-total 51,500 $ 132,927.70 $ 6,367.61 $ 46,450.00 $ 80,110.08

Xxxx Xxxxx $ 0.875 35,000 $ 90,339.21 $ 4,327.50 $ 30,625.00 $ 55,386.71
Xxxx Xxxxx $ 2.50 - $ - $ - $ - $ -
Xxxx Xxxxx $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00 $ 657.48
----------------------------------------------------------------------------------------------
Sub-total 36,000 $ 92,920.33 $ 4,451.15 $ 32,425.00 $ 56,044.18

Xxxx Xxxxx $ 0.875 39,000 $ 100,663.69 $ 4,822.08 $ 34,125.00 $ 61,716.62
Xxxx Xxxxx $ 2.50 - $ - $ - $ - $ -
Xxxx Xxxxx $ 2.50 - $ - $ - $ - $ -
Xxxx Xxxxx $ 1.80 2,000 $ 5,162.24 $ 247.29 $ 3,600.00 $ 1,314.95
Xxxx Xxxxx $ 1.80 3,000 $ 7,743.36 $ 370.93 $ 5,400.00 $ 1,972.43
----------------------------------------------------------------------------------------------
Sub-total 44,000 $ 113,569.29 $ 5,440.29 $ 43,125.00 $ 65,004.00

Xxxxxx Xxxxxxxx $ 2.00 8,000 $ 20,648.96 $ 989.14 $ 16,000.00 $ 3,659.82
Xxxxxx Xxxxxxxx $ 2.50 - $ - $ - $ - $ -
----------------------------------------------------------------------------------------------
Sub-total 8,000 $ 20,648.96 $ 989.14 $ 16,000.00 $ 3,659.82

Xxx Xxxxxx $ 2.00 35,000 $ 90,339.21 $ 4,327.50 $ 70,000.00 $ 16,011.71
Xxx Xxxxxx $ 2.50 - $ - $ - $ - $ -
----------------------------------------------------------------------------------------------
Sub-total 35,000 $ 90,339.21 $ 4,327.50 $ 70,000.00 $ 16,011.71

Xxxx Meskinen $ 2.00 35,000 $ 90,339.21 $ 4,327.50 $ 70,000.00 $ 16,011.71
Xxxx Meskinen $ 2.50 - $ - $ - $ - $ -
----------------------------------------------------------------------------------------------
Sub-total 35,000 $ 90,339.21 $ 4,327.50 $ 70,000.00 $ 16,011.71

Escrow Escrow First Second
GRANTEE % $'s Distribution Distribution
------- --- --- ------------ ------------

Xxxxxxx Xxxxx $ 18,103.50 $ 108,249.82 $ 18,103.50
Xxxxxxx Xxxxx $ - $ - $ -
----------------------------------------------------------------------
Sub-total 0.25862% $ 18,103.50 $ 108,249.82 $ 18,103.50

Xxxxxx Xxxx 0.16195% $ 11,336.61 $ 67,787.25 $ 11,336.61

Xxxxxx Xxxxx $ 11,336.61 $ 67,787.25 $ 11,336.61
Xxxxxx Xxxxx $ - $ - $ -
Xxxxxx Xxxxx $ 141.30 $ 844.91 $ 141.30
----------------------------------------------------------------------
Sub-total 0.16397% $ 11,477.92 $ 68,632.17 $ 11,477.92

Xxxx Xxxxx $ 7,935.63 $ 47,451.08 $ 7,935.63
Xxxx Xxxxx $ - $ - $ -
Xxxx Xxxxx $ 94.20 $ 563.28 $ 94.20
----------------------------------------------------------------------
Sub-total 0.11471% $ 8,029.83 $ 48,014.35 $ 8,029.83

Xxxx Xxxxx $ 8,842.56 $ 52,874.06 $ 8,842.56
Xxxx Xxxxx $ - $ - $ -
Xxxx Xxxxx $ - $ - $ -
Xxxx Xxxxx $ 188.40 $ 1,126.55 $ 188.40
Xxxx Xxxxx $ 282.60 $ 1,689.83 $ 282.60
----------------------------------------------------------------------
Sub-total 0.13305% $ 9,313.57 $ 55,690.44 $ 9,313.37

Xxxxxx Xxxxxxxx $ 524.37 $ 3,135.45 $ 524.37
Xxxxxx Xxxxxxxx $ - $ - $ -
----------------------------------------------------------------------
Sub-total 0.00749% $ 524.37 $ 3,135.45 $ 524.37

Xxx Xxxxxx $ 2294.11 $ 13,717.60 $ 2,294.11
Xxx Xxxxxx $ - $ - $ -
----------------------------------------------------------------------
Sub-total 0.03277% $ 2,294.11 $ 13,717.60 $ 2,294.11

Xxxx Meskinen $ 2,294.11 $ 13,717.60 $ 2,294.11
Xxxx Meskinen $ - $ - $ -
----------------------------------------------------------------------
Sub-total 0.03277% $ 2,294.11 $ 13,717.60 $ 2,294.11

HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98

Options
Exercise Outstanding Gross Allocated Exercise Net
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds Proceeds
------- ----- ------- -------- -------- -------- --------

Xxxxx XxXxxxxxx $ 2.00 8,000 $ 20,648.96 $ 989.14 $ 16,000.00 $ 3,659.82
Xxxxx XxXxxxxxx $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Sub-total 8,000 $ 20,648.96 $ 989.14 $ 16,000.00 $ 3,659.82

Xxxxxxx Xxxxx $ 2.00 25,000 $ 64,528.01 $ 3,091.07 $ 50,000.00 $ 11,436.93
Xxxxxxx Xxxxx $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Subtotal 25,000 $ 64,528.01 $ 3,091.07 $ 50,000.00 $ 11,436.93

Xxxxx Xxxxx $ 2.00 4,000 $ 10,324.48 $ 494.57 $ 8,000.00 $ 1,829.91
Xxxxx Xxxxx $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Sub-total 4,000 $ 10,324.48 $ 494.57 $ 8,000.00 $ 1,829.91

Xxx Xxxxxxx $ 2.50 - $ - $ - $ - $ -
Xxx Xxxxxxx $ 1.80 22,000 $ 56,784.65 $ 2,720.15 $ 39,600.00 $ 14,464.50
--------------------------------------------------------------------------------------------
Sub-total 22,000 $ 56,784.65 $ 2,720.15 $ 39,600.00 $ 14,464.50

Xxxx Xxxxxxx $ 2.50 - $ - $ - $ - $ -

Xx Xxxxxx $ 1.80 70,000 $ 180,678.42 $ 8,655.01 $ 126,000.00 $ 46,023.41
Xx Xxxxxx $ 1.80 3,526 $ 9,101.03 $ 435.97 $ 6,346.80 $ 2,318.27
--------------------------------------------------------------------------------------------
Sub-total 73,526 $ 189,779.45 $ 9,090.97 $ 132,346.80 $ 48,341.68

Xxxxx Xxxxxx $ 2.50 - $ - $ - $ - $ -
Xxxxx Xxxxxx $ 2.50 - $ - $ - $ - $ -
Xxxxx Xxxxxx $ 1.80 20,000 $ 51,622.41 $ 2,472.86 $ 36,000.00 $ 13,149.55
--------------------------------------------------------------------------------------------
Sub-total 20,000 $ 51,622.41 $ 2,472.86 $ 36,000.00 $ 13,149.55

Xxxx Xxxxx $ 2.50 - $ - $ - $ - $ -
Xxxx Xxxxx $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Sub-total - $ - $ - $ - $ -

Escrow Escrow First Second
GRANTEE % $'s Distribution Distribution
------- --- --- ------------ ------------

Xxxxx XxXxxxxxx $ 524.37 $ 3,135.45 $ 524.37
Xxxxx XxXxxxxxx $ - $ - $ -
--------------------------------------------------------------------
Sub-total 0.00749% $ 524.37 $ 3,135.45 $ 524.37

Xxxxxxx Xxxxx $ 1,638.65 $ 9,798.29 $ 1,638.65
Xxxxxxx Xxxxx $ - $ - $ -
--------------------------------------------------------------------
Subtotal 0.02341% $ 1,638.65 $ 9,798.29 $ 1,638.65

Xxxxx Xxxxx $ 262.18 $ 1,567.73 $ 262.18
Xxxxx Xxxxx $ - $ - $ -
--------------------------------------------------------------------
Sub-total 0.00375% $ 262.18 $ 1,567.73 $ 262.18

Xxx Xxxxxxx $ - $ - $ -
Xxx Xxxxxxx $ 2,072.43 $ 12,392.07 $ 2,072.43
--------------------------------------------------------------------
Sub-total 0.02961% $ 2,072.43 $ 12,392.07 $ 2,072.43

Xxxx Xxxxxxx 0.00000% $ - $ - $ -

Xx Xxxxxx $ 6,594.09 $ 39,429.33 $ 6,594.09
Xx Xxxxxx $ 332.15 $ 1,986.11 $ 332.15
--------------------------------------------------------------------
Sub-total 0.09895% $ 6,926.24 $ 41,415.44 $ 6,926.24

Xxxxx Xxxxxx $ - $ - $ -
Xxxxx Xxxxxx $ - $ - $ -
Xxxxx Xxxxxx $ 1,884.02 $ 11,265.52 $ 1,884.02
--------------------------------------------------------------------
Sub-total 0.02691% $ 1,884.02 $ 11,265.52 $ 1,884.02

Xxxx Xxxxx $ - $ - $ -
Xxxx Xxxxx $ - $ - $ -
--------------------------------------------------------------------
Sub-total 0.00000% $ - $ - $ -

HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98

Options
Exercise Outstanding Gross Allocated Exercise Net
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds Proceeds
------- ----- ------- -------- -------- -------- --------

Xxx Xxxx $ 2.50 - $ - $ - $ - $ -
Xxx Xxxx $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Sub-total - $ - $ - $ - $ -

Xxxxxx Xxxxxx $ 2.50 - $ - $ - $ - $ -
Xxxxxx Xxxxxx $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Sub-total - $ - $ - $ - $ -

Ed Learned $ 2.50 - $ - $ - $ - $ -

Xxxxxxx Orimme(Xxxx $ 2.50 - $ - $ - $ - $ -

Xxx Xxxxxx $ 2.50 - $ - $ - $ - $ -

Xxx Xxxxxxx $ 2.50 - $ - $ - $ - $ -

Xxxxx Xxxxxx $ 2.50 - $ - $ - $ - $ -
Xxxxx Xxxxxx $ 1.80 4,000 $ 10,324.48 $ 494.57 $ 7,200.00 $ 2,629.91
--------------------------------------------------------------------------------------------
Sub-total 4,000 $ 10,324.48 $ 494.57 $ 7,200.00 $ 2,629.91

Xxx Xxxxxx $ 2.50 - $ - $ - $ - $ -

Xxx Ring $ 2.50 - $ - $ - $ - $ -
Xxx Xxxxx $ 2.50 $ - $ - $ - $ -
Xxx Xxxxx $ 1.80 5,000 $ 12,905.60 $ 618.21 $ 9,000.00 $ 3,287.39
--------------------------------------------------------------------------------------------
Sub-total 5,000 $ 12,905.60 $ 618.21 $ 9,000.00 $ 3,287.39

Xxxxx XxXxxxxxxx $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00 $ 6,574.77
--------------------------------------------------------------------------------------------

Total Qualified Options Employees 505,026 $ 1,303,532.88 $ 62,442.93 $ 693,396.80 $ 547,693.15

Escrow Escrow First Second
GRANTEE % $'s Distribution Distribution
------- --- --- ------------ ------------

Xxx Xxxx $ - $ - $ -
Xxx Xxxx $ - $ - $ -
----------------------------------------------------------------
Sub-total 0.00000% $ - $ - $ -

Xxxxxx Xxxxxx $ - $ - $ -
Xxxxxx Xxxxxx $ - $ - $ -
----------------------------------------------------------------
Sub-total 0.00000% $ - $ - $ -

Ed Learned 0.00000% $ - $ - $ -

Xxxxxxx Orimme(Xxxx 0.00000% $ - $ - $ -

Xxx Xxxxxx 0.00000% $ - $ - $ -

Xxx Xxxxxxx 0.00000% $ - $ - $ -

Xxxxx Xxxxxx $ - $ - $ -
Xxxxx Xxxxxx $ 376.80 $ 2,253.10 $ 376.80
----------------------------------------------------------------
Sub-total 0.00538% $ 376.80 $ 2,253.10 $ 376.80

Xxx Xxxxxx 0.00000% $ - $ - $ -

Xxx Ring 0.00000% $ - $ - $ -
Xxx Xxxxx $ - $ - $ -
Xxx Xxxxx $ 471.01 $ 2,816.38 $ 471.01
----------------------------------------------------------------
Sub-total 0.00673% $ 471.01 $ 2,816.38 $ 471.01

Xxxxx XxXxxxxxxx 0.01346% $ 942.01 $ 5,632.76 $ 942.01
----------------------------------------------------------------
Total Qualified
Options Employees 1.12102% $ 78,471.72 $ 469,221.43 $ 78,471.72

HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98

Options
Exercise Outstanding Gross Allocated Exercise
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds
------- ----- ------- -------- -------- --------

Xxxxx Xxxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxxx Xxxxxx $ 1.80 800 $ 2,064.90 $ 98.91 $ 1,440.00
Xxxx Xxxxxxx $ 1.80 250,000 $ 645,280.08 $ 30,910.75 $ 450,000.00
Xxxxx Xxxx $ 1.80 250 $ 645.28 $ 30.91 $ 450.00
Xxxxx Xxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxx Xxxxxx $ 1.80 100,000 $ 258,112.03 $ 12,364.30 $ 180,000.00
Xxxxxxx Xxxxxxxx $ 1.80 25,000 $ 64,528.01 $ 3,091.07 $ 45,000.00
Xxx Xxxxx $ 1.80 3,000 $ 7,743.36 $ 370.93 $ 5,400.00
Xxxxxxxxx Xxxx $ 1.80 7,000 $ 18,067.84 $ 865.50 $ 12,600.00

Xxxx Xxxxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxx Xxxxxxxx $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
----------------------------------------------------------------------------
Sub-total 1,500 $ 3,871.68 $ 185.46 $ 2,700.00

Xxx Xxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxx Xxxxx $ 1.80 1,500 $ 3,871.68 $ 185.46 $ 2,700.00
----------------------------------------------------------------------------
Sub-total 2,000 $ 5,162.24 $ 247.29 $ 3,600.00

Xxxxx Xxxxx $ 1.80 3,500 $ 9,033.92 $ 432.75 $ 6,300.00
Xxxxx Xxxxxxx $ 1.80 3,000 $ 7,743.36 $ 370.93 $ 5,400.00
Xxxxxx Xxxxxx $ 1.80 800 $ 2,064.90 $ 98.91 $ 1,440.00

Xxxxx Xxxxx $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00
Xxxxx Xxxxx $ 1.80 5,000 $ 12,905.60 $ 618.21 $ 9,000.00
Xxxxx Xxxxx $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00
----------------------------------------------------------------------------
Sub-total 25,000 $ 64,528.01 $ 3,091.07 $ 45,000.00

Xxx Xxxxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxx Xxxxxxxx $ 1.80 1,500 $ 3,871.68 $ 185.46 $ 2,700.00
----------------------------------------------------------------------------
Sub-total 2,000 $ 5,162.24 $ 247.29 $ 3,600.00

Xxxxxxx Xxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxxxxx Xxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00

Xxxxxxx Xxxxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxxxxx Xxxxxxxx $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
----------------------------------------------------------------------------
Sub-total 1,500 $ 3,871.68 $ 185.46 $ 2,700.00

Xxxxxxx Xxxxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxxx Xxxx $ 1.80 17,000 $ 43,879.05 $ 2,101.93 $ 30,600.00

Xxxxxxxxxxx Xxxxx $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Xxxxxxxxxxx Xxxxx $ 1.80 2,000 $ 5,162.24 $ 247.29 $ 3,600.00
----------------------------------------------------------------------------
Sub-total 3,000 $ 7,743.36 $ 370.93 $ 5,400.00

Xxxxx Xxxxxxxx $ 1.80 250 $ 645.28 $ 30.91 $ 450.00
Xxx Xxx $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00

Nadia El-Afendi $ 1.80 6,000 $ 15,486.72 $ 741.86 $ 10,800.00
Nadis El-Afendi $ 1.80 5,000 $ 12,905.60 $ 618.21 $ 9,000.00
----------------------------------------------------------------------------
Sub-total 11,000 $ 28,392.32 $ 1,360.07 $ 19,800.00

Xxxxx Xxxxx $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00
Xxx Xxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxxxx Close $ 1.80 5,000 $ 12,905.60 $ 618.21 $ 9,000.00
Xxxxx Xxxxxx $ 1.80 6,000 $ 15,486.72 $ 741.86 $ 10,800.00
Xxxxxx Xxxxxxxx $ 1.80 250 $ 645.28 $ 30.91 $ 450.00
Xxxx Xxxxxxxxx $ 1.80 2,500 $ 6,452.80 $ 309.11 $ 4,500.00
Xxxxxx Persien $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Xxxxx Xxxxxx $ 1.80 2,500 $ 6,432.80 $ 309.11 $ 4,500.00
Xxxx Xxxxxx $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
----------------------------------------------------------------------------
Sub-total 497,850 $ 1,285,010.76 $ 61,555.67 $ 896,130.00

Net Escrow Escrow First Second
GRANTEE Proceeds % $'s Distribution Distribution
------- -------- --- --- ------------ ------------

Xxxxx Xxxxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Xxxxx Xxxxxx $ 525.98 0.00108% $ 75.36 $ 450.62 $ 75.36
Xxxx Xxxxxxx $ 164,369.33 0.33643% $ 23,550.31 $ 140,819.02 $ 23,550.31
Xxxxx Xxxx $ 164.37 0.00034% $ 23.55 $ 140.82 $ 23.55
Xxxxx Xxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Xxxx Xxxxxx $ 65,747.73 0.13457% $ 9,420.12 $ 56,327.61 $ 9,420.12
Xxxxxxx Xxxxxxxx $ 16,436.93 0.03364% $ 2,355.03 $ 14,081.90 $ 2,355.03
Xxx Xxxxx $ 1,972.43 0.00404% $ 282.60 $ 1,689.83 $ 282.60
Xxxxxxxxx Xxxx $ 4,602.34 0.00942% $ 659.41 $ 3,942.93 $ 659.41

Xxxx Xxxxxxxx $ 328.74 $ 47.10 $ 281.64 $ 47.10
Xxxx Xxxxxxxx $ 657.48 $ 94.20 $ 563.28 $ 94.20
--------------------------------------------------------------------------------------------
Sub-total $ 986.22 0.00202% $ 141.30 $ 844.91 $ 141.30

Xxx Xxxxx $ 328.74 $ 47.10 $ 281.64 $ 47.10
Xxx Xxxxx $ 986.22 $ 141.30 $ 844.91 $ 141.30
--------------------------------------------------------------------------------------------
Sub-total $ 1,314.95 0.00269% $ 188.40 $ 1,126.55 $ 188.40

Xxxxx Xxxxx $ 2,301.17 0.00471% $ 329.70 $ 1,971.47 $ 329.70
Xxxxx Xxxxxxx $ 1,972.43 0.00404% $ 282.60 $ 1,689.83 $ 282.60
Xxxxxx Xxxxxx $ 525.98 0.00108% $ 75.36 $ 450.62 $ 75.36

Xxxxx Xxxxx $ 6,574.77 $ 942.01 $ 5,632.76 $ 942.01
Xxxxx Xxxxx $ 3,287.39 $ 471.01 $ 2,816.38 $ 471.01
Xxxxx Xxxxx $ 6,574.77 $ 942.01 $ 5,632.76 $ 942.01
--------------------------------------------------------------------------------------------
Sub-total $ 16,436.93 0.03364% $ 2,355.03 $ 14,081.90 $ 2,355.03

Xxx Xxxxxxxx $ 328.74 $ 47.10 $ 281.64 $ 47.10
Xxx Xxxxxxxx $ 986.22 $ 141.30 $ 844.91 $ 141.30
--------------------------------------------------------------------------------------------
Sub-total $ 1,314.95 0.00269% $ 188.40 $ 1,126.55 $ 188.40

Xxxxxxx Xxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Xxxxxxx Xxxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10

Xxxxxxx Xxxxxxxx $ 328.74 $ 47.10 $ 281.64 $ 47.10
Xxxxxxx Xxxxxxxx $ 657.48 $ 94.20 $ 563.28 $ 94.20
--------------------------------------------------------------------------------------------
Sub-total $ 986.22 0.00202% $ 141.30 $ 844.91 $ 141.30

Xxxxxxx Xxxxxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Xxxxx Xxxx $ 11,177.11 0.02288% $ 1,601.42 $ 9,575.69 $ 1,601.42

Xxxxxxxxxxx Xxxxx $ 657.48 $ 94.20 $ 563.28 $ 94.20
Xxxxxxxxxxx Xxxxx $ 1,314.95 $ 188.40 $ 1,126.55 $ 188.40
--------------------------------------------------------------------------------------------
Sub-total $ 1,972.43 0.00404% $ 282.60 $ 1,689.83 $ 282.60

Xxxxx Xxxxxxxx $ 164.37 0.00034% $ 23.55 $ 140.82 $ 23.55
Xxx Xxx $ 6,574.77 0.01346% $ 942.01 $ 5,632.76 $ 942.01

Nadia El-Afendi $ 3,944.86 $ 565.21 $ 3,379.66 $ 565.21
Nadis El-Afendi $ 3,287.39 $ 471.01 $ 2,816.38 $ 471.01
--------------------------------------------------------------------------------------------
Sub-total $ 7,232.25 0.01480% $ 1,036.21 $ 6,196.04 $ 1,036.21

Xxxxx Xxxxx $ 6,574.77 0.01346% $ 942.01 $ 5,632.76 $ 942.01
Xxx Xxxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Xxxxxx Close $ 3,287.39 0.00067% $ 471.01 $ 2816.38 $ 471.01
Xxxxx Xxxxxx $ 3,944.86 0.00807% $ 565.21 $ 3,379.66 $ 565.21
Xxxxxx Xxxxxxxx $ 164.37 0.00034% $ 23.55 $ 140.82 $ 23.55
Xxxx Xxxxxxxxx $ 1,643.69 0.00336% $ 235.50 $ 1,408.19 $ 235.50
Xxxxxx Persien $ 657.48 0.00135% $ 94.20 $ 563.28 $ 94.20
Xxxxx Xxxxxx $ 1,643.69 0.00336% $ 235.50 $ 1,408.19 $ 235.50
Xxxx Xxxxxx $ 657.48 0.00035% $ 94.20 $ 563.28 $ 94.20
--------------------------------------------------------------------------------------------
Sub-total $ 327,325.09 0.66997% $ 46,898.09 $ 280,427.00 $ 46,898.09

HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98

Options
Exercise Outstanding Gross Allocated Exercise
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds
------- ----- ------- -------- -------- --------

Xxxxxxx Xxxxxxxxxx $ 1.80 750 $ 1,935.84 $ 92.73 $ 1,350.00
Xxxxxx Xxxxxxx $ 1.80 2,000 $ 5,162.24 $ 247.29 $ 3,600.00
Xxxxxx Xxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxxx Xxxxxxxx $ 1.80 20,000 $ 51,622.41 $ 2,472.86 $ 36,000.00
Xxxxx Xxxxxxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxxxxx Xxxx $ 1.80 - $ - $ - $ -
Xxxxxxx Xxxx (Terminated 1/9/98) - -
Xxxxx Xxxxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxxx Xxxxxxx $ 1.80 - $ - $ - $ -
Xxxxx Xxxxxxx (Terminated)
Xxxxx Xxxxxxx $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Xxxxxxxx Xxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Xxxxx Xxxxx $ 1.80 130,000 $ 335,545.64 $ 16,073.59 $ 234,000.00
Xxxxx Xxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Sayyara Xxxxxx $ 1.80 - $ $ - $ -
Sayyara Xxxxxx (Terminated 7/22/98)
Xxxxxx Root $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Xxxxxx Xxxxxx $ 1.80 5,000 $ 12,905.60 $ 618.21 $ 9,000.00
Xxxxxxx Xxxxx $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00
Xxxxxxx Xxxxxxx $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Xxxxxxxxx Woefle $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Xxxxx Xxxxxxxxx $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
-------------------------------------------------------------------
Subtotal New Employees 1998 174,750 $ 451,050.78 $ 21,606.61 $ 314,550.00

-------------------------------------------------------------------
Total Qualified Options 1,177,626 $ 3,039,594.41 $ 145,605.21 $ 1,904,076.80

Net Escrow Escrow First Second
GRANTEE Proceeds % $'s Distribution Distribution
------- -------- --- --- ------------ ------------

Xxxxxxx Xxxxxxxxxx $ 493.11 0.00101% $ 70.65 $ 422.46 $ 70.65
Xxxxxx Xxxxxxx $ 1,314.95 0.00269% $ 188.40 $ 1,126.55 $ 188.40
Xxxxxx Xxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Xxxxx Xxxxxxxx $ 13,149.55 0.02691% $ 1,884.02 $ 11,265.52 $ 1,884.02
Xxxxx Xxxxxxxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Xxxxxxx Xxxx $ - 0.00000% $ - $ - $ -
Xxxxxxx Xxxx (Terminated 1/9/98) - 0.00000% - - -
Xxxxx Xxxxxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Xxxxx Xxxxxxx $ - 0.00000% $ - $ - $ -
Xxxxx Xxxxxxx (Terminated) 0.00000%
Xxxxx Xxxxxxx $ 657.48 0.00135% $ 94.20 $ 563.28 $ 94.20
Xxxxxxxx Xxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Xxxxx Xxxxx $ 85,472.05 0.17495% $ 12,246.16 $ 73,225.89 $ 12,246.16
Xxxxx Xxxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Sayyara Xxxxxx $ - 0.00000% $ - $ - $ -
Sayyara Xxxxxx (Terminated 7/22/98) 0.00000%
Xxxxxx Root $ 657.48 0.00135% $ 94.20 $ 563.28 $ 94.20
Xxxxxx Xxxxxx $ 3,287.39 0.00673% $ 471.01 $ 2,816.38 $ 471.01
Xxxxxxx Xxxxx $ 6,574.77 0.01346% $ 942.01 $ 5,632.76 $ 942.01
Xxxxxxx Xxxxxxx $ 657.48 0.00135% $ 94.20 $ 563.28 $ 94.20
Xxxxxxxxx Woefle $ 657.48 0.00135% $ 94.20 $ 563.28 $ 94.20
Xxxxx Xxxxxxxxx $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
----------------------------------------------------------------------------------------
Subtotal New Employees 1998 $ 114,894.16 0.23517% $ 16,461.67 $ 98,432.50 $ 16,461.67
----------------------------------------------------------------------------------------
Total Qualified Options $ 989,912.41 2.02616% $ 141,831.48 $ 848,080.92 $ 141,831.48

HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98

Options
Exercise Outstanding Gross Allocated Exercise Net
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds Proceeds
------- ----- ------- -------- -------- -------- --------

Xxxx Xxxxx $ 0.875 10,000 $ 25,811.20 $ 1,236.43 $ 8,750.00 $ 15,824.77
Xxxx Xxxxx $ 2.00 10,000 $ 25,811.20 $ 1,236.43 $ 20,000.00 $ 4,574.77
-----------------------------------------------------------------------------------
Xxxx Xxxxx Total 20,000 $ 51,622.41 $ 2,472.86 $ 28,750.00 $ 20,399.55

Xxxxx Xxxxxx $ 0.875 20,000 $ 51,622.41 $ 2,472.86 $ 17,500.00 $ 31,649.55
Xxxxx Xxxxxx $ 2.00 20,000 $ 51,622.41 $ 2,472.86 $ 40,000.00 $ 9,149.55
-----------------------------------------------------------------------------------
Xxxxx Xxxxxx Total 40,000 $ 103,244.81 $ 4,945.72 $ 57,500.00 $ 40,799.09

Xxxx Xxxxxx $ 2.50 - $ $ - $ - $ -

Xxx Xxxxxx $ 0.875 12,000 $ 30,973.44 $ 1,483.72 $ 10,500.00 $ 18,989.73

Xxxxx Xxxxxx $ 1.80 20,000 $ 51,622.41 $ 2,472.86 $ 36,000.00 $ 13,149.55

Xxxxx Xxxxxx $ 1.80 8,000 $ 20,648.96 $ 989.14 $ 14,400.00 $ 5,259.82
-----------------------------------------------------------------------------------
Total Non-Qualified Options 100,000 $ 258,112.03 $ 12,364.30 $ 147,150.00 $ 98,597.73

Escrow Escrow First Second
GRANTEE % $'s Distribution Distribution
------- --- --- ------------ ------------

Xxxx Xxxxx $ 2,267.32 $ 13,557.45 $ 2,267.32
Xxxx Xxxxx $ 655.46 $ 3,919.31 $ 655.46
----------------------------------------------------------------
Xxxx Xxxxx Total 0.04175% $ 2,922.78 $ 17,476.76 $ 2,922.78

Xxxxx Xxxxxx $ 4,534.65 $ 27,114.90 $ 4,534.65
Xxxxx Xxxxxx $ 1,310.92 $ 7,838.63 $ 1,310.92
----------------------------------------------------------------
Xxxxx Xxxxxx Total 0.08351% $ 5,845.56 $ 34,953.53 $ 5,845.56

Xxxx Xxxxxx 0.00000% $ - $ - $ -

Xxx Xxxxxx 0.03887% $ 2,720.79 $ 16,268.94 $ 2,720.79

Xxxxx Xxxxxx 0.02691% $ 1,884.02 $ 11,265.52 $ 1,884.02

Xxxxx Xxxxxx 0.01077% $ 753.61 $ 4,506.21 $ 753.61
----------------------------------------------------------------
Total Non-Qualified Options 0.20181% $ 14,126.77 $ 84,470.97 $ 14,126.77

Exhibit B to the Agreement and Plan of Merger

================================================================================

ESCROW AGREEMENT

among

ALLIANCE DATA SYSTEMS CORPORATION

-------------------------------

as Shareholders' Representative

and

-------------------------------

as Escrow Agent

Dated as of , 1998

================================================================================

TABLE OF CONTENTS

Page

SECTION I Appointment of Escrow Agent; Resignation and Successor . . . . 1
1.1 Appointment of Escrow Agent . . . . . . . . . . . . . . . . . . . . 1
1.2 Resignation of Escrow Agent; Appointment of Successor . . . . . . . 1

SECTION II Escrow Arrangements. . . . . . . . . . . . . . . . . . . . . . 2
2.1 Liability Secured by the Escrow Deposit . . . . . . . . . . . . . . 2
2.2 Delivery of the Deposit, etc. . . . . . . . . . . . . . . . . . . . 2
2.3 Investment of the Escrow Amount . . . . . . . . . . . . . . . . . . 3
2.4 Distribution of Interest. . . . . . . . . . . . . . . . . . . . . . 3

SECTION III Release of the Escrow Amount . . . . . . . . . . . . . . . . . 3
3.1 Distributions for . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

SECTION IV Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Responsibilities of Escrow Agent. . . . . . . . . . . . . . . . . . 8

SECTION V Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . .10
5.1 Shareholders' Representative. . . . . . . . . . . . . . . . . . . .10
5.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.3 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.4 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.5 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.7 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . .12
5.9 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.10 Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . .13
5.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
5.12 Condition to Effectiveness. . . . . . . . . . . . . . . . . . . . .13

ESCROW AGREEMENT

ESCROW AGREEMENT, dated as of ________________, 1998, among Alliance Data
Systems Corporation, a Delaware corporation ("Parent"), Xxxxx X. Xxxxx, as
Shareholders' representative (or any successor thereto, the "Shareholders
Representative"), and ____________ a national banking association, having its
headquarters in _________________ (the "Escrow Agent").

WHEREAS, Parent, HSI Acquisition Corp., a Minnesota corporation and
wholly-owned subsidiary of Parent ("Merger Subsidiary"), and Harmonic Systems
Incorporated, a Minnesota corporation (the "Company"), have entered into an
Agreement and Plan of Merger, dated as of August 14, 1998 (the "Merger
Agreement"), providing for the merger of the Merger Subsidiary with and into the
Company;

WHEREAS, Section 1.3(b) of the Merger Agreement provides that at the
Closing (as such term and other capitalized terms used herein without definition
are defined in the Merger Agreement), the Indemnification Escrow Deposit in the
amount of $7,000,000 and the Retention Payment Escrow Deposit in the amount of
$[1,500,000] shall be delivered to the Escrow Agent, which shall be held and
disbursed by the Escrow Agent pursuant to the terms hereof;

NOW, THEREFORE, the parties hereto agree as follows:

SECTION I

APPOINTMENT OF ESCROW AGENT; RESIGNATION AND SUCCESSOR

1.1 APPOINTMENT OF ESCROW AGENT. The Escrow Agent is hereby appointed,
and accepts its appointment and designation as, Escrow Agent pursuant to the
terms and conditions of this Agreement.

1.2 RESIGNATION OF ESCROW AGENT; APPOINTMENT OF SUCCESSOR. The Escrow
Agent acting at any time hereunder may resign at any time by giving at least 60
days' prior written notice of resignation to Parent and the Shareholders'
Representative, such resignation to be effective on the date specified in such
notice. Upon receipt of such notice, Parent and the Shareholders' Representative
shall, unless they otherwise agree, appoint a [bank or trust company with a
combined capital and surplus of at least $100 million] as successor to the
Escrow Agent, by a written instrument delivered to such successor Escrow Agent,
Parent and the Shareholders' Representative whereupon such

successor Escrow Agent shall succeed to all the rights and obligations
of the resigning Escrow Agent as of the effective date of resignation as if
originally named herein. Upon such assignment of this Agreement, the
resigning Escrow Agent shall duly transfer and deliver the Escrow Amount (as
defined in Section 2.2(b) hereof), at the time held by the resigning Escrow
Agent, to such successor Escrow Agent, PROVIDED that, if no successor Escrow
Agent shall have been appointed on the effective date of resignation of the
resigning Escrow Agent hereunder, the resigning Escrow Agent may pay any
funds remaining in the Escrow Account (as defined in Section 2.2(b)) into a
court of competent jurisdiction.

SECTION II

ESCROW ARRANGEMENTS

2.1 LIABILITY SECURED BY THE ESCROW DEPOSIT. This Agreement has been
executed and delivered, and the Escrow Account is hereby established, to
facilitate any indemnification which any Shareholder may owe to Parent pursuant
to Article 7 of the Merger Agreement.

2.2 DELIVERY OF THE DEPOSIT, ETC. (a) At the Effective Time, Parent
shall deliver to the Escrow Agent, by wire transfer of immediately available
funds, the Indemnification Escrow Deposit and the Retention Payment Escrow
Deposit (together, the "Escrow Deposit"). The parties acknowledge and agree that
for tax purposes, the Escrow Agent shall report all Earnings (as defined in
Section 2.2(b) hereof) on the Escrow Deposit as attributable to the Shareholders
and shall be reported by the Shareholders for federal, state, and local tax
purposes for the accounts of the Shareholders. Any disbursement of the Escrow
Deposit shall be allocated and paid by the Escrow Agent as provided herein and
reported by the recipient to the Internal Revenue Service as having been so
allocated and paid.

(b) The Escrow Agent shall hold the Escrow Deposit and all interest and
other proceeds from the investment thereof ("Earnings", together with the Escrow
Deposit, the "Escrow Amount") in an escrow account (the "Escrow Account"). The
Escrow Amount shall not be subject to any lien or attachment of any creditor or
any third party and shall be used solely for the purposes and subject to the
conditions set forth in this Agreement and the Merger Agreement.

2.3 INVESTMENT OF THE ESCROW AMOUNT. Except for the release of the
Escrow Amount pursuant to Section 2.4 or Section III hereof, the Escrow Agent
shall not

sell or transfer any portion of the Escrow Deposit. Notwithstanding the
foregoing, the Escrow Agent is hereby authorized and directed to invest and
reinvest any amounts at any time in the Escrow Account in the following
obligations (collectively, the "Permitted Investments"):

(a) obligations of, or fully guaranteed as to timely payment of
principal and interest by, the United States of America;

(b) such money market funds as are agreed to from time to time by Parent
and the Shareholders' Representative; and

(c) certificates of deposit with any bank or trust company organized
under the laws of the United States of America or any agency or instrumentality
thereof or under the laws of any state thereof which has a combined capital and
surplus of at least $100 million.

Subject to the foregoing limitations, the Escrow Agent shall invest the
Escrow Amount in accordance with written instructions delivered to it by Parent
and the Shareholders' Representative from time to time. Except as provided
above, the Escrow Agent shall have no power or duty to invest the Escrow Amount
or to make substitutions therefor.

2.4 DISTRIBUTION OF INTEREST. Any and all interest or other income
earned on any portion of the Escrow Deposit shall be distributed by the Escrow
Agent to the Shareholders' Representative, or if directed by the Shareholders'
Representative, to the Shareholders, promptly after receipt thereof by the
Escrow Agent. Before making any payments of Earnings to Shareholders'
Representative (or the Shareholders if so directed by the Shareholders'
Representative), the Escrow Agent may deduct the Shareholders' share of the
Escrow Agent's fees and expenses due under Section 4.1 and pay such amount to
itself.

SECTION III

RELEASE OF THE ESCROW AMOUNT

Except as provided in Section 2.4, the Escrow Agent shall release the
Escrow Amount only in accordance with this Section 3.

3.1 DISTRIBUTIONS FOR INDEMNIFICATION. (a) Parent may deliver to the
Escrow Agent a certificate (a "Notice of Claim") (i) stating that Parent is of
the opinion that it may he entitled to indemnification pursuant to Section
7.2(a)(i) or Section 7.2(a)(ii) of the Merger Agreement (each, an
"Indemnification Obligation"), (ii) stating the aggregate amount (the "Claim
Amount") of such Indemnification Obligation (or, in the case of an unliquidated
Indemnification Obligation, a good faith and reasonable estimate thereof), and
(iii) specifying in reasonable detail the nature of such Indemnification
Obligation. Any Notice of Claim delivered pursuant to this Section with respect
to any unliquidated Indemnification Obligation may be supplemented by a later
Notice of Claim specifying in greater detail the applicable Claim Amount or any
other items set forth therein. Parent shall deliver to the Shareholders'
Representative a copy of any Notice of Claim hereunder concurrently with the
delivery of such Notice of Claim to the Escrow Agent. Parent shall have the
right to submit (x) a Notice of Claim in respect of any Indemnification
Obligation under Section 7.2(a)(ii) at any time prior to the first anniversary
of the Effective Time (the "First Escrow Date") and (y) a Notice of Claim in
respect of any Indemnification Obligation under Section 7.2(a)(i) at any time on
or prior to March 31, 2000 (the "Final Escrow Date").

(b) If the Shareholders' Representative shall object to the
Indemnification Obligation or the Claim Amount specified in such original or
later delivered Notice of Claim, the Shareholders' Representative shall, within
twenty business days after delivery of the written notice containing a copy of
any such Notice of Claim, deliver to the Escrow Agent a certificate (a "Reply
Certificate") (x) specifying in reasonable detail each such objection,
including, without limitation, the portion of the Claim Amount that the
Shareholders' Representative does not want the Escrow Agent to release to Parent
(the "Disputed Amount"), and (y) specifying in reasonable detail the nature and
basis for such objection. The Shareholders' Representative shall deliver to
Parent a copy of any Reply Certificate hereunder concurrently with the delivery
of such Reply Certificate to the Escrow Agent. Parent and the Shareholders'
Representative shall negotiate in good faith for a period of 20 business days
after delivery of such Reply Certificate to Parent to reach a written resolution
of any objections raised in a Reply Certificate.

(c) (i) If no Reply Certificate is delivered with respect to any Notice
of Claim, then the Shareholders' Representative shall be deemed to have
delivered a Payment Authorization (as defined below) acknowledging Parent's
right to receive the Claim Amount specified in such Notice of Claim with respect
to the applicable Indemnification Obligation and the Escrow Agent shall transfer
to Parent a portion of the Indemnification Escrow Deposit in the case of an
Indemnification Obligation under Section 7.2(a)(i) or the Retention Payment
Escrow Deposit in the case of an Indemnification Obligation under Section
7.2(a)(ii), in each case in an amount equal to

the lesser of (x) such Claim Amount and (y) the Indemnification Escrow
Deposit or the Retention Payment Escrow Deposit, as the case may be, all in
accordance with the procedures set forth in Section 3.1(e).

(ii) If a Reply Certificate is delivered that identifies a Disputed
Amount that is less than the Claim Amount (the amount by which any Claim Amount
exceeds any given Disputed Amount, the "Undisputed Amount"), then the
Shareholders' Representative shall he deemed to have delivered a Payment
Authorization acknowledging Parent's right to receive the Undisputed Amount
specified in such Reply Certificate with respect to the applicable
Indemnification Obligation and the Escrow Agent shall transfer to Parent a
portion of the Indemnification Escrow Deposit in the case of an Indemnification
Obligation under Section 7.2(a)(i) or the Retention Payment Escrow Deposit in
the case of an Indemnification Obligation under Section 7.2(a)(ii), in each case
in an amount equal to the lesser of (x) such Undisputed Amount and (y) the
Indemnification Escrow Deposit or the Retention Payment Escrow Deposit, as the
case may be, all in accordance with the procedures set forth in Section 3.1(e).

(d) If the Escrow Agent receives a Reply Certificate in a timely manner
with respect to any Notice of Claim, the Disputed Amount referred to in such
Reply Certificate shall be held by the Escrow Agent and shall not be released to
Parent except upon Parent's delivery to the Escrow Agent of written instructions
signed by each of Parent and the Shareholders' Representative directing the
Escrow Agent to release the Disputed Amount (or any other amount mutually agreed
upon by such parties a "Payment Authorization"), whereupon the amount due to
Parent as determined shall promptly be paid to Parent in accordance with the
procedures set forth in Section 3.1(e).

(e) As soon as practicable following receipt by the Escrow Agent of a
Payment Authorization (or following the deemed receipt of a Payment
Authorization pursuant to Section 3.1(c)), the Escrow Agent shall pay from the
Escrow Account to Parent the amount set forth in such Payment Authorization. In
the event the amount remaining in the Escrow Account, after converting any and
all Permitted Investments to cash (such amount, as of any given date, the
"Remaining Escrow Balance"), shall be insufficient to pay the amount expressly
set forth in such Payment Authorization, the Escrow Agent shall pay the entire
Remaining Escrow Balance to Parent in accordance with this Section 3.1(e) and
shall deliver to Parent and to the Shareholders' Representative a written
notification setting forth the amount by which such Payment Authorization
exceeds the amount of the Remaining Escrow Balance so paid.

(f) Notwithstanding anything to the contrary contained herein or in the
Merger Agreement, Parent may submit Notices of Claim for portions of the

Indemnification Escrow Deposit solely in respect of the Indemnification
Obligations under Section 7.2(a)(i) and submit Notices of Claim for portions of
the Retention Payment Escrow Deposit solely in respect of the Indemnification
Obligations under Section 7.2(a)(ii).

(g) The Escrow Agent shall pay all amounts pursuant to Section 3.1(e)
hereof to Parent by wire transfer to the bank account or accounts designated by
Parent to the Escrow Agent in writing not less than one Business Day prior to
the date of such payment.

3.2 RELEASE. (a) The Escrow Agent shall distribute to the
Shareholders:

(x) on the First Escrow Date, any Remaining Escrow Balance of the
Retention Payment Escrow Deposit (together with any associated unpaid
Earnings); and

(y) on the Final Escrow Date, any Remaining Escrow Balance of the
Indemnification Escrow Deposit (together with any associated unpaid
Earnings)

and, upon the distribution provided in clause (y), terminate the Escrow Account,
in each case unless the Escrow Agent shall have received a Notice of Claim from
Parent prior to the First Escrow Date or the Final Escrow Date, as the case may
be, with respect to an indemnification claim (an "Escrow Date Unresolved Claim")
for which the Escrow Agent has not received a subsequent Payment Authorization
or written notification, signed by Parent and the Shareholders' Representative,
informing the Escrow Agent of the termination or other resolution of such claim
or claims (each, a "Claim Termination Notice"). If on the First Escrow Date or
the Final Escrow Date, as the case may be, there shall exist any Escrow Date
Unresolved Claim, then (i) the Escrow Agent shall retain such portion of the
Remaining Escrow Balance of the relevant Escrow Deposit in the Escrow Account as
would be sufficient for the payment of all Claim Amounts with respect to all
such Escrow Date Unresolved Claims, and (ii) the Escrow Agent shall release to
the Shareholders' Representative, on behalf of the Shareholders, the portion of
the Remaining Escrow Balance of the relevant Escrow Deposit, if any, not
otherwise retained in accordance with clause (i).

(b) Upon the resolution of any Escrow Date Unresolved Claim, the Escrow
Agent shall (A) release any portion of the Remaining Escrow Balance retained in
respect of such Escrow Date Unresolved Claim (x) to Parent in accordance with
any Payment Authorization received by the Escrow Agent in respect of such Escrow
Date Unresolved

Claim or (y) to the Shareholders in accordance with any Claim Termination
Notice received by the Escrow Agent in respect of such Escrow Date Unresolved
Claim, and (B) if no other Escrow Date Unresolved Claims remain outstanding,
release the remainder of the Escrow Deposit to the Shareholders.

(c) Any distributions of any portion of any Remaining Escrow Balance
of any Escrow Deposit or any other amounts payable to the Shareholders under
this Agreement shall be made to the Shareholders in the percentages
corresponding to each such Shareholder as set forth in Exhibit C to the Merger
Agreement, all as provided in and subject to the terms of Article 1 of the
Merger Agreement.

3.3 DISPUTE. Any dispute among any of the parties to this Agreement
relating to this Agreement, including without limitation a dispute with respect
to (a) a claim by Parent to the relevant Escrow Deposit or any portion thereof,
(b) a claim by the Shareholders' Representative (on behalf of the Shareholders)
to the Escrow Amount or any portion thereof or (c) the interpretation or
administration of this Agreement or the Merger Agreement, shall be resolved (x)
by good faith negotiations of the parties involved (as provided herein or
otherwise) or (y) failing such resolution of any such disputes by the parties by
mutual agreement, by arbitration as provided in Section 9.5(b) of the Merger
Agreement (the "Determination"). The Escrow Agent shall not comply with any such
claims or demands from either Parent or the Shareholders' Representative as long
as such dispute may continue, and the Escrow Agent shall make no delivery or
other disposition of any property then held by it under this Agreement until it
has received a Determination directing disposition of the relevant Escrow
Deposit or Escrow Amount, as the case may be.

SECTION IV

ESCROW AGENT

4.1 FEES. For its services hereunder, the Escrow Agent shall receive
$__________ for each calendar year (or pro rated for any partial calendar year)
until it has delivered all of the Escrow Amount pursuant to Section III hereof.
Parent, on the one hand, and the Shareholders' Representative, on the other
hand, shall share equally the fees referred to in the foregoing sentence. In
addition, Parent, on the one hand, and the Shareholders' Representative, on the
other hand, shall share equally the cost of reimbursing the Escrow Agent for its
reasonable out-of-pocket expenses, including reasonable attorney's fees in
administering the Escrow Account and performing its duties under this Agreement;
PROVIDED that the Escrow Agent shall be responsible for all taxes

imposed in respect of the receipt of fees by it pursuant to this Section 4.1.
if and when all of the Escrow Amount has been delivered pursuant to Section 3
prior to the Escrow Date, the Escrow Agent shall refUnd to Parent and the
Shareholders' Representative all fees paid in advance and not accrued, if any.

4.2 RESPONSIBILITIES OF ESCROW AGENT. The Escrow Agent's acceptance of
its duties under this Agreement is subject to the following terms and
conditions, which the parties hereto agree shall govern and control with respect
to its rights, duties, liabilities and immunities:

(a) Except as to its due execution and delivery of this
Agreement, it makes no representation and has no responsibility as to the
validity of this Agreement or of any other instrument referred to herein,
or as to the correctness of any statement contained herein, and it shall
not be required to inquire as to the performance of any obligation under
the Merger Agreement;

(b) The Escrow Agent shall be protected in acting upon any
written notice, request, waiver, consent, receipt or other paper or
document, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth of any
information therein contained, which it in good faith believes to be
genuine and what it purports to be;

(c) The Escrow Agent shall not be liable for any error of
judgment, or for any act done or step taken or omitted by it in good
faith, or for any mistake of fact or law, or for anything which it may do
or refrain from doing in connection therewith, except its own gross
negligence or misconduct;

(d) The Escrow Agent may consult with competent and responsible
legal counsel selected by it, and it shall not be liable for any action
taken or omitted by it in good faith in accordance with the advice of
such counsel;

(e) Each of Parent and the Shareholders' Representative,
jointly and severally agrees to indemnify and hold the Escrow Agent and
its directors, employees, officers, agents, successors and assigns
(collectively, the "Indemnified Parties") harmless from and against any
and all losses, claims, damages, liabilities and expenses (collectively,
"Damages"), including, without limitation, reasonable costs of
investigation and counsel fees and expenses which may be imposed on the
Escrow Agent or incurred by it in connection with the performance of its
duties hereunder. Such indemnity includes, without limitation, Damages
incurred in connection with any litigation (whether at the trial or
appellate levels) arising from this Agreement or

involving the subject matter hereof. The indemnification provisions
contained in this paragraph are in addition to any other rights any of
the Indemnified Parties may have by law or otherwise and shall survive
the termination of this Agreement or the resignation or removal of the
Escrow Agent. Notwithstanding any provision to the contrary in this
Agreement, (i) Parent's and the Shareholders' Representatives'
liability, if any, to the Indemnified Parties with respect to any
Damages shall in no event exceed the balance of the Escrow Account, as
adjusted from time to time pursuant to this Agreement, and (ii) neither
Parent nor the Shareholders' Representative shall have any liability to
the Indemnified Parties with respect to any Damages that result, directly
or indirectly, from the gross negligence or misconduct of the Escrow
Agent;

(f) The Escrow Agent shall have no duties or responsibilities
except those expressly set forth herein, and it shall not be bound by any
modification of this Agreement unless in writing and signed by all
parties hereto or their respective successors in interest;

(g) The recitals of facts in this Agreement shall be taken as
the statements of Parent or the Shareholders' Representative, and the
Escrow Agent assumes no responsibility for the correctness of the same.
The Escrow Agent shall be under no obligation or duty to perform any act
which would involve it in an expense or liability or to institute or
defend any suit in respect of this Agreement or to advance any of its own
monies unless properly indemnified;

(h) The Escrow Agent shall be protected in acting upon any
notice, resolution, request, consent, order, certificate, report,
opinion, bond or other paper or document reasonably believed by it to be
genuine and to have been signed and presented by the proper party or
parties. Whenever the Escrow Agent shall deem it necessary or desirable
that a matter be proved or established prior to taking or suffering any
action under this Agreement, such matter may be deemed conclusively
proved and established by a certificate signed by Parent and the
Shareholders' Representative, and such certificate shall be full warranty
for any action taken or suffered in good faith under the provisions of
this Agreement; and

(i) The Escrow Agent does not have any interest in the Escrow
Amount but is sewing as Escrow Agent only and having only possession
thereof This Section 4.2(i) shall survive notwithstanding any termination
of this Agreement or the resignation of the Escrow Agent.

SECTION V

MISCELLANEOUS

5.1 SHAREHOLDERS' REPRESENTATIVE. The Shareholders of the Company, by
approving the Merger, have appointed Xxxxx X. Xxxxx as Shareholders'
Representative, in accordance with and as provided in Section 1.12 of the
Merger Agreement, to act on their behalf for the purpose of (i) administering
and entering into this Agreement, (ii) settling on behalf of the Shareholders
claims made by Parent under this Agreement, (iii) representing the Shareholders
in any proceedings relating to the Merger Agreement and (iv) performing any
other actions specifically delegated to the Shareholders' Representative by the
Committee (as provided in the Merger Agreement). The Shareholders will be bound
by any and all actions taken by the Shareholders' Representative on their
behalf.

5.2 AMENDMENT. No amendment, waiver of compliance with any provision
or condition hereof or consent pursuant to this Agreement shall be effective
unless evidenced by an instrument in writing signed by the party against whom
enforcement of any amendment, waiver, consent is sought.

5.3 TERMINATION. This Agreement shall terminate automatically at such
time as all funds from the Escrow Account have been paid or distributed in
accordance with the terms of this Agreement and the Escrow Agent has received
all fees as described in Section 4.1 hereof. Notwithstanding the foregoing, all
provisions concerning the indemnification of the Escrow Agent shall survive any
termination of this Agreement.

5.4 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, and if any provision of this Agreement is interpreted by a court
of competent jurisdiction and found to be invalid or unenforceable, neither the
enforceability nor the validity of such provisions with respect to any other
facts or under any other circumstances shall thereby be impaired. The
unenforceability or invalidity of any provision shall not result in the
interpretation of the remainder of this Agreement, or any section hereof, in a
manner inconsistent with intent of the parties as evidenced by the terms of this
Agreement, or such section, as a whole.

5.5 WAIVER. Failure of any party to complain of any act or omission on
the part of any other party in breach or default of this Agreement, no matter
how long the same may continue, shall not be deemed to be a waiver by the party
of its rights

hereunder. No waiver by any party at any time, express or implied, of any
breach of any other provision of this Agreement shall be deemed a waiver of a
breach of any other provision of this Agreement or a consent to any
subsequent breach of the same or other provisions.

5.6 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as follows: (a) if sent by registered or certified mail in the United
States return receipt requested, upon receipt; (b) if sent by reputable
overnight air courier (such as DHL or Federal Express), two business days after
mailing; (c) if sent by fax, with a copy mailed on the same day in the manner
provided in (a) or (b) above, when transmitted and receipt is confirmed by
telephone; or (d) if otherwise actually personally delivered, when delivered,
and shall be delivered as follows:

a. If to Parent:

Attention:
Phone:
Fax:

with a copy to:

b. If to the Shareholders' Representative:

with a copy to:

c. If to the Escrow Agent:

Attention:
Phone:
Fax:

or to such other address or to such other person as the party to whom notice is
given may have previously furnished to the other in writing in the manner set
forth above.

5.7 ASSIGNMENT. Parent and the Shareholders' Representative may assign
their rights under this Agreement to the same extent as they are permitted to
assign their rights and obligations under the Merger Agreement.

5.8 ENTIRE AGREEMENT. This Agreement, the Merger Agreement and the
exhibits thereto embody the entire agreement and understanding among Parent, the
Shareholders' Representative, the Shareholders and the Escrow Agent with respect
to the subject matter hereof and supersedes any and all prior agreements and
understandings, oral and written, among Parent, the Shareholders'
Representative, the Shareholders and the Escrow Agent with respect to the
subject matter hereof.

5.9 INTERPRETATION. The headings set forth in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provision hereof.

5.10 GOVERNING LAW; JURISDICTION. The construction and performance of
this Agreement shall be governed by the laws of the State of Minnesota without
regard to its principles of conflict of law, and the state and federal courts of
Minnesota shall have exclusive jurisdiction over any controversy or claim
arising out of or relating to this Agreement.

5.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same agreement.

5.12 CONDITION TO EFFECTIVENESS. It shall be a condition to the
effectiveness of this Agreement that the Effective Time (as provided in the
Merger Agreement) shall have occurred.]

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

ALLIANCE DATA SYSTEMS CORPORATION

By:
----------------------------------
Name:
Title:

Xxxxx X. Xxxxx, as Shareholders' Representative

By:
----------------------------------

[Name of Escrow Agent]

By:
----------------------------------
Name:
Title:

HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998

TOTAL
SHARES GROSS ALLOCATED EXERCISE
SUMMARY EXERCISED PROCEEDS EXPENSES PROCEEDS
------- --------- -------- -------- --------

Total Stock Converted to Common 18,588,648 $ 47,979,537.33 $ 2,298,356.14

Total Debentures Converted - $ - $ -

Total Warrants Exercised 2,120,584 $ 5,473,482.48 $ 262,195.36 $ 3,124,499.45

Total Options Exercised 1,277,626 $ 3,297,706.45 $ 157,969.51 $ 2,051,226.80
------------------------------------------------------------------------------
Total 21,986,858 $ 56,750,726.26 $ 2,718,521.00 $ 5,175,726.25

Debentures Paid off $ 425,000.00
----------------
Total $ 57,175,726.26

NET ESCROW ESCROW FIRST SECOND
SUMMARY PROCEEDS % $'s DISTRIBUTION DISTRIBUTION
------- -------- ------ ------ ------------ ------------

Total Stock Converted to Common $ 45,611,181.19 93.50076% $ 6,545,053.49 $ 39,136,127.70 $ 6,545,053.49

Total Debentures Converted $ - #DIV/01 $ - $ - $ -

Total Warrants Exercised $ 2,016,787.67 4.27126% $ 298,988.26 $ 1,787,799.41 $ 298,988.26

Total Options Exercised $ 1,088,510.14 2.22798% $ 155,958.25 $ 932,551.89 $ 155,958.25
----------------------------------------------------------------------------------------
Total $ 48,856,479.00 100.00000% $ 7,000,000.00 $ 41,856,479.00 $ 7,000,000.00

Debentures Paid off $ 425,000.00 $ - $ 425,000.00 $ -
----------------- -----------------------------------------------------
Total $ 49,281,479.00 100.00000% $ 7,000,000.00 $ 42,281,479.00 $ 7,000,000.00

Note: Allocated expenses are estimated and include management retention
agreement payments

HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998

TOTAL
SHARES GROSS ALLOCATED NET
SHAREHOLDER OUTSTANDING PROCEEDS EXPENSES PROCEEDS
----------- ----------- -------- -------- --------

TOTAL PNC PARTNERS 3,842,080 $ 9,916,870.81 $ 475,046.28 $ 9,441,824.53

Xxxx S. & Xxxxx Xxxxx 24,065 $ 62,115.83 $ 2,975.52 $ 59,140.31

Xxxxxxxx X. Xxxx 10,000 $ 25,811.20 $ 1,236.43 $ 24,574.77

Xxxxxx X. Xxxx 4,500 $ 11,615.04 $ 556.39 $ 11,058.65

Xxxxx X. & Xxxxxxxxx Xxxxxx 28,572 $ 73,747.77 $ 3,532.73 $ 70,215.04

Xxxxxxx X. & Xxxxxx X. Xxxxxxxx 111,330 $ 287,355.83 $ 13,765.16 $ 273,590.67

T.W. Ireland 220,819 $ 569,959.81 $ 27,302.69 $ 542,657.12

Floor Seal Technology Profit Sharing 39,462 $ 101,856.86 $ 4,879.23 $ 96,977.62

Xxxxxx X. & Xxxxx X. Xxxxxx 57,144 $ 147,495.54 $ 7,065.46 $ 140,430.08

Xxxxxxx X. & Xxxxx X. Xxxxxx 57,144 $ 147,495.54 $ 7,065.46 $ 140,430.08

Xxxxxxxxxxx & Xxxx Xxxxxxxxx 57,144 $ 147,495.54 $ 7,065.46 $ 140,430.08

Xxxxx X. & Xxxxxxxx X. Xxxxxxx 28,572 $ 73,747.77 $ 3,532.73 $ 70,215.04

X. Xxxx Xxxxxx 28,056 $ 72,415.91 $ 3,468.93 $ 68,946.98

Xxxxx Xxxxxxx 28,572 $ 73,747.77 $ 3,532.73 $ 70,215.04

Xxxxx Xxxxx 13,333 $ 34,414.08 $ 1,648.53 $ 32,765.55
------------------------------------------------------------------------
SUB-TOTAL PAGE 1 4,550,793 $ 11,746,145.31 $ 562,673.73 $ 11,183,471.58

ESCROW ESCROW FIRST SECOND
SHAREHOLDER % $'s DISTRIBUTION DISTRIBUTION
----------- ------- ------ ------------ ------------

TOTAL PNC PARTNERS 19.32563% $ 1,352,794.41 $ 8,089,030.12 $ 1,352,794.41

Xxxx S. & Xxxxx Xxxxx 0.12105% $ 8,473.43 $ 50,666.87 $ 8,473.43

Xxxxxxxx X. Xxxx 0.05030% $ 3,520.99 $ 21,053.72 $ 3,520.99

Xxxxxx X. Xxxx 0.02263% $ 1,584.45 $ 9,474.20 $ 1,384.45

Xxxxx X. & Xxxxxxxxx Xxxxxx 0.14372% $ 10,060.19 $ 60,154.86 $ 10,060.19

Xxxxxxx X. & Xxxxxx X. Xxxxxxxx 0.55999% $ 39,199.20 $ 234,391.47 $ 39,199.20

T.W. Ireland 1.11072% $ 77,750.18 $ 464,906.94 $ 77,750.18

Floor Seal Technology Profit Sharing 0.19849% $ 13,894.64 $ 83,082.98 $ 13,894.64

Xxxxxx X. & Xxxxx X. Xxxxxx 0.28743% $ 20,120.37 $ 120,309.71 $ 20,120.37

Xxxxxxx X. & Xxxxx X. Xxxxxx 0.28743% $ 20,120.37 $ 120,309.71 $ 20,120.37

Xxxxxxxxxxx & Xxxx Xxxxxxxxx 0.28743% $ 20,120.37 $ 120,309.71 $ 20,120.37

Xxxxx X. & Xxxxxxxx X. Xxxxxxx 0.14372% $ 10,060.19 $ 60,154.86 $ 10,060.19

X. Xxxx Xxxxxx 0.14112% $ 9,878.50 $ 59,068.48 $ 9,878.50

Xxxxx Xxxxxxx 0.14372% $ 10,060.19 $ 60,154.86 $ 10,060.19

Xxxxx Xxxxx 0.06706% $ 4,694.54 $ 28,071.00 $ 4,694.54
-----------------------------------------------------------------------
SUB-TOTAL PAGE 1 22.89046% $ 1,602,332.03 $ 9,581,139.55 $ 1,602,332.03

HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998

TOTAL
SHARES GROSS ALLOCATED NET
SHAREHOLDER OUTSTANDING PROCEEDS EXPENSES PROCEEDS
----------- ----------- -------- --------- --------

SUB-TOTAL PAGE 1 4,550,793 $ 11,746,145.31 $ 562,673.73 $ 11,183,471.58

Xxxxxxx Xxxxx 71,123 $ 183,576.55 $ 8,793.84 $ 174,782.71

Xxxxx X. Xxxxxx 41,228 $ 106,414.43 $ 5,097.55 $ 101,316.88

Xxxx X. Xxxxxxxx 22,858 $ 58,999.25 $ 2,826.23 $ 56,173.02

Xxxxx X. Xxxxx Xx. 61,476 $ 158,676.66 $ 7,601.06 $ 151,075.60

Xxxx X. Xxxxxxxx
Xxxxxxx Xxxxxxxx 169,598 $ 437,751.79 $ 20,969.55 $ 416,782.23

Xxxxxx X. Xxxxxx Xx. 177,593 $ 458,387.96 $ 21,958.09 $ 436,429.87

Xxxx X. Xxxxxx 22,616 $ 58,374.62 $ 2,796.31 $ 55,578.31

Xxxxx X. & Xxxxx X. Xxxxx 30,574 $ 78,914.17 $ 3,780.21 $ 75,133.96

Xxxxxx X. & Xxxxxxx X. Xxxxx 114,286 $ 294,985.92 $ 14,130.66 $ 280,855.25

Xxxxx X. & Van X. Xxxxx 114,286 $ 294,985.92 $ 14,130.66 $ 280,855.25

Xxxxxx Xxxxx 247,620 $ 639,137.02 $ 30,616.48 $ 608,520.54

XxXxxx Xxxxxxx 133,334 $ 344,151.10 $ 16,485.82 $ 327,665.28

Xxx Xxxxxx 80,164 $ 206,912.93 $ 9,911.72 $ 197,001.21
-------------------------------------------------------------------------
SUB-TOTAL PAGE 2 5,837,548 $ 15,067,413.61 $ 721,771.91 $ 14,345,641.69

ESCROW ESCROW FIRST SECOND
SHAREHOLDER % $'s DISTRIBUTION DISTRIBUTION
----------- ------ ------ ------------ ------------

SUB-TOTAL PAGE 1 22.89046% $ 1,602,332.03 $ 9,581,139.55 $ 1,602,332.03
Xxxxxxx Xxxxx 0.35775% $ 25,042.31 $ 149,740.40 $ 25,042.31

Xxxxx X. Xxxxxx 0.20738% $ 14,516.36 $ 86,800.52 $ 14,516.36

Xxxx X. Xxxxxxxx 0.11498% $ 8,048.29 $ 48,124.73 $ 8,048.29

Xxxxx X. Xxxxx Xx. 0.30922% $ 21,645.63 $ 129,429.97 $ 21,645.63

Xxxx X. Xxxxxxxx
Xxxxxxx Xxxxxxxx 0.85307% $ 59,715.22 $ 357,067.01 $ 59,715.22

Xxxxxx X. Xxxxxx Xx. 0.89329% $ 62,530.28 $ 373,899.60 $ 62,530.28

Xxxx X. Xxxxxx 0.11376% $ 7,963.08 $ 47,615.23 $ 7,963.08

Xxxxx X. & Xxxxx X. Xxxxx 0.15379% $ 10,764.95 $ 64,369.01 $ 10,764.95

Xxxxxx X. & Xxxxxxx X. Xxxxx 0.57486% $ 40,240.04 $ 240,615.21 $ 40,240.04

Xxxxx X. & Van X. Xxxxx 0.57486% $ 40,240.04 $ 240,615.21 $ 40,240.04

Xxxxxx Xxxxx 1.24553% $ 87,186.88 $ 521,333.66 $ 87,186.88

XxXxxx Xxxxxxx 0.67067% $ 46,946.83 $ 280,718.45 $ 46,946.83

Xxx Xxxxxx 0.40322% $ 28,225.70 $ 168,775.51 $ 28,225.70
--------------------------------------------------------------------
SUB-TOTAL PAGE 2 29.36282% $ 2,055,397.64 $ 12,290,244.05 $ 2,055,397.64

HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998

TOTAL
SHARES GROSS ALLOCATED NET
SHAREHOLDER OUTSTANDING PROCEEDS EXPENSES PROCEEDS
----------- ----------- -------- -------- --------

SUB-TOTAL PAGE 2 5,837,548 $ 15,067,413.61 $ 721,771.91 $ 14,345,641.69

Xxxxxxx X. Xxxxxxxx
Carefree Capital, Inc. 2,131,341 $ 5,501,247.19 $ 263,525.37 $ 5,237,721.83

Xxxxxx X. Xxxx 152,628 $ 393,950.00 $ 18,871.32 $ 375,078.67

Xxxxxx X. Xxxxxxx Revocable Trust 237,302 $ 612,505.94 $ 29,340.77 $ 583,165.17

Xxxxxxx X. & Xxxx X. Xxxxxx 10,000 $ 25,811.20 $ 1,236.43 $ 24,574.77

Xxxx X. Xxxxxxx 10,000 $ 25,811.20 $ 1,236.43 $ 24,574.77

Xxxxx X. & Xxxxxxxx X. Xxxxxx 10,000 $ 25,811.20 $ 1,236.43 $ 24,574.77

Norwest Equity Partners, IV 1,486,887 $ 3,837,835.50 $ 183,843.22 $ 3,653,992.27

Norwest Equity Partners, V 430,280 $ 1,110,605.43 $ 53,201.16 $ 1,057,404.28

Xxxxxx X. Xxxx Revocable Living Trust 12,436 $ 32,099.16 $ 1,537.64 $ 30,561.52

Xxxxx X. Xxxxxxxxx 5,716 $ 14,733.68 $ 706.74 $ 14,046.94

Xxxxx X. Xxxxxxxxxx 48,158 $ 124,302.47 $ 5,954.44 $ 118,348.03

Xxxx X. Xxxxxx 46,000 $ 118,731.54 $ 5,687.58 $ 113,043.96
-----------------------------------------------------------------------
SUB-TOTAL PAGE 3 10,418,297 $ 26,890,878.14 $ 1,288,149.45 $ 25,602,728.68

ESCROW ESCROW FIRST SECOND
SHAREHOLDER % $'s DISTRIBUTION DISTRIBUTION
----------- ------ ------ ------------ ------------

SUB-TOTAL PAGE 2 29.36282% $ 2,055,397.64 $ 12,290,244.05 $ 2,055,397.64

Xxxxxxx X. Xxxxxxxx
Carefree Capital, Inc. 10.72063% $ 750,444.03 $ 4,487,277.80 $ 750,444.03

Xxxxxx X. Xxxx 0.76772% $ 53,740.07 $ 321,338.60 $ 53,740.07

Xxxxxx X. Xxxxxxx Revocable Trust 1.19363% $ 83,554.04 $ 499,611.13 $ 83,554.04

Xxxxxxx X. & Xxxx X. Xxxxxx 0.05030% $ 3,520.99 $ 21,053.78 $ 3,520.99

Xxxx X. Xxxxxxx 0.05030% $ 3,520.99 $ 21,053.78 $ 3,520.99

Xxxxx X. & Xxxxxxxx X. Xxxxxx 0.05030% $ 3,520.99 $ 21,053.78 $ 3,520.99

Norwest Equity Partners, IV 7.47903% $ 523,532.32 $ 3,130,459.95 $ 523,532.32

Norwest Equity Partners, V 2.16431% $ 151,501.50 $ 905,902.78 $ 151,501.50

Xxxxxx X. Xxxx Revocable Living Trust 0.06255% $ 4,378.76 $ 26,182.77 $ 4,378.76

Xxxxx X. Xxxxxxxxx 0.02875% $ 2,012.60 $ 12,034.34 $ 2,012.60

Xxxxx X. Xxxxxxxxxx 0.24224% $ 16,956.53 $ 101,391.50 $ 16,956.53

Xxxx X. Xxxxxx 0.23138% $ 16,196.58 $ 96,847.38 $ 16,196.58
----------------------------------------------------------------------
SUB-TOTAL PAGE 3 52.40396% $ 3,668,277.05 $ 21,934,451.63 $ 3,668,277.05

HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998

TOTAL
SHARES GROSS ALLOCATED NET
SHAREHOLDER OUTSTANDING PROCEEDS EXPENSES PROCEEDS
----------- ----------- -------- -------- --------

SUB-TOTAL PAGE 3 10,418,297 $ 26,890,878.14 $ 1,288,149.45 $ 25,602,728.68
Xxxxxx X. Xxxxx 43,693 $ 112,776.07 $ 5,402.29 $ 107,373.77

Xxxx X. Xxxxxxx 13,928 $ 35,949.84 $ 1,722.10 $ 34,227.74

Advanta Partners LP 3,717,942 $ 9,596,455.73 $ 459,697.49 $ 9,136,758.24

Xxxxxxx Xxxxx Capital Partners V LP 3,409,090 $ 8,799,272.40 $ 421,510.14 $ 8,377,762.25

Xxxxxx X. Xxxx 46,250 $ 119,376.82 $ 5,718.49 $ 113,658.33

Xxxx Xxxxxxx Associates 911,670 $ 2,353,129.97 $ 112,721.61 $ 2,240,408.36

The Gift Certificate Center, Inc. 27,778 $ 71,698.36 $ 3,434.56 $ 68,263.81
---------------------------------------------------------------------------
TOTAL 18,588,648 $ 47,979,537.33 $ 2,298,356.14 $ 45,681,181.19

ESCROW ESCROW FIRST SECOND
SHAREHOLDER % $'s DISTRIBUTION DISTRIBUTION
----------- ------ ------- ------------ -------------

SUB-TOTAL PAGE 3 52.40396% $ 3,668,277.05 $ 21,934,451.63 $ 3,668,277.05

Xxxxxx X. Xxxxx 0.21977% $ 15,384.17 $ 91,989.60 $ 15,384.17

Xxxx X. Xxxxxxx 0.07006% $ 4,904.04 $ 29,323.70 $ 4,904.04

Advanta Partners LP 18.70122% $ 1,309,085.49 $ 7,827,672.75 $ 1,309,085.49

Xxxxxxx Xxxxx Capital Partners V LP 17.14770% $ 1,200,338.97 $ 7,177,423.28 $ 1,200,338.97

Xxxxxx X. Xxxx 0.23264% $ 16,284.60 $ 97,373.73 $ 16,284.60

Xxxx Xxxxxxx Associates 4.58569% $ 320,998.54 $ 1,919,409.82 $ 320,998.54

The Gift Certificate Center, Inc. 0.13972% $ 9,780.62 $ 58,483.19 $ 9,780.62
--------------------------------------------------------------------
TOTAL 93.50076% $ 6,545,053.49 $ 39,136,127.70 $ 6,545,053.49

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