Agreement and Plan of Reorganization among Storage Computer Corporation, Cyber Acquisition Corporation, and CyberStorage Systems Corporation (August 22, 2000)

Summary

This agreement is between Storage Computer Corporation, its subsidiary Cyber Acquisition Corporation, and CyberStorage Systems Corporation. It sets out the terms for a merger in which Cyber Acquisition Corporation will merge into CyberStorage Systems Corporation, making it a wholly-owned subsidiary of Storage Computer Corporation. Shareholders of CyberStorage Systems will receive shares of Storage Computer Corporation as consideration. Some shares will be held in escrow, subject to certain conditions. The agreement details the merger process, distribution of shares, and the release of claims among the parties.

EX-2.1 2 b36886scex2-1.txt AGREEMENT AND PLAN OF REORGANIZATION DATED 8/22/00 1 EXHIBIT 2.1 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG STORAGE COMPUTER CORPORATION CYBER ACQUISITION CORPORATION AND CYBERSTORAGE SYSTEMS CORPORATION DATED AS OF AUGUST 22, 2000 2 AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into as of August 22, 2000 among Storage Computer Corporation, a Delaware corporation ("Parent"), Cyber Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and CyberStorage Systems Corporation, a Delaware corporation (the "Company"). RECITALS A. The Boards of Directors of each of the Company, Parent and Merger Sub and the stockholders of the Company believe it is in the best interests of each company and their respective stockholders that Parent acquire the Company through the statutory merger of Merger Sub with and into the Company (the "Merger") and, in furtherance thereof, have approved the Merger. B. Pursuant to the Merger, among other things, and subject to the terms and conditions of this Agreement, all of the issued and outstanding shares of capital stock of the Company ("Company Capital Stock") shall be converted into the right to receive shares of voting Common Stock of Parent ("Parent Common Stock"). C. A portion of the shares of Parent Common Stock otherwise issuable by Parent in connection with the Merger shall be placed in escrow by Parent, the release of which amount shall be contingent upon certain events and conditions, all as set forth in Article VII hereof. D. The Company, Parent and Merger Sub desire to make certain representations and warranties and other agreements in connection with the Merger. NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, intending to be legally bound hereby the parties agree as follows: ARTICLE 1. THE MERGER 1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the Delaware General Corporation Law ("Delaware Law") Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation and as a wholly-owned subsidiary of Parent. The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." 3 1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Merger (the "Closing") will take place as promptly as practicable, but no later than five (5) business days, following satisfaction or waiver of the conditions set forth in Article 6, at the offices of Peabody & Arnold LLP, 50 Rowes Wharf, Boston, Massachusetts 02110, unless another place or time is agreed to by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the "Closing Date." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger with the Secretary of State of the State of Delaware (the "Merger Agreement"), in accordance with the relevant provisions of applicable law (the time of confirmation by the Secretary of State of the State of Delaware of such filing, or such later time as may be set forth in this Agreement, being referred to herein as the "Effective Time"). 1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 CERTIFICATE OF INCORPORATION; BYLAWS. (a) Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time, the Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Certificate of Incorporation. (b) Unless otherwise determined by Parent, the Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended. 1.5 DIRECTORS AND OFFICERS. The director(s) of Merger Sub immediately prior to the Effective Time shall be the initial director(s) of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the Bylaws of the Surviving Corporation. 1.6 CONSIDERATION TO BE ISSUED. The consideration to be issued by Parent in the Merger (the "Merger Consideration") shall be the number of shares of Parent Common Stock determined by subtracting from 2,200,000 the number of shares issuable under the Assumed Warrant and under the Assumed Options which 4 Parent shall deliver to the Exchange Agent within ten (10) business days after the Closing as set forth in Section 1.9(b) below. 1.7 DISTRIBUTION OF MERGER CONSIDERATION. (a) Ratable Distribution. The Merger Consideration, when distributed by the Exchange Agent (as defined in Section 1.10(a) below) pursuant to Section 1.10, shall be distributed ratably among the holders of the Company Capital Stock in proportion to the number of shares of Company Capital Stock held by each holder. (b) Certificates of Securityholder Agent: Release. (i) Certificates. Not later than five (5) days prior to the date that the Merger Consideration is to be delivered by Parent to the Exchange Agent pursuant to Section 1.9(b) for distribution to the former Company stockholders, the Securityholder Agent (as defined in Section 7.2 (e) below) shall deliver to Parent a certificate (an "Agent Certificate") identifying each of the former Company stockholders and the portion of such Merger Consideration that each such former Company stockholder is entitled to receive pursuant to Section 1.7(a) above. Parent shall be entitled to rely without investigation on the information set forth in each Agent Certificate in delivering the Merger Consideration to the Exchange Agent for distribution pursuant to Section 1.9(b). Notwithstanding anything to the contrary in this Agreement, Parent shall not be obligated to deliver any portion of the Merger Consideration to the Exchange Agent unless and until the Securityholder Agent shall have delivered an Agent Certificate to Parent with respect to such portion of the Merger Consideration as required by this Section 1.7(b)(i). (ii) Release. The Company, for itself and its officers, directors, stockholders, partners, agents, administrators, representatives, affiliates, predecessors in interest, successors and assigns, hereby unconditionally and forever releases and discharges Parent, each of its subsidiaries (including the Surviving Corporation), and each of their respective officers, directors, stockholders, partners, agents, administrators, representatives, affiliates, predecessors in interest, successors and assigns (the "Released Parties") of and from any and all claims, causes of action, liabilities, obligations, costs and expenses of every kind and nature whatsoever, at law or in equity, whether contractual, common law, statutory, federal, state or otherwise, known or unknown suspected or unsuspected, direct or derivative, which now exists or may exist at any time in the future based upon or relating in any manner to the distribution of the Merger Consideration pursuant to this Section 1.7 or any dispute with respect to the interpretation of the manner in which the Merger Consideration is to be distributed pursuant to this Section 1.7. This release shall not apply to Parent's obligation to deliver the Merger Consideration to the Exchange Agent pursuant to Section 1.9(b) in accordance with the information contained in the Agent Certificates. 1.8 EFFECT ON COMPANY CAPITAL STOCK. (a) Conversion of Company Capital Stock. Each share of Company Capital Stock issued and outstanding immediately prior to the Effective Time (other than any shares of 5 Company Capital Stock to be canceled pursuant to Section 1.8(b) shall be canceled and extinguished and be converted automatically into the right to receive the Merger Consideration set forth in Section 1.7, upon surrender of the certificate representing such share of Company Capital Stock in the manner provided in Section 1.9. (b) Cancellation of Company-Owned Stock. Each share of Company Capital Stock owned by the Company or any direct or indirect wholly-owned subsidiary of the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. (c) Stock Options and Warrants. (i) Options Assumed. At the Effective Time, each option to purchase Company Capital Stock listed on Schedule 2.2(b) of the Disclosure Document issued under the Company's 2000 Stock Option Plan, as amended through the date hereof (the "Option Plan"), or otherwise, whose holder executes the amendment required by Section 6.3(j) below prior to the Effective Time (each an "Assumed Option"), shall be assumed by Parent in accordance with the provisions described below. (A) At the Effective Time, each Assumed Option shall be, in connection with the Merger, assumed by Parent. Each Assumed Option so assumed by Parent under this Agreement shall be amended prior to the Effective Time to provide that from and after the Effective Time such Assumed Option may be exercised for the purchase (at the exercise price set forth therein) of the number of shares of Parent Common Stock which would have been issued in the Merger pursuant to Section 1.6 in respect of the shares of Company Capital Stock for which such Assumed Option was originally exercisable. Except as so amended, each Assumed Option shall continue to have, and be subject to, the same terms and conditions set forth in the Option Plan and/or as provided in the respective option agreements governing such Assumed Option immediately prior to the Effective Time. (B) Within ten (10) business days after the Closing Date, Parent will issue to each holder of an Assumed Option a document evidencing the foregoing assumption of such Assumed Option. (ii) Warrant Assumed. At the Effective Time, the warrant to purchase Company Capital Stock dated September 16, 1999 held by Green Mountain Capital, L.P. ("GMC") shall be assumed by Parent in accordance with the provisions described below, provided GMC executes the amendment required by Section 6.3(j) below prior to the Effective Time (the "Assumed Warrant"). (A) At the Effective Time, the Assumed Warrant shall be, in connection with the Merger, assumed by Parent. The Assumed Warrant shall be amended prior to the Effective Time to provide that from and after the Effective Time such Assumed Warrant may be exercised for the purchase (at the exercise price set forth therein) of the number of shares of Parent Common Stock which would have been issued in the 6 Merger pursuant to Section 1.6 in respect of the shares of Company Capital Stock for which such Assumed Warrant was originally exercisable. Except as so amended, the Assumed Warrant shall continue to have, and be subject to, the same terms and conditions set forth in the First Amended and Restated Warrant Agreement dated as of September 16, 1999 by and between the Company and GMC immediately prior to the Effective Time. (B) Within ten (10) business days after the Closing Date, Parent will issue to the holder of the Assumed Warrant a document evidencing the foregoing assumption of such Assumed Warrant. (ii) Options Not Assumed. Prior to the Effective Time, the Company and its Board of Directors shall take all actions necessary to accelerate and terminate each option to purchase Company Capital Stock listed on Schedule 2.2(b) of the Disclosure Document, whether issued under the Option Plan or otherwise, whose holder does not execute the amendment required by Section 6.3(j) below prior to the Effective Time (the "Terminated Options"). (d) Capital Stock of Merger Sub. Each share of Common Stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares of Common Stock of the Merger Sub shall, as of the Effective Time, evidence ownership of such shares of Common Stock of the Surviving Corporation. (e) Fractional Shares. No fraction of a share of Parent Common Stock will be issued, but in lieu thereof, each holder of shares of Company Capital Stock who would otherwise be entitled to a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock to be received by such holder) shall be entitled to receive, without any interest, from Parent an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) the average of the closing prices of Parent Common Stock on the American Stock Exchange for the five (5) consecutive trading days ending five (5) trading days prior to the date the Parent Common Stock from which the holder would, but for this Section 1.8(e), otherwise be entitled to a fraction of a share is delivered by Parent to the Exchange Agent. 1.9 SURRENDER OF CERTIFICATES. (a) Exchange Agent. Prior to the Effective Time, Parent shall designate, subject to the consent of the Company, which will not be unreasonably withheld or delayed, a bank or trust company to act as exchange agent (the "Exchange Agent"). (b) Parent to Provide Common Stock. Parent shall make available to the Exchange Agent the aggregate number of shares of Parent Common Stock issuable pursuant to Section 1.6 within ten (10) business days after the Closing. The portion of the Escrow Amount 7 deposited on behalf of each holder of Company Capital Stock shall be in proportion to the aggregate number of shares of Parent Common Stock which such holder would otherwise be entitled to receive pursuant to Section 1.7 by virtue of such holder's ownership of outstanding shares of Company Capital Stock. (c) Exchange Procedures. Promptly after the Effective Time, the Parent and the Surviving Corporation shall cause to be mailed to each holder of record of a certificate or certificates (the "Certificates") which immediately prior to the Effective Time represented outstanding shares of Company Capital Stock and which shares were converted into the right to receive the portion of the Merger Consideration issuable with respect to such shares pursuant to Section 1.7, (i) a letter of transmittal (which shall, specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefor the portion of the Merger Consideration issuable pursuant to Section 1.7 (less the portion of the Merger Consideration to be deposited in the Escrow Fund on such holder's behalf pursuant to Article 7 below) as and when the Exchange Agent receives the Merger Consideration with respect to the shares of Company Capital Stock represented by such Certificate, and the Certificate so surrendered shall forthwith be canceled. Subject to and in accordance with the provisions of Article 7 hereof, Parent shall cause to be distributed to the Escrow Agent (as defined in Article 7) a certificate or certificates representing the number of shares of Parent Common Stock equal to the Escrow Amount, which certificate shall be registered in the name of the Escrow Agent. Such shares shall be beneficially owned by the holders on whose behalf such shares were deposited in the Escrow Fund and shall be available to compensate Parent as provided in Article 7. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Company Capital Stock will be deemed from and after the Effective Time, for all corporate purposes, other than the payment of dividends, to evidence the right to receive in accordance with Section 1.8(a) the portion of the Merger Consideration issuable pursuant to Section 1.7 (less the Escrow Amount to be deposited in the Escrow Fund on such holder's behalf pursuant to Article 7 below) as and when the Exchange Agent receives the Merger Consideration with respect to the shares of Company Capital Stock represented by such Certificate. (d) Distributions with Respect to Unexchanged Shares. No dividends or other distributions with respect to Parent Common Stock declared or made after the date such shares are to be distributed to the holders of the Company Capital Stock and with a record date after such date will be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the date such shares are to be 8 distributed to the holders of the Company Capital Stock theretofore payable with respect to such whole shares of Parent Common Stock. (e) Transfers of Ownership. If any certificate for shares of Parent Common Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the Certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable. (f) No Liability. Notwithstanding anything to the contrary in this Section 1.9, none of the Exchange Agent, the Surviving Corporation or any party hereto shall be liable to a holder of shares of Parent Common Stock or Company Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.10 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. All shares of Parent Common Stock issued upon the surrender for exchange of shares of Company Capital 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 Capital Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Capital Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article 1. 1.11 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates evidencing shares of Company Capital Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock, if any, as may be required to be delivered in exchange therefor pursuant to Section 1.7; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. 1.12 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties hereto that the Merger shall be accounted for as a purchase, not a pooling of interests. It is also intended by the Company that the Merger shall constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). Each party agrees to report the Merger as a reorganization within the meaning of Section 368 of the Code unless (i) there is a final determination following an audit that the Merger does not qualify for such reporting or (ii) such party's tax advisors conclude after 9 consultation with the other party's tax advisors that there is not substantial authority for such reporting. 1.13 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action. ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Merger Sub, subject to such exceptions as are specifically disclosed in the disclosure document (referencing the appropriate schedule or section number) supplied by the Company to Parent (the "Company Schedules") and dated as of the date hereof (the "Disclosure Document"), as follows: 2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power to own, operate and lease its properties and to carry on its business as now being conducted. The Company is duly qualified or licensed to conduct its business and is in good standing as a foreign corporation in the State of New Hampshire, and there is no other jurisdiction within the United States in which the failure of the Company to be so qualified or licensed would have or would reasonably be expected to have a material adverse effect on the business, assets (including intangible assets), financial condition, results of operations, liabilities or prospects of the Company (hereinafter referred to as a "Material Adverse Effect"). The Company has delivered a true and correct copy of its Certificate of Incorporation and Bylaws, each as amended to date, to Parent. 2.2 COMPANY CAPITAL STRUCTURE. (a) The authorized capital stock of the Company consists of 200,000 shares of Common Stock, $.001 par value per share. As of the date hereof, there are 100,750 shares of such Common Stock outstanding. The Company Capital Stock is held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 2.2(a). All outstanding shares of Company Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of the Company or any agreement to which the Company is a party or by which it is bound. (b) The Company has reserved 15,625 shares of Common Stock for issuance to employees and consultants pursuant to the Option Plan, of which 4,850 shares are subject to outstanding, unexercised options, 10,775 shares remain available for future grant and no shares 10 have been issued pursuant to the exercise of options issued under the Option Plan. The Company has not granted any options to purchase any capital stock of the Company outside the Option Plan. Schedule 2.2(b) sets forth for each outstanding option to purchase any Company Capital Stock, all of which have been issued pursuant to the Option Plan (collectively, "Options"), the name of the holder of such Option, the last known domicile address of such holder, the number of shares of Common Stock subject to such Option, the exercise price of such Option and the vesting schedule for all such Options. The Company has reserved 8,562 shares for issuance to GMC under the GMC Warrant. Except for the Options described in Schedule 2.2(b) and the GMC Warrant, there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of the Company or obligating the Company to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. The holders of all Options have been or will be given, or shall have properly waived, any required notice prior to the Merger, and all such rights will be terminated at or prior to the Effective Time. All Terminated Options will accelerate and terminate immediately prior to the Effective Time. As a result of the Merger, Parent will be the record and sole beneficial owner of all capital stock of the Company and rights to acquire or receive such capital stock. 2.3 SUBSIDIARIES. The Company has no ownership or ownership interest in any other corporation or other entity (each, a "Subsidiary"). 2.4 AUTHORITY. Subject only to the requisite approval of the Merger and this Agreement by the Company's stockholders, the Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject only to the approval of the Merger and this Agreement by the Company's stockholders. The Company's Board of Directors has unanimously approved the Merger and this Agreement. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. Except as set forth on Schedule 2.4, subject only to the approval of the Merger and this Agreement by the Company's stockholders, the execution and delivery of this Agreement by the Company does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "Conflict") (i) any provision of the Certificate of Incorporation or Bylaws of the Company or (ii) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, 11 order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, country, local or foreign governmental authority, instrumentality, agency or commission ("Governmental Entity") or any third party (so as not to trigger any Conflict) is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Merger Agreement with the Delaware Secretary of State, (ii) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and (iii) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 2.4. 2.5 COMPANY FINANCIAL STATEMENTS. (a) Schedule 2.5 sets forth (i) the Company's audited balance sheet as of September 30, 1999 (the "Balance Sheet"), and the related unaudited statements of operations and cash flows for the twelve-month period then ended, and (ii) the Company's unaudited balance sheet as of July 31, 2000 and the related unaudited statements of operations and cash flows for the ten-month period then ended (collectively, the "Company Financials"). The Company Financials are correct in all material respects and have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a basis consistent throughout the periods indicated and consent with each other, except that the unaudited Company Financials do not contain all footnotes required by GAAP. The Company Financials present fairly the financial condition and operating results of the Company as of the dates and during the periods indicated therein, subject to normal year-end adjustments, which adjustments will not be material in amount or significance. 2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6, as of July 31, 2000, the Company did not have, any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with GAAP), which individually or in the aggregate, has not been reflected in the unaudited Company Financials as of July 31, 2000. 2.7 NO CHANGES. Except as set forth in Schedule 2.7, since the date of the Balance Sheet, there has not been, occurred or arisen any: (a) transaction by the Company except in the ordinary course of business as conducted on the date of the Balance Sheet and consistent with past practices; (b) amendments or changes to the Certificate of Incorporation or Bylaws of the Company; (c) capital expenditure or unsatisfied commitment by the Company, either individually exceeding $10,000 or in the aggregate exceeding $25,000; 12 (d) destruction of, damage to or loss of any material assets, business or customer of the Company (whether or not by covered by insurance); (e) labor trouble or claim of wrongful discharge or other unlawful labor practice or action; (f) resignation or termination of any key officers or employees of the Company and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer or employee; (g) revaluation by the Company of any of its assets; (h) declaration, setting aside or payment of a dividend or other distribution with respect to the capital stock of the Company, or any direct or indirect redemption, purchase or other acquisition by the Company of any Company Capital Stock; (i) sale, lease, license or other disposition of any of the assets or properties of the Company, except in the ordinary course of business as conducted on that date and consistent with past practices; (j) amendment or termination of any material contract, agreement or license to which the Company is a party or by which it is bound; (k) loan by the Company to any person or entity, incurring by the Company of any indebtedness, guaranteeing by the Company of any indebtedness, issuance or sale of any debt securities of the Company or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (l) waiver or release of any right or claim of the Company, including any write-off or other compromise of any account receivable of the Company; (m) commencement or notice or threat of commencement of any lawsuit or proceeding against or investigation of the Company or its affairs; (n) notice of any claim of ownership by a third party of Company Intellectual Property Rights (as defined in Section 2.11 below) or of infringement by the Company of any third party's intellectual property rights; (o) issuance or sale by the Company of any of its shares of capital stock, or securities exchangeable, convertible or exercisable therefor, or of any other of its securities; (p) change in pricing or royalties set or charged by the Company to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Company Intellectual Property Rights to the Company; 13 (q) event or condition of any character, of which the Company is aware (after having made due inquiry), that has had or could be reasonably expected to have a Material Adverse Effect; or (r) negotiation or agreement by the Company or by any of its officers or employees to do any of the things described in the preceding clauses (a) through (q) (other than negotiations with Parent and its representatives regarding the transactions contemplated by this Agreement). 2.8 TAX AND OTHER RETURNS AND REPORTS. (a) Definition of Taxes. For the purposes of this Agreement, "Tax" or, collectively, "Taxes" means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) Tax Returns and Audits. Except as set forth in Schedule 2.8: (i) The Company as of the Effective Time will have prepared and filed all required federal, state, local and foreign returns, estimates, information statements and reports ("Returns") relating to any and all Taxes concerning or attributable to the Company or its operations, such Returns are true and correct as to all material items and have been completed in accordance with applicable law and no Taxes will be owing after the Closing for any period covered by any of the Returns. (ii) The Company as of the Effective Time: (A) will have paid or accrued all Taxes it is required to pay or accrue and (B) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) The Company has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against the Company, nor has the Company executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of the Company is currently in progress, nor has the Company been notified of any request for such an audit or other examination. (v) The Company has no liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved against in accordance with GAAP on the balance sheet, whether asserted or unasserted, contingent or otherwise, and the Company has no knowledge of any basis of the assertion of any such liability attributable to the Company, or its assets or operations. 14 (vi) The Company has provided to Parent copies of all federal and state income and all state sales and use Tax Returns for all periods since the date of the Company's incorporation. (vii) There are (and as of immediately following the Effective Time there will be) no liens, pledges, charges, claims, security interests or other encumbrances of any sort ("Liens") on the assets of the Company relating to or attributable to Taxes. (viii) The Company has no knowledge of any basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien on the assets of the Company. (ix) None of the Company's assets are treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code. (x) As of the Effective Time, there will not be any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G or 162 of the Code. (xi) The Company has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company. (xii) The Company is not a party to a tax sharing or allocation agreement nor does the Company owe any amount under any such agreement. (xiii) The Company is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xiv) The Company's tax basis in its assets for purposes of determining its future amortization, depreciation and other federal income tax deductions is accurately reflected on the Company's tax books and records. 2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which the Company is a party or otherwise binding upon the Company which has or reasonably could be expected to have the effect of prohibiting or impairing any business practice of the Company, any acquisition of property (tangible or intangible) by the Company or the conduct of business by the Company. Without limiting the foregoing, the Company has not entered into any agreement under which the Company is restricted from selling, licensing or otherwise distributing any of its products to any class of customers, in any geographic area, during any period of time or in any segment of the market. 15 2.10 TITLE TO PROPERTIES: ABSENCE OF LIENS AND ENCUMBRANCES. (a) The Company does not own and has never owned any real property. Schedule 2.10(a) sets forth a list of all real property currently, or at any time in the past, leased by the Company , the name of the lessor, the date of the lease and each amendment thereto and, with respect to any current lease, the aggregate annual rental and/or other fees payable under any such lease. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default) by the Company or, to the best of the Company's knowledge, by any other party thereto. (b) The Company has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens (as defined in Section 2.8(b)(vii)), except as reflected in the Company Financials or in Schedule 2.10(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 2.11 INTELLECTUAL PROPERTY. (a) For the purposes of this Agreement, the following terms have the following definitions: (i) "Intellectual Property" shall mean any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States, international and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and customer lists, and all documentation relating to any of the foregoing; (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world; (iv) all industrial designs and any registrations and applications therefor throughout the world; (v) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor throughout the world; (vi) all databases and data collections and all rights therein throughout the world; and (vii) any similar or equivalent rights to any of the foregoing anywhere in the world. (ii) "Company Intellectual Property" shall mean any Intellectual Property that is owned by, or exclusively licensed to, the Company. (iii) "Registered Intellectual Property" means all United States, international and foreign: (i) patents and patent applications (including provisional applications); (ii) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations or applications related to trademarks; (iii) registered copyrights and 16 applications for copyright registration; and (iv) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by any state, government or other public legal authority. (b) Schedule 2.11(b) lists all of the Registered Intellectual Property owned by, or filed in the name of, the Company (the "Company Registered Intellectual Property"). (c) Schedule 2.11(c) lists all proceedings or actions before any court, tribunal (including the United States Patent and Trademark Office ("PTO") or equivalent authority anywhere in the world) related to any Company Intellectual Property. Except as set forth in Schedule 2.11(c), no Company Intellectual Property or product or service of the Company is subject to any proceeding or outstanding decree, order, judgment, agreement, or stipulation restricting in any manner the use, transfer, or licensing thereof by the Company, or which may affect the validity, use or enforceability of such Company Intellectual Property. (d) Each item of Company Registered Intellectual Property is valid and subsisting, all necessary registration, maintenance and renewal fees in connection with such Registered Intellectual Property have been made and all necessary documents and certificates in connection with such Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. (e) Except as set forth in Schedule 2.11(e): (i) the Company owns and has good and exclusive title to each item of Intellectual Property used in connection with the operation or conduct of its business, including all Company Registered Intellectual Property listed on Schedule 2.11(b), free and clear of any lien or encumbrance; and (ii) the Company is the exclusive owner of all trademarks and trade names used in connection with the operation or conduct of its business, including the sale of any products or the provision of any services by it. (f) The Company owns exclusively, and has good title to, all copyrighted works that are its products or which it otherwise purports to own. (g) To the extent that any work, invention, or material has been developed or created by a third party for the Company , the Company has a written agreement with such third party with respect thereto and the Company thereby has obtained ownership of, and is the exclusive owner of, or has a valid license to use, all Intellectual Property in such work, material or invention by operation of law or by valid assignment. (h) Except as set forth in Schedule 2.11(h), the Company has not transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was Company Intellectual Property, to any third party. (i) Schedule 2.11(i) lists all contracts, licenses and agreements to which the Company is a party that are currently in effect (i) with respect to Company Intellectual Property licensed or offered to any third party; or (ii) pursuant to which a third party has licensed or transferred any Intellectual Property to the Company. 17 (j) The contracts, licenses and agreements listed on Schedule 2.11(i) are in full force and effect. The consummation of the transactions contemplated by this Agreement will neither violate nor result in the breach, modification, cancellation, termination, or suspension of such contracts, licenses and agreements. The Company is in compliance with, and has not breached any term any of such contracts, licenses and agreements and, to the knowledge of the Company, all other parties to such contracts, licenses and agreements are in compliance with, and have not breached any term of, such contracts, licenses and agreements. To the knowledge of the Company, except as set forth in Schedule 2.11(j), following the Closing Date, the Surviving Corporation will be permitted to exercise all of the Company's rights under the contracts, licenses and agreements listed on Schedule 2.11(i) to the same extent the Company would have been able to had the transactions contemplated by this Agreement not occurred and without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which the Company would otherwise be required to pay. (k) Schedule 2.11(k) lists all contracts, licenses and agreements between the Company and any third party wherein or whereby the Company has agreed to, or assumed, any obligation or duty to warrant, indemnify, hold harmless or otherwise assume or incur any obligation or liability with respect to the infringement or misappropriation by the Company or such third party of the Intellectual Property of any third party. (l) The operation of the business of the Company as such businesses currently are conducted, including the Company's design, development, manufacture, marketing and sale of the products or services (including products currently under development), has not, does not and will not infringe or misappropriate the Intellectual Property of any third party or constitute unfair competition or trade practices under the laws of any jurisdiction. (m) The Company (including its officers, directors and, to the best of the Company's knowledge, employees) has not received notice from any third party that the operation of its business or any act, product or service of the Company, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction. (n) Except as set forth in Schedule 2.11(n), to the knowledge of the Company: (i) no Person has or is infringing or misappropriating any Company Intellectual Property; and (ii) there have been, and are, no claims asserted against the Company or against any customer of the Company , related to any product or service of the Company . (o) The Company has taken reasonable steps to protect its rights in its confidential information and trade secrets or any trade secrets or confidential information of third parties provided to the Company, and, without limiting the foregoing, the Company has and enforces a policy requiring each employee and contractor with access to Company Intellectual Property to execute a proprietary information/confidentiality agreement substantially in the Company's standard form and all current and former employees and contractors of the Company have executed such an agreement. Exhibit 2.11(o) to the Disclosure Document is the Company's standard form of proprietary information/ confidentiality agreement for employees and contractors. 18 2.12 AGREEMENTS. CONTRACTS AND COMMITMENTS. Except as set forth on Schedule 2.12(a), the Company is not a party to or bound by: (i) any collective bargaining agreements; (ii) any agreements or arrangements that contain any severance pay or post-employment liabilities or obligations; (iii) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements; (iv) any employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or any consulting or sales agreement, contract or commitment under which any firm or other organization provides services to the Company; (v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (vi) any fidelity or surety bond or completion bond; (vii) any agreement, contract or commitment under which it has limited or restricted its right to compete with any person in any respect; (viii) any agreement of indemnification or guaranty; (ix) any agreement, contract or commitment containing any covenant limiting the freedom of the Company to engage in any line of business or to compete with any person; (x) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $10,000; (xi) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of the Company's 's business; (xii) any mortgages, indentures, loans or credit agreements, security agreements or other arrangements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (viii) hereof; (xiii) any purchase order or contract for the purchase of raw materials involving $10,000 or more; 19 (xiv) any distribution, joint marketing or development agreement; (xv) any assignment, license or other agreement with respect to any form of intangible property; or, (xvi) any other agreement, contract or commitment that involves $10,000 or more or is not cancelable without penalty within thirty (30) days. Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, which (i) are noted in Schedule 2.12(b) or (ii) would not individually or in the aggregate have a Material Adverse Effect, the Company has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 2.12(a) or Schedule 2.11(i) (any such agreement, contract or commitment, a "Contract"). Each Contract is in full force and effect and, except as otherwise disclosed in Schedule 2.12(b), is not subject to any default thereunder of which the Company has knowledge by any party obligated to the Company pursuant thereto. 2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 2.13, no officer, director or, to the best of the Company's knowledge, stockholder of the Company (nor any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an interest), has or has had, directly or indirectly, (i) an economic interest in any entity which furnished or sold, or furnishes or sells, services or products that the Company furnishes or sells or proposes to furnish or sell, (ii) an economic interest in any entity that purchases from or sells or furnishes to, the Company, any goods or services or (iii) a beneficial interest in any contract or agreement set forth in Schedule 2.12(a) or Schedule 2.11(i); provided, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 2.13. 2.14 COMPLIANCE WITH LAWS. To the best of its knowledge, the Company has complied in all respects with, is not in violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation, the failure to comply with which would have a Material Adverse Effect. 2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no action, suit or proceeding of any nature pending or, to the best of the Company's knowledge, threatened against the Company , its properties or any of its officers or directors, in their respective capacities as such. Except as set forth in Schedule 2.15, there is no investigation pending or, to the best of the Company's knowledge, threatened against the Company, its properties or any of its officers or directors by or before any governmental entity. Schedule 2.15 sets forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages, claims or other remedy requested. To the best of the 20 Company's knowledge, no governmental entity has at any time challenged or questioned the legal right of the Company to conduct its business in the present manner or style thereof. 2.16 INSURANCE. Schedule 2.16 lists all insurance policies maintained by the Company, which policies are valid and enforceable, and there is no, claim by the Company pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies have been paid and the Company is otherwise in material compliance with the terms of such policies (or other policies and bonds providing substantially similar insurance coverage). The Company has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 2.17 MINUTE BOOKS. The minute books of the Company made available to counsel for Parent are the only minute books of the Company and contain a reasonably accurate summary of all meetings of directors (or committees thereof) and stockholders or actions by written consent since the time of incorporation of the Company. The Company is in full compliance with all of the terms and provisions of its Certificate of Incorporation and Bylaws. 2.18 RELATIONSHIPS WITH SUPPLIERS AND LICENSERS. No current supplier to the Company has notified it of an intention to terminate or substantially alter its existing business relationship with the Company nor has any licenser under a license agreement with the Company notified the Company of an intention to terminate or substantially alter the Company's rights under such license. 2.19 TRADE SECRETS. The Company has taken reasonable security measures to protect the confidentiality of its trade secrets. All current and past employees or consultants of the Company who, either alone or in concert with others, developed, invented, discovered, derived, programmed or designed such trade secrets, or who have or had access to information disclosing such trade secrets, have entered into confidentiality and non-disclosure agreements with the Company (the "Trade Secret Agreements"). Any exception which has been taken to the Trade Secrets Agreements (for example an employee or consultant excluding a prior invention) is described in Schedule 2.19, including the exception taken and the employee taking such exception. To the Company's knowledge, neither the Company nor any employees or consultants of the Company have caused any of the Company's 's trade secrets to become part of the public knowledge or literature, nor has the Company or any of the employees or consultants of the Company permitted any such trade secrets to be used, divulged or appropriated for the benefit of persons to the material detriment of the Company. 21 2.20 ENVIRONMENTAL MATTERS. (a) The Company is not in violation of any Federal, state or local Environmental Law (as defined below), which violation could reasonably be expected to result in a material liability to the Company or its properties and assets. Neither the Company nor, to the knowledge of the Company, any third party has used, released, discharged, generated, manufactured, produced, stored, or disposed of in, on, under or about its owned or leased property or other assets, or transported thereto or therefrom, any Hazardous Materials (as defined below) in a manner that could reasonably be expected to subject the Company to a material liability under any Environmental Law; there are no underground tanks, whether operative or temporarily or permanently closed, located on its owned or leased property or other assets; there are no polychlorinated biphenyls ("PCBs") or items containing PCBs used, stored or present at, on or, to the knowledge of the Company, near its owned or leased property or assets; and there is or has been no condition, circumstance, action, activity or event that could reasonably be expected to form the basis of any violation of, or material liability to the Company under, any local, state or Federal Environmental Law. (b) There is no proceeding, investigation or inquiry by any local, state or Federal governmental authority or any non-governmental third party with respect to the presence or release of such Hazardous Materials in, on, from or to the Company's 's owned or leased property and, to the knowledge of the Comp, no such proceedings are threatened or contemplated by any such governmental authorities or non-governmental third parties. (c) For purposes of this Agreement, (i) "Environmental Law" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U. S. C. Sections 9601, et seq.)("CERCLA"); the Federal Clean Water Act (33 U. S. C. Sections 1251, et seq.); the Federal Clean Air Act (42 U. S. C. Section 7401); Federal Insecticide, Fungicide, and Rodenticide Act (7 U. S. C.ss.ss.136 et seq.); Toxic Substances Control Act (15 U. S. C.ss.ss.2601 et seq.); Resource Conservation and Recovery Act (42 U. S. C.ss.ss.6901 et seq.)("RCRA"); and Emergency Planning and Community Right to Know Act (42 U. S. C.ss.ss.11001 et seq.), together with applicable state and local laws of similar substance, and (ii) "Hazardous Materials" shall mean substances defined as "hazardous substances," "hazardous materials," or "toxic substances" in CERCLA, the Hazardous Materials Transportation Act (49 U. S. C. Section 1801, et seq.) and RCRA; those substances defined as "hazardous waste," "hazardous materials" or "regulated substances" by RCRD; those substances designated as a "hazardous substance" pursuant to Section 311 of the Federal Water Pollution Control Act (33 U. S. C.ss.1317); those substances regulated as a hazardous chemical substance or mixture or as an imminently hazardous chemical substance or mixture pursuant to Section 6 or 7 of the Toxic Substances Control Act (15 U. S. C.ss.ss.2605, 2606); those substances defined as a pesticide pursuant to Section 136(u)of the Federal Insecticide, Fungicide, and Rodenticide Act (7 U. S. C. ss.136(u)); those substances defined as hazardous waste constituents in 40 CFR 260.10, specifically including Appendix VII and VIII of Subpart D of 40 CFR 261; and those substances defined by the Atomic Energy Act of 1954, as amended (42 U. S. C.ss.ss.3011, et seq., as amended)as a source, special nuclear or by-product material; and in the regulations adopted and publications promulgated pursuant to said laws. 22 2.21 BROKERS' AND FINDERS' FEES: THIRD PARTY EXPENSES. Except as set forth on Schedule 2.21, the Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. Schedule 2.21 sets forth the principal terms and conditions of any agreement, written or oral, with respect to such fees. Schedule 2.21 sets forth the Company's current reasonable estimate of all Third Party Expenses (as defined in Section 5.5) expected to be incurred by the Company in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby. 2.22 PERMITS AND LICENSES. Schedule 2.22 contains a complete and correct copy of each pending application or registration for governmental approval and each governmental approval held by the Company to develop, manufacture, test, import, export, store, market and sell the Company's 's products. Except as set forth in Schedule 2.22, (i) the Company possesses such governmental approvals from all governmental bodies necessary to permit the operation of its business in the manner as the same is currently conducted, and to operate, own or occupy its properties, (ii) there have been no product recalls, field corrective activity, warning letters or administrative actions by any governmental body, and (iii) to the best of the Company's knowledge (aa) there is no administrative action pending or threatened for the revocation of any such governmental approval and (bb) assuming the obtaining of the authorizations, consents, approvals and other actions listed in Schedule 2.22, no governmental approval by any governmental body having jurisdiction over the operation of the Company's 's businesses, whether in whole or in part, will be revoked, or become ineffective or subject to revocation, as a consequence of the transactions contemplated by this Agreement. 2.23 EMPLOYEE MATTERS AND BENEFIT PLANS. (a) Definitions. With the exception of the definition of "Affiliate" set forth in Section 2.23(a)(i) below (which definition shall apply only to this Section 2.23), for purposes of this Agreement; the following terms shall have the meanings set forth below: (i) "Affiliate" shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o)of the Code and the regulations thereunder; (ii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; (iii) "Company Employee Plan" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and whether or not legally binding, including without limitation, each "employee benefit plan" within the meaning of Section 3(3) of ERISA, which is or has been maintained, contributed to, or required to be contributed to, by the Company or any 23 Affiliate for the benefit of any "Employee" (as defined below), and pursuant to which the Company or any Affiliate has or may have any material liability contingent or otherwise; (iv) "Employee" shall mean any current, former or retired employee, officer, or director of the Company or any Affiliate; (v) "Employee Agreement" shall refer to each management, employment, severance, consulting, relocation, repatriation, expiration, visas, work permit or similar agreement or contract between the Company or any Affiliate and any Employee or consultant; (vi) "IRS" shall mean the Internal Revenue Service; (vii) "Multiemployer Plan" shall mean any "Pension Plan" (as defined below) which is a "multiemployer plan," as defined in Section 3(37) of ERISA; and (viii) "Pension Plan" shall refer to each Company Employee Plan which is an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA. (b) Schedule. Schedule 2.23(b) contains an accurate and complete list of each Company Employee Plan and each Employee Agreement, together with a schedule of all liabilities, whether or not accrued, under each such Company Employee Plan or Employee Agreement. The Company does not have any plan or commitment, whether legally binding or not, to establish any new Company Employee Plan or Employee Agreement, to modify any Company Employee Plan or Employee Agreement (except to the extent required by law or to conform any such Company Employee Plan or Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to Parent in writing, or as required by this Agreement), or to enter into any Company Employee Plan or Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. (c) Documents. The Company has provided to Parent (i) correct and complete copies of all documents embodying or relating to each Company Employee Plan and each Employee Agreement including all amendments thereto and written interpretations thereof; (ii) the most recent annual actuarial valuations, if any, prepared for each Company Employee Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each Company Employee Plan or related trust; (iv) if the Company Employee Plan is funded, the most recent annual and periodic accounting of Company Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each Company Employee Plan; (vi) all IRS determination letters and rulings relating to Company Employee Plans and copies of all applications and correspondence to or from the IRS or the Department of Labor ("DOL") with respect to any Company Employee Plan; (vii) all communications material to any Employee or Employees relating to any Company Employee Plan and any proposed Company Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company; 24 and (viii) all registration statements and prospectuses prepared in connection with each Company Employee Plan. (d) Employee Plan Compliance. Except as set forth on Schedule 2.23(d), (i) the Company has performed in all material respects all obligations required to be performed by it under each Company Employee Plan, and each Company Employee Plan has been established and maintained in all materials respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) no "prohibited transaction," within the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to any Company Employee Plan; (iii) there are no actions, suits or claims pending, or, to the best of the Company's knowledge, threatened or anticipated (other than routine claims for benefits) against any Company Employee Plan or against the assets of any Company Employee Plan; (iv) each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without liability to the Company, Parent or any of its Affiliates (other than ordinary administration expenses typically incurred in a termination event); (v) there are no inquiries or proceedings pending or, to the best of the Company's knowledge, threatened by the IRS or DOL with respect to any Company Employee Plan; (vi) the Company is not subject to any penalty or tax with respect to any Company Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980 of the Code; and (vii) all contributions, including any top heavy contributions, required to be made by the Company or any ERISA affiliate to any Company Employee Plan have been made or shall be made on or before the Closing Date. (e) Pension Plans. The Company does not currently maintain, sponsor, participate in or contribute to, nor has it ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 4.12 of the Code. (f) Multiemployer Plans. At no time has the Company contributed to or been requested to contribute to any Multiemployer Plan. (g) No Post-Employment Obligations. Except as set forth in Schedule 2.23(g), no Company Employee Plan provides, or has any liability to provide, life insurance, medical or other employee benefits to any Employee upon his or her retirement or termination of employment for any reason, including continuation health care coverage under Section 4980B of the Code, and the Company has never represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) that such Employee(s) would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment. (h) Effect of Transaction. (i) Except as set forth on Schedule 2.23(h)(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Company Employee Plan, Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of 25 indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Employee. (ii) Except as set forth on Schedule 2.23(h)(ii), no payment or benefit which will or may be made by the Company, any or Parent or any of their respective Affiliates with respect to any Employee will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. (i) Employment Matters. The Company (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries, and other payments to Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Employees (other than routine payments to be made in the normal course of business and consistent with past practice). (j) Labor. No work stoppage or labor strike against the Company is pending or, to the best knowledge of the Company, threatened. Except as set forth in Schedule 2.23(j), the Company is not involved in or, to the knowledge of the Company, threatened with, any labor dispute, grievance, or litigation relating to labor, safety or discrimination matters involving any Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in liability to the Company. The Company has not engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly result in a liability to the Company. Except as set forth in Schedule 2.23(j), the Company is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Employees and no collective bargaining agreement is being negotiated by the Company. 2.24 EMPLOYEES. To the best of the Company's knowledge, no employees of the Company (i) are in violation of any term of any employment contract, patent disclosure agreement, non-competition agreement, or any restrictive covenant to a former employer relating to the right of any such employee to be employed by the Company because of the nature of the business conducted or presently proposed to be conducted by the Company or to the use of trade secrets or proprietary information of others and (ii) have given notice to the Company, nor is the Company otherwise aware, that any such employee intends to terminate his or her employment with the Company. 2.25 DISTRIBUTION OF MERGER CONSIDERATION. The Merger Consideration, when distributed in accordance with Sections 1.7, shall be distributed to the holders of Company Capital Stock in accordance with the provisions of the Company's Certificate of Incorporation in effect immediately prior to the Effective Time and any 26 other document or agreement among the Company and such holders related to the distribution of the Merger Consideration. No holder of Company Capital Stock shall have any claims against Parent in connection with the distribution of the Merger Consideration pursuant to Sections 1.7 and 1.8 (other than for the failure to distribute the Merger Consideration to the Exchange Agent in accordance with the information contained in the Agent Certificates). For purposes of this Section 2.25, the holders of the Company Capital Stock shall include each holder of an Assumed Option that timely and properly exercises the Assumed Option after the Closing. 2.26 REPRESENTATION COMPLETE. None of the representations or warranties made by the Company (as modified by the Company Schedules), nor any statement made in any schedule or certificate furnished by the Company pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the stockholders of the Company in connection with soliciting their consent to this Agreement and the Merger, contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. The Company has disclosed to Parent all facts that are known to the Company to be material (individually or in the aggregate) to the business, assets, liabilities, financial condition, prospects or operations of the Company. ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub represent and warrant to the Company as follows: 3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Parent and Merger Sub has the corporate power to own, operate and lease its properties and to carry on its business as now being conducted and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a material adverse effect on Parent and Merger Sub as a whole. 3.2 AUTHORITY. Parent and Merger Sub have all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub. This Agreement has been duly executed and delivered by Parent and Merger Sub and constitutes the valid and binding obligations of Parent and Merger Sub, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable 27 remedies. The execution and delivery of this Agreement by the Parent does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "Conflict") (i) any provision of the Certificate of Incorporation or Bylaws of the Parent or (ii) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Parent or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, country, local or foreign governmental authority, instrumentality, agency or commission or any third party (so as not to trigger any Conflict) is required by or with respect to the Parent in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger with the Delaware Secretary of State and (ii) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws. 3.3 CAPITAL STRUCTURE. (a) The authorized stock of Parent consists of 25,000,000 shares of Parent Common Stock, of which 12,161,810 shares were issued and outstanding as of August 18, 2000, and 1,000,000 shares of Preferred Stock, of which 90,000 shares have been designated Series A 8% Convertible Preferred Stock ("Series A Stock") and 910,000 shares remain undesignated; as of August 18, 2000, 60,000 shares of Series A Stock, and no other shares of Preferred Stock were issued and outstanding. The authorized capital stock of Merger Sub consists of 100 shares of Common Stock, all of which, as of the date hereof, are issued and outstanding and are held by Parent. All such shares have been duly authorized, and all such issued and outstanding shares have been validly issued, are fully paid and nonassessable and are free of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof. (b) Except for options granted under the Parent's 1994 and 1999 Stock Incentive Plans or as disclosed to the Company by the Parent in writing, there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which the Parent is a party or by which it is bound obligating the Parent to issue, deliver, or sell, or cause to be issued, delivered, or sold, any shares of the capital stock of the Parent. (c) The shares of Parent Common Stock to be issued pursuant to the Merger, when issued, will be duly authorized, validly issued, fully paid and nonassessable. 3.4 SEC DOCUMENTS: PARENT FINANCIAL STATEMENTS. Parent has furnished or made available to the Company true and complete copies of all reports or registration statements filed by it with the U. S. Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (the "Exchange Act") for all periods since January 1, 1998, all in the form so filed (all the foregoing being collectively referred to as the "SEC Documents"). As of their respective filing dates, the SEC Documents 28 complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a document subsequently filed with the SEC. The financial statements of Parent, including the notes thereto, included in the SEC Documents (the "Parent Financial Statements") comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP consistently applied (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) and present fairly the consolidated financial position of Parent at the dates thereof and the consolidated results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal audit adjustments). There has been no change in Parent accounting policies except as described in the notes to the Parent Financial Statements. 3.5 TITLE TO PROPERTIES: ABSENCE OF LIENS AND ENCUMBRANCES. The Company has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens except as reflected in the financial statements included in the Parent's most recently filed report on Form 10-Q or as disclosed in writing by the Parent to the Company and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 3.6 INTELLECTUAL PROPERTY. (a) Each item of Registered Intellectual Property owned by the Parent or any Subsidiary is valid and subsisting, all necessary registration, maintenance and renewal fees in connection with such Registered Intellectual Property have been made and all necessary documents and certificates in connection with such Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. (b) The Parent owns and has good and exclusive title to, or a valid license to use, each item of Intellectual Property used in connection with the operation or conduct of its business, free and clear of any Lien (except as disclosed in writing by the Parent to the Company) and the Parent is the exclusive owner of all trademarks and trade names used in connection with the operation or conduct of its business, including the sale of any products or the provision of any services by it. (c) The Parent owns exclusively, and has good title to, all copyrighted works that are its products or which it otherwise purports to own. 29 (d) The operation of the business of the Parent and its Subsidiaries as such businesses currently are conducted, including the Parent's design, development, manufacture, marketing and sale of its products and services (including products currently under development), has not, does not and will not infringe or misappropriate the Intellectual Property of any third party or constitute unfair competition or trade practices under the laws of any jurisdiction. (e) The Parent (including its officers, directors and, to the best of the Parent's knowledge, employees) has not received notice from any third party that the operation of the business of the Parent and its Subsidiaries or any act, product or service of the Parent, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction. (f) The Parent has taken reasonable steps to protect its rights in its confidential information and trade secrets or any trade secrets or confidential information of third parties provided to the Parent or its Subsidiaries, and, without limiting the foregoing, the Parent has and enforces a policy requiring each employee and contractor with access to the Intellectual Property of the Parent or any Subsidiary to execute a proprietary information/confidentiality agreement substantially in the Parent's standard form. 3.7 NO MATERIAL ADVERSE CHANGE. Since the date of the balance sheet included in the Parent's most recently filed report on Form 10-Q, Parent has conducted its business in the ordinary course and there has not occurred: (a) any material adverse change in the financial condition, liabilities, assets (including intellectual property assets) or business of Parent; (b) any amendment or change in the Certificate of Incorporation or Bylaws of Parent; or (c) any damage to, destruction or loss of any assets of Parent (whether or not covered by insurance) that materially and adversely affects the financial condition or business of Parent. 3.8 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which the Parent or any Subsidiary is a party or otherwise binding upon the Parent or any Subsidiary which has or reasonably could be expected to have the effect of prohibiting or impairing any business practice of the Parent or any Subsidiary, any acquisition of property (tangible or intangible) by the Parent or any Subsidiary or the conduct of business by the Parent or any Subsidiary. Without limiting the foregoing, neither the Parent nor any Subsidiary has entered into any agreement under which the Parent or Subsidiary is restricted from selling, licensing or otherwise distributing any of its products to any class of customers, in any geographic area, during any period of time or in any segment of the market. 3.9 MINUTE BOOKS. The minute books of the Parent made available to counsel for the Company are the only minute books of the Parent and contain a reasonably accurate summary of all meetings of directors (or committees thereof) and stockholders or actions by written consent since the time of 30 incorporation of the Parent. The Parent is in full compliance with all of the terms and provisions of its Certificate of Incorporation and Bylaws. 3.10 COMPLIANCE WITH LAWS. To the best of Parent's knowledge, the Parent and each Subsidiary has complied in all respects with, is not in violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation, the failure to comply with which would have a Material Adverse Effect. 3.11 LITIGATION. There is no action, suit or proceeding of any nature pending or, to the best of Parent's knowledge, threatened against the Parent or any Subsidiary, its properties or any of its officers or directors, in their respective capacities as such, the outcome of which would, or would reasonably be expected to have, a Material Adverse Effect. There is no investigation pending or, to the best of Parent's knowledge, threatened against the Parent or any Subsidiary, its properties or any of its officers or directors by or before any governmental entity. No governmental entity has at any time challenged or questioned the legal right of the Parent or any Subsidiary to conduct its business in the present manner or style thereof. 3.12 EMPLOYEES. To the best of the Parent's knowledge, no employees of the Parent or any Subsidiary (i) are in violation of any term of any employment contract, patent disclosure agreement, non-competition agreement, or any restrictive covenant to a former employer relating to the right of any such employee to be employed by the Parent because of the nature of the business conducted or presently proposed to be conducted by the Parent or the Subsidiary or to the use of trade secrets or proprietary information of others and (ii) have given notice to the Parent or any Subsidiary, nor is the Parent or any Subsidiary otherwise aware, that any such employee intends to terminate his or her employment with the Parent or any Subsidiary. 3.13 REPRESENTATIONS COMPLETE. None of the representations or warranties made by the Parent (as modified by the Parent Schedules), nor any statement made in any schedule or certificate furnished by the Parent pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the stockholders of the Company in connection with soliciting their consent to this Agreement and the Merger, contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. 31 ARTICLE 4. CONDUCT PRIOR TO THE EFFECTIVE TIME 4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement and the Effective Time, the Company agrees (except to the extent that Parent shall otherwise consent in writing) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensers, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. The Company shall promptly notify Parent of any event or occurrence or emergency not in the ordinary course of its business, and any material event involving or adversely affecting the Company or its business. Except as expressly contemplated by this Agreement, the Company shall not, without the prior written consent of Parent: (a) Enter into any commitment, activity or transaction not in the ordinary course of business; (b) Transfer to any person or entity any rights to any Company Intellectual Property Rights; (c) Enter into or amend any agreements pursuant to which any other party is granted manufacturing, marketing, distribution or similar rights of any type or scope with respect to any products of the Company; (d) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the agreements set forth or described in the Company Schedules; (e) Amend or otherwise modify (or agree to do so), or violate the terms of, any of the agreements set forth or described in Schedule 2.11(i); (f) Commence any litigation or any dispute resolution process; (g) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any Company Capital Stock, or split, combine or reclassify any Company Capital Stock or issue or authorize' the issuance of any other securities in respect of, in lieu of or in substitution for shares of Company Capital Stock, or repurchase, redeem or otherwise acquire, directly or indirectly, any shares of Company Capital Stock (or options, warrants or other rights exercisable therefor); 32 (h) Except for the issuance of shares of Company Capital Stock upon exercise or conversion of presently outstanding Options and the GMC Warrant, issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any shares of Company Capital Stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities; (i) Cause or permit any amendments to its Certificate of Incorporation or Bylaws; (j) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of the Company; (k) Fail in any material respect to comply with any laws, ordinances, regulations or other governmental restrictions applicable to the Company; (l) Sell, lease, license or otherwise dispose of any of its properties or assets except in the ordinary course of business and consistent with past practice; (m) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of the Company or guarantee any debt securities of others; (n) Grant any severance or termination pay to any director, officer, employee or consultant; (o) Adopt or amend any employee benefit plan, program, policy or arrangement, or enter into any employment contract, extend any employment offer, pay or agree to pay any special bonus or special remuneration to any director, employee or consultant, or increase the salaries or wage rates of its employees; (p) Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business and consistent with past practice; (q) Pay, discharge or satisfy, in an amount in excess of $10,000, in any one case or $25,000, in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Company Financial Statements; (r) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; 33 (s) Enter into any strategic alliance, joint development or joint marketing arrangement or agreement; (t) Fail to pay or otherwise satisfy its monetary obligations as they become due, except such as are being contested in good faith; (u) Waive or commit to waive any rights with a value in excess of $10,000, in any one case, or $25,000, in the aggregate; (v) Cancel, materially amend or renew any insurance policy other than in the ordinary course of business; (w) Alter, or enter into any commitment to alter, its interest in any corporation, association, joint venture, partnership or business entity in which the Company directly or indirectly holds any interest on the date hereof; and (x) Take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(a) through (w) above, or any other action that would prevent the Company from performing or cause the Company not to perform its covenants hereunder. 4.2 CONDUCT OF BUSINESS OF THE PARENT AND MERGER SUB. (a) During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement and the Effective Time, the Parent agrees as to itself and its Subsidiaries (except to the extent that the Company shall otherwise consent in writing) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensers, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. The Parent shall promptly notify the Company of any event or occurrence or emergency not in the ordinary course of its business, or the business of any of its subsidiaries and any material event involving or adversely affecting the Parent each or its business. 4.3 NO SOLICITATION. Until the earlier of the Effective Time and the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, the Company will not (nor will the Company permit any of the Company's officers, directors, stockholders, agents, representatives or affiliates to) directly or indirectly, take any of the following actions with any party other than Parent and its designees: (a) solicit, initiate, entertain, or encourage any proposals or offers from, or conduct discussions with or engage in negotiations with, any person relating to any possible acquisition of the Company (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company; (b) provide information with respect to it to any person, other than Parent, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such person with 34 regard to, any possible acquisition of the Company (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company; (c) enter into an agreement with any person, other than Parent, providing for the acquisition of the Company (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company; or (d) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of the Company (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company by any person, other than by Parent. The Company shall immediately cease and cause to be terminated any such contacts or negotiations with third parties relating to any such transaction or proposed transaction. Except as contemplated by this Agreement (including, without limitation, the disclosure to the Company's stockholders contemplated by Section 5.1(c) below), disclosure by the Company of the terms hereof (other than the prohibition of this section) shall be deemed to be a violation of this Section 4.3. ARTICLE 5. ADDITIONAL AGREEMENTS 5.1 SALE OF SHARES: STOCKHOLDER MATTERS. (a) Sale of Shares. The parties hereto acknowledge and agree that the that shares of Parent Common Stock issuable to the stockholders pursuant to Sections 1.6 and 1.7 hereof, shall constitute "restricted securities" within the meaning of the Securities Act. The certificates for shares of Parent Common Stock to be issued in the Merger shall bear appropriate legends to identify such privately placed shares as being restricted under the Securities Act and to comply with applicable state securities laws. It is acknowledged and understood that Parent is relying upon the written representations made by each stockholder in the Stockholder Questionnaire in determining the availability of exemptions from the registration and qualification provisions of applicable securities laws for the issuance of the Parent Common Stock in the Merger. (b) Stockholder Questionnaire. The Company will use reasonable efforts to cause each stockholder of the Company to execute and deliver to Parent a Stockholder Questionnaire in form reasonably acceptable to the Parent (the "Stockholder Questionnaire"). (c) Company Stockholder Approval. As promptly as practicable after the execution of this Agreement, the Company shall submit this Agreement and the transactions contemplated hereby to its stockholders for approval and adoption as provided by Delaware Law and the Company's Certificate of Incorporation and Bylaws. The Company shall use its best efforts to solicit and obtain the written consent of its stockholders to approve the Merger and this Agreement and to enable the Closing to occur as promptly as practicable. (d) Additional Assurances. At the request of Parent, the Company shall use its best efforts to cause the Company's stockholders to execute and deliver to Parent such instruments and do and perform such acts and things as may be necessary or desirable for complying with all applicable securities laws and state corporate law. 35 5.2 ACCESS TO INFORMATION. Each party shall afford the others and their accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Effective Time to (a) all of its properties, books, contracts, commitments and records, and (b) all other information concerning its business, properties and personnel (subject to restrictions imposed by applicable law)as the others may reasonably request, subject, in the case of Parent, to reasonable limits on access to its technical and other non-public information. No information or knowledge obtained in any investigation pursuant to this Section 5.2 shall affect or be deemed to modify any representation or warranty contained herein or, except as provided by Section 6.3(n), the conditions of the parties to consummate the Merger. 5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees that such information or knowledge obtained in any investigation pursuant to Section 5.2, or pursuant to the negotiation and execution of this Agreement or the effectuation of the transactions contemplated hereby shall constitute "Confidential Information" as defined in the Confidentiality Agreement between Parent and the Company dated July 21, 2000 (the "Confidentiality Agreement"), and shall be subject to all of the restrictions applicable to Confidential Information, including without limitation the restrictions on disclosure and use, contained in the Confidentiality Agreement. 5.4 INTELLECTUAL PROPERTY. Parent and the Company each agree that prior to the Merger, any and all intellectual property, including trade secrets, created or developed by either party shall remain the exclusive property of the party who created or developed such property, notwithstanding the sharing of information prior to the Merger. 5.5 EXPENSES. All fees and expenses incurred in connection with the Merger including, without limitation, all legal, accounting, financial advisory, consulting, investment banking, broker and finder fees and expenses and all other fees and expenses of third parties (collectively, "Third Party Expenses") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby shall be the obligation of the respective party incurring such fees and expenses; provided, however, that if the Closing occurs, the Parent shall cause all such Third Party Expenses of the Company to be paid in accordance with the Parent's usual payment practices. 5.6 PUBLIC DISCLOSURE. Unless otherwise required by law, prior to the Effective Time no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by the Company unless approved by the Parent prior to release, provided that such approval shall not be unreasonably withheld. 36 5.7 CONSENTS. The Company shall use its best efforts to obtain the consents, waivers and approvals under any of the Contracts as may be required in connection with the Merger (all of such consents, waivers and approvals are set forth in Company Schedules) so as to preserve all rights of and benefits to the Company thereunder. 5.8 FIRPTA COMPLIANCE. On or prior to the Closing Date, the Company shall deliver to Parent a properly executed statement in a form reasonably acceptable to Parent for purposes of satisfying Parent's obligations under Treasury Regulation Section 1.1445-2(c)(3). 5.9 REASONABLE EFFORTS. Subject to the terms and conditions provided in this Agreement, each of the parties hereto shall use its reasonable efforts to ensure that its representations and warranties remain true and correct in all material respects, and to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents and approvals, to effect all necessary registrations and filings, and to remove any injunctions or other impediments or delays, legal or otherwise, in order to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement; provided, however, that Parent shall not be required to agree to any divestiture by Parent or the Company or any of Parent's subsidiaries or affiliates of shares of capital stock or any business, assets or property of Parent or its subsidiaries or affiliates or the Company or its affiliates, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. 5.10 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to Parent of (i) the occurrence or non-occurrence of any event, the occurrence or nonoccurrence of which is likely to cause any representation or warranty of the Company contained in this Agreement to be untrue or inaccurate at or prior to the Effective Time and (ii) any failure of the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.10 shall not limit or otherwise affect any remedies available to Parent. 5.11 CERTAIN BENEFIT PLANS. Parent shall take such reasonable actions as are necessary to allow eligible employees of the Company as of the Effective Time to participate in the benefit programs of Parent as soon as practicable after the Effective Time. 37 5.12 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at the request of the other party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions and contemplated hereby. 5.13 AMERICAN STOCK EXCHANGE LISTING. Parent shall cause the shares of Parent Common Stock issuable, and those required to be reserved for issuance, in connection with the Merger, to be authorized for listing on the American Stock Exchange, subject to official notice of issuance. 5.14 COMPANY AUDITORS. The Company will use its commercially reasonable efforts to cause its management and its independent auditors to facilitate on a timely basis (i) the preparation of financial statements (including pro forma financial statements if required) as required by Parent to comply with applicable SEC regulations and (ii) the review of the Company's audit work papers for up to the past three years, including the examination of selected interim financial statements and data. 5.16 EMPLOYEES. (a) Subject to the provisions of applicable law and the terms of the Parent's employee benefit plans, the Parent will, or will cause the Surviving Corporation to, give individuals who are employed by the Company as of the Effective Time and who remain employees of the Surviving Corporation following the Effective Time (each such employee, an "Affected Employee") full credit for purposes of eligibility, vesting, benefit accrual and determination of the level of benefits under any employee benefit plans or arrangements maintained by the Parent, the Company or any such Subsidiary for such Affected Employees' service with the Company or any affiliate thereof to the same extent recognized immediately prior to the Effective Time. (b) Subject to the provisions of applicable law and the terms of the Parent's employee benefit plans, the Parent will, or will cause the Surviving Corporation to (i) waive all limitations as to pre-existing conditions exclusions and waiting periods with respect to participation and coverage requirements applicable to the Affected Employees under any welfare benefit plans that such employees may be eligible to participate in after the Effective Time, other than limitations or waiting periods that are already in effect with respect to such employees and that have not been satisfied as of the Effective Time under any welfare plan maintained for the Affected Employees immediately prior to the Effective Time, and (ii) provide each Affected Employee with credit for any co-payments and deductibles paid prior to the Effective Time in satisfying any applicable deductible or out-of-pocket requirements under any welfare plans that such employees are eligible to participate in after the Effective Time. (c) As of the Effective Time, the Parent shall expressly assume and agree to perform in accordance with their terms, all of the Employee Agreements set forth on Schedule 2.23(b). 38 (d) Notwithstanding the foregoing, the Parent agrees to provide or to cause the Surviving Corporation to provide Affected Employees, for a period of one year following the Effective Time, with employee benefit plans or arrangements that are, in the aggregate, not less favorable than those provided to Affected Employees immediately prior to the Effective Time. The Parent agrees to provide Affected Employees with a written description of such plans and arrangements promptly following the Effective Time. (e) No later than the first anniversary of the Effective Time, the Affected Employees who remain in the employ of the Parent or any of its Subsidiaries shall be eligible to participate in the Parent's employee benefit plans and arrangements in which similarly situated employees of the Parent or affiliates of the Parent participate, to the same extent as such similarly situated employees of the Parent or affiliates of the Parent. (f) As soon as practicable after the Effective Time, the Parent shall file a registration statement on Form S-8 (or any successor or other appropriate form) with respect to the shares of Company Capital Stock subject to the Assumed Options and shall use its best efforts to maintain the effectiveness of such registration statement (and maintain the current status of the prospectus or prospectuses contained therein). ARTICLE 6. CONDITIONS TO THE MERGER 6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Closing of the following conditions: (a) Stockholder Approval. This Agreement and the Merger shall have been approved and adopted by the stockholders of the Company by the requisite vote under Delaware Law and the Company's Certificate of Incorporation. (b) Government Approvals. All approvals of governments and governmental agencies necessary to consummate the transactions hereunder shall have been received. (c) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger shall be in effect. 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by the Company. 39 (a) Representations and Warranties. The representations and warranties of Parent and Merger Sub contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a material adverse effect on Parent; and the Company shall have received a certificate to such effect signed on behalf of Parent by the chief executive officer and the chief financial officer of Parent. (b) Agreements and Covenants. Parent and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Effective Time, and the Company shall have received a certificate to such effect signed by the chief executive officer of Parent. (c) Election of John L. Thonet as a Director and Chief Operating Officer. John L. Thonet shall have been elected a director and the Chief Operating Officer of the Parent as of the Closing Date. (d) Employment of Company Employees. The Parent shall have executed and delivered to each of John L. Thonet, Ricardo Velez, Patricia Reilly, and Gustavo Barillas an Executive Employment Agreement in substantially the form of Exhibit 6.2(d) attached hereto and shall have extended offers of employment to the other employees of the Company. (e) Option Grants to Employees of the Company. The Parent shall have granted options to acquire an aggregate of Five Hundred Thousand (500,000) shares of Common Stock of the Parent to take effect as of the Effective Time to such employees of the Surviving Corporation as shall be designated by John L. Thonet on or prior to the Effective Time. Such options shall be exercisable for a term of ten (10) years (subject to termination, in accordance with the provisions of the Storage Computer Corporation 1999 Stock Incentive Plan (the "Plan"), in the event the employment of the option holder with the Parent or any Subsidiary is terminated prior to exercise), shall be subject to vesting over a term of four (4) years, shall be exercisable at an exercise price equal to the market price of the Parent Common Stock at the Effective Time, and shall be granted under the Plan using the Parent's standard form of option agreement. (f) Third Party Consents. The Company shall have been furnished with evidence satisfactory to it that Parent has obtained the consents, approvals and waivers set forth in Schedule 6.2(f). (g) Legal Opinion. The Company shall have received a legal opinion from Peabody & Arnold LLP, counsel to Parent, in form and substance reasonably acceptable to counsel for the Company. 40 6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of Parent and Merger Sub to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by Parent: (a) Representations and Warranties. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on the Company or Parent; and Parent and Merger Sub shall have received a certificate to such effect signed on behalf of the Company by the chief executive officer and chief financial officer of the Company. (b) Agreements and Covenants. The Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be preformed or complied with by it on or prior to the Effective Time, and Parent and Merger Sub shall have received a certificate to such effect signed by the chief executive officer of the Company. (c) Third Party Consents. Parent shall have been furnished with evidence satisfactory to it that the Company has obtained the consents, approvals and waivers set forth in Schedule 6.3(c). (d) Legal Opinion. Parent shall have received a legal opinion from Lynch, Brewer, Hoffman & Sands LLP, special counsel to the Company, in form and substance reasonably acceptable to counsel for the Parent. (e) Stockholder Questionnaire. Each of the Company's stockholders shall have delivered to Parent an executed Stockholder Questionnaire which shall be in full force and effect, or the Company shall have provided Parent with evidence satisfactory to Parent in its sole discretion as to the status of each of the Company's stockholders that has not delivered to Parent an executed Stockholder Questionnaire as "accredited" as defined in Regulation D. (f) Power of Attorney. Each holder of shares of Company Capital Stock outstanding immediately prior to the Effective Time shall have delivered to the Securityholder Agent an executed power of attorney in the form approved by Parent which shall be in full force and effect appointing the Securityholder Agent as the attorney in fact for such stockholder to take all actions on behalf of the stockholder that the Securityholder Agent deems necessary or desirable in connection with the Merger and releasing Parent from all claims related to actions taken in reliance on certificates or instructions of the Securityholder Agent, and copies of each executed power of attorney shall have been delivered to Parent. 41 (g) Material Adverse Change. There shall not have occurred any material adverse change in the business, assets (including intangible assets), liabilities, financial condition or results of operations of the Company since the date of the Balance Sheet. (h) Acceleration and Termination of Terminated Options. All of the Terminated Options shall have been accelerated and terminated. (i) Amendment of Assumed Options and the GMC Warrant. The Company and each holder of an Assumed Option shall have executed an amendment modifying the terms of the Assumed Option and the GMC Warrant in a form acceptable to Parent. (j) Resignation of Directors and Officers. The directors and officers of the Company in office immediately prior to the Effective Time shall have resigned as directors and officers of the Surviving Corporation effective immediately following the Effective Time. (k) Dissenters' Rights. No holder of any outstanding shares of the Company Capital Stock shall have exercised, nor shall there be any continued right to exercise, appraisal, dissenters' or similar rights under Delaware Law with respect to any such shares by virtue of the Merger. (l) Due Diligence Investigation. Parent shall have completed its due diligence investigation of the Company's business to Parent's satisfaction, provided that no information or knowledge obtained in such investigation shall affect or be deemed to modify any representation or warranty of the Company contained herein. (m) Amount of Certain Company Liabilities. The amount of the Third Party Expenses of the Company shall not exceed in the aggregate $30,000 immediately prior to the Effective Time. (n) Fairness Opinion. The Board of Directors of Parent shall have received a written opinion from Parent's investment banker, in form and substance acceptable to the Board of Directors of the Parent, as to the fairness to Parent's stockholders, of the Merger. ARTICLE 7. ESCROW 7.1 ESCROW PERIOD. Subject to the following requirements, the Escrow Fund shall be in existence immediately following the Closing Date and terminate at 5:00 p.m., Boston time, on the earlier of (a) the first anniversary of the Closing Date or (b) the date on which there is a Release Event (as defined below) (the "Escrow Period"), provided that the Escrow Period shall not terminate with respect to such amount (or some portion thereof), that together with the aggregate amount remaining in the Escrow Fund is necessary in the reasonable judgment of Parent, subject to the objection of the Securityholder Agent (as defined in Section 7.2(g) below) and the subsequent arbitration of the matter in the manner provided in Section 7.2(f) hereof, to satisfy any unsatisfied claims concerning facts and circumstances existing prior to the termination of such Escrow Period 42 specified in any Officer's Certificate delivered to the Escrow Agent (as defined in Section 7.2(a) below) prior to termination of such Escrow Period. As used herein, the term "Release Event" shall meant: (i) the cessation of the Parent's operations; (ii) the merger or consolidation of the Parent with another entity in a transaction in which the Parent is not the surviving entity; (iii) the sale or other transfer of substantially all of the Parent's operating assets; or (iv) the transfer in a single transaction or in a series of related transactions other than a public offering of stock of the Company of more than fifty percent (50%) of the capital stock of Parent. 7.2 ESCROW ARRANGEMENTS. Escrow Fund. As of the Effective Time, the Company's stockholders will be deemed to have received and deposited with the Escrow Agent 200,000 shares of Parent Common Stock (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by Parent after the Effective Time)(the "Escrow Amount") without any act of any stockholder. Within ten (10) days after the Closing Date, the Escrow Amount, without any act of any stockholder, will be deposited with an institution acceptable to Parent and the Securityholder Agent as escrow agent (the "Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the terms set forth herein and at Parent's cost and expense. The portion of the Escrow Amount contributed on behalf of each stockholder of the Company shall be in proportion to the aggregate Parent Common Stock which such holder would otherwise be entitled to receive under Section 1.7. The Escrow Fund shall be available to compensate Parent and its affiliates for any claims, losses, liabilities, damages, deficiencies, costs and expenses, including reasonable attorneys' fees and expenses, and expenses of investigation and defense (hereinafter individually a "Loss" and collectively "Losses") incurred by Parent, its officers, directors, or affiliates (including the Surviving Corporation) directly or indirectly as a result of (i) any breach of a representation or warranty of the Company contained in Article II herein (as modified by the Company Schedules), (ii) any failure by the Company to perform or comply with any covenant contained herein, (iii) any Taxes owing by the Company, whether before or after the Closing, as a result of the activities of the Company prior to the Closing, or (iv) any claim by any holder of Company Capital Stock or by any holder of any Assumed Option or the holder of the GMC Warrant that it did not receive the portion of the Merger Consideration to which it was entitled, (such excluded liabilities and obligations, the "Assumed Liabilities"). Notwithstanding the foregoing (i) the Parent shall not assert a claim for a Loss hereunder of less than Ten Thousand Dollars ($10,000), individually, and until the aggregate of such claims exceeds One Hundred Thousand Dollars ($100,000). Nothing herein shall limit the liability of the Company for any such breach of any representation, warranty or covenant if the Merger does not close. As soon as practicable after all claims specified in any officer's Certificate delivered to the Escrow Agent prior to termination of the Escrow Period have been resolved and after the termination of the Escrow Period, the Escrow Agent shall deliver to the stockholders of the Company the remaining portion of the Escrow Fund not required to satisfy such claims. Deliveries of Escrow Amounts to the stockholders of the Company pursuant to this Section 7.2(a) shall be made based on their interest in such Escrow Amounts as of the date of distribution from the Escrow Fund as certified by the Securityholder Agent in an Agent Certificate delivered to Parent and the Escrow Agent no later than fifteen (15) days prior to the date of the distribution from the Escrow Fund. The Escrow Agent shall not be obligated to deliver any Escrow Amounts 43 to the stockholders of the Company pursuant to this Section 7.2(a) unless and until the Securityholder Agent shall have delivered an Agent Certificate to Parent and the Escrow Agent with respect to such Escrow Amounts as required by this Section 7.2(a). (a) Protection of Escrow Fund. (i) The Escrow Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in accordance with the terms of this Agreement and not as the property of Parent and shall hold and dispose of the Escrow Fund only in accordance with the terms hereof. (ii) Any shares of Parent Common Stock or other equity securities issued or distributed by Parent (including shares issued upon a stock split, stock dividend or recapitalization effected by Parent after the Effective Time)("New Shares") in respect of Parent Common Stock in the Escrow Fund which have not been released from the Escrow Fund shall be added to the Escrow Fund and become a part thereof. New Shares issued in respect of shares of Parent Common Stock which have been released from the Escrow Fund shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. Cash dividends on Parent Common Stock shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. (iii) Each stockholder shall have voting rights with respect to the shares of Parent Common Stock contributed to the Escrow Fund by such stockholder (and any voting securities added to the Escrow Fund in respect of such shares of Parent Common Stock). (b) Claims Upon Escrow Fund. (i) Upon receipt by the Escrow Agent at any time on or before the last day of the Escrow Period of a certificate signed by any officer of Parent (an "Officer's Certificate"): (A) stating that Parent has paid or properly accrued or reasonably anticipates that it will have to pay or accrue Losses, and (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation, breach of warranty or covenant to which such item is related, the Escrow Agent shall, subject to the provisions of Section 7.2(f) hereof, deliver to Parent out of the Escrow Fund, as promptly as practicable following expiration of the 30-day period specified in Section 7.2(e) or after the Escrow Agent shall have received written authorization from the Securityholder Agent to make such delivery if such authorization is given prior to the end of the 30-day period, shares of Parent Common Stock held in the Escrow Fund in an amount equal to such Losses. (ii) For purposes of determining the number of shares of Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant to Section 7.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at the average of the closing prices of Parent Common Stock on the American Stock Exchange for the five (5) consecutive trading days ending five (5) trading days prior to the date of the Officer's Certificate. Parent and the Securityholder Agent (as defined below) shall certify such fair market 44 value in a certificate signed by both Parent and the Securityholder Agent, and shall deliver such certificate to the Escrow Agent. (c) Objections of Claims. At the time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate shall be delivered to the Securityholder Agent and Parent shall certify to the Escrow Agent that such duplicate copy has been so delivered. For a period of thirty (30) days after such delivery, the Escrow Agent shall make no delivery to Parent of any shares of Parent Common Stock held in the Escrow Fund pursuant to Section 7.2(d) hereof unless the Escrow Agent shall have received written authorization from the Securityholder Agent to make such delivery. After the expiration of such 30-day period, the Escrow Agent shall make delivery of shares of Parent Common Stock from the Escrow Fund in accordance with Section 7.2(d) hereof, provided that no such payment or delivery may be made if the Securityholder Agent shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent prior to the expiration of such 30-day period. (d) Resolution of Conflicts: Arbitration. (i) In case the Securityholder Agent shall so object in writing to any claim or claims made in any Officer's Certificate, the Securityholder Agent and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Securityholder Agent and Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute shares of Parent Common Stock form the Escrow Fund in accordance with the terms thereof. (ii) If no such agreement can be reached after good faith negotiation, either Parent or the Securityholder Agent may demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. Parent and the Securityholder Agent shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The arbitrators shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrators, to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrators shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys' fees and costs, to the extent as a court of competent law or equity, should the arbitrators determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of a majority of the three arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 7.2(f) hereof, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance therewith. Such decision shall be written and shall be supported by written findings of 45 fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrators. (iii) Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. Any such arbitration shall be held in Boston, Massachusetts under the rules then in effect of the American Arbitration Association. (e) Security Agent of the Stockholders; Power of Attorney. (i) In the event that the Merger is approved, effective upon such vote, and without further act of any stockholder, John L. Thonet shall be appointed as agent and attorney-in-fact (the "Securityholder Agent") for each stockholder of the Company (except such stockholders, if any, as shall have perfected their appraisal or dissenters' rights under Delaware Law), for and on behalf of stockholders of the Company, to give and receive notices and communication, to authorize delivery to Parent of shares of Parent Common Stock from the Escrow Fund in satisfaction of claims by Parent, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Securityholder Agent for the accomplishment of the foregoing. Such agency may be changed by the stockholders of the Company from time to time upon not less than thirty (30) days prior written notice to Parent; provided that none of the Securityholder Agent may be removed unless holders of two-thirds in interest of the Escrow Fund agree to such removal and to the identity of the substituted agent. Any vacancy in the position of the Securityholder Agent may be filled by approval of the holders of a majority in interest of the Escrow Fund. No bond shall be required of the Securityholder Agent, and the Securityholder Agent shall not receive compensation for his or her services. Notice or communications to or from the Securityholder Agent shall constitute notice to or from each of the stockholders of the Company. The Securityholder Agent shall, and are hereby authorized to, act by majority approval as to any matter if there is more than one individual acting as Securityholder Agent at the time the action is taken. (ii) The Securityholder Agent shall not be liable for any act done or omitted hereunder as Securityholder Agent while acting in good faith and in the exercise of reasonable judgement. The stockholders of the Company on whose behalf the Escrow Amount was contributed to the Escrow Fund shall severally indemnify the Securityholder Agent and hold the Securityholder Agent harmless against any loss, liability or expense incurred without negligence or bad faith on the part of the Securityholder Agent and arising out of or in connection with the acceptance or administration of the Securityholder Agent's duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Securityholder Agent. (f) Actions of the Securityholder Agent. A decision, act, consent or instruction of the Securityholder Agent shall constitute a decision of all the stockholders for whom a portion of the Escrow Amount otherwise issuable to them are deposited in the Escrow Fund and shall be final, binding and conclusive upon each of such stockholders, and the Escrow Agent and Parent may rely upon any such decision, act, consent or instruction of the Securityholder Agent as being 46 the decision, act, consent or instruction of each and every such stockholder of the Company. The Escrow Agent and Parent are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Securityholder Agent. (g) Third-Party Claims. In the event Parent becomes aware of a third party claim which Parent believes may result in a demand against the Escrow Fund, Parent shall notify the Securityholder Agent of such claim, and the Securityholder Agent, as representative for the stockholders of the Company, shall be entitled, at the stockholders' expense, to participate in any defense of such claim. Parent shall have the right in its sole discretion to settle any such claim; provided, however, that except with the consent of the Securityholder Agent, no settlement of any such claim with third-party claimants shall alone be determinative of the amount of any claims against the Escrow Fund. In the event that the Securityholder Agent has consented to any such settlement, the Securityholder Agent shall have no power or authority to object under any provision of this Article 7 to the amount of any claim by Parent against the Escrow Fund with respect to such settlement. (h) Escrow Agent's Duties. (i) The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which the Escrow Agent may receive after the date of this Agreement which are signed by an officer of Parent and the Securityholder Agent, and may rely and shall be protected in relying or refraining from acting on any instruction reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow Agent while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. (ii) The Escrow Agent is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court of law, notwithstanding any notices, warning or other communications form any party or any other person to the contrary. In case the Escrow Agent obeys or complies with any such order, judgment or decree of any court, the Escrow Agent shall not be liable to any of the parties hereto or to any other person by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without justification. (iii) The Escrow Agent shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder. (iv) The Escrow Agent shall not be liable for the expiration of any rights under any statute of limitations with respect to this Agreement or any documents deposited with the Escrow Agent. 47 (v) In performing any duties under the Agreement, the Escrow Agent shall not be liable to any party for damages, losses, or expenses, except for gross negligence or willful misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) any action taken or omitted in reliance upon any instrument, including any written statement or affidavit provided for in this Agreement that the Escrow Agent shall in good faith believe to be genuine, nor will the Escrow Agent be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Escrow Agent may consult with legal counsel in connection with Escrow Agent's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by it in good faith in accordance with the advice of counsel. The Escrow Agent is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. (vi) If any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not be required to determine the controversy or to take any action regarding it. The Escrow Agent may hold all documents and shares of Parent Common Stock and may wait for settlement of any such controversy by final appropriate legal proceedings or other means as, in the Escrow Agent's discretion, the Escrow Agent may be required, despite what may be set forth elsewhere in this Agreement. In such event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow Agent may at its option, file an action of inter-pleader requiring the parties to answer and litigate any claims and rights among themselves. The Escrow Agent is authorized to deposit with the clerk of the court all documents and shares of Parent Common Stock held in the Escrow Fund except all cost, expenses, charges and reasonable attorneys' fees incurred by the Escrow Agent due to the inter-pleader action and which the parties jointly and severally agree to pay. Upon initiating such action, the Escrow Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement. (vii) The parties and their respective successors and assigns agree jointly and severally to indemnify and hold the Escrow Agent harmless against all losses, claims, damages, liabilities, and expenses, including reasonable costs of investigation, counsel fees, and disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in connection with the performance of his or her duties under this Agreement, including but not limited to any litigation arising from this Agreement or involving its subject matter. (viii) The Escrow Agent may resign at any time upon giving at least thirty (30) days written notice to the parties; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: the parties shall use their best efforts to mutually agree on a successor escrow agent within thirty (30) days after receiving such notice. If the parties fail to agree upon a successor escrow agent within such time, the Escrow Agent shall have the right to appoint a successor escrow agent authorized to do business in the Commonwealth of Massachusetts. The successor escrow agent shall execute and deliver an instrument 48 accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent. The Escrow Agent shall be discharged from any further duties and liability under this Agreement. (i) Fees. All fees of the Escrow Agent for performance of its duties hereunder shall be paid by Parent. It is understood that the fees and usual charges agreed upon for services of the Escrow Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent renders any service not provided for in this Agreement, or if the parties request a substantial modification of its terms, or if any controversy arises, or if the Escrow Agent is made a party to, or intervenes in, any litigation pertaining to this escrow or its subject matter, the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorney's fees, and expenses occasioned by such default, delay, controversy or litigation. Parent promises to pay these sums upon demand. ARTICLE 8. TERMINATION, AMENDMENT AND WAIVER 8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time: (a) by mutual written consent of the Company and Parent; (b) by Parent or the Company if: (i) the Effective Time has not occurred before 5:00 p. m. (Eastern Daylight Savings Time) on September 30, 2000 (provided that the right to terminate this Agreement under this clause 8.1(b)(i) shall not be available to any party whose willful failure to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date); (ii) there-shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any governmental entity that would make consummation of the Merger illegal; (c) by Parent if it is not in material breach of its obligations under this Agreement and there has been a material breach of representation, warranty, covenant or agreement contained in this Agreement on the part of the Company and (i) such breach has not been cured within five (5) business days after written notice to the Company (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not then be satisfied; 49 (d) by the Company if it is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Parent or Merger Sub and (i) such breach has not been cured within. five (5) business days after written notice to Parent (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied; (e) by the Company if the average of the closing prices of Parent Common Stock on the American Stock Exchange for the five (5) consecutive trading days ending five (5) trading days prior to the Closing Date is less than $5.00 per share. When action is taken to terminate this Agreement pursuant to this Section 8.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action. 8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Merger Sub or the Company, or their respective officer, directors or stockholders, provided that each party shall remain liable for any breaches of this Agreement prior to its termination; and provided further, that provisions of Sections 5.3 and 5.4 and Article 7 of this Agreement shall remain in full force and effect and survive any termination of this Agreement. 8.3 AMENDMENT. Except as is otherwise required by applicable law after the stockholders of the Company approve this Agreement, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. 8.4 EXTENSION: WAIVER. At any time prior to the Effective Time, Parent and Merger Sub, on the one hand, and the Company, on the other, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. 50 ARTICLE 9. GENERAL PROVISIONS 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the consummation of the Merger and shall (except to the extent that survival is necessary to effectuate the intent of such provisions) terminate on the first anniversary of the Closing Date. 9.2 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested)or sent via facsimile (with acknowledgement of complete transmission)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 Sub, to: Storage Computer Corporation Attention: Edward A. Gardner, President 11 Riverside Street Nashua, NH 03062-1373 Telephone: (603) 880-3005 Facsimile: (603) 889-7232 With a copy to: Peabody & Arnold LLP Attention: William E. Kelly, Esq. 50 Rowes Wharf Boston, MA 02110 Telephone: (617 ###-###-####) Facsimile: (617 ###-###-####) (b) If to the Company, to CyberStorage Systems Corporation Millyard Technology Park 75 Pine Street Extension Nashua, NH 03060 Attention: John Thonet, President Telephone: (603) 598-0005 Facsimile: (603) 598-0066 51 With a copy to: Lynch, Brewer, Hoffman & Sands LLP 101 Federal Street Boston, MA 02110 Attention: Owen B. Lynch, Esq. Telephone: (617) 951-0800 Facsimile: (617) 951-0811 (c) If to the Securityholder Agent: John L. Thonet c/o CyberStorage Systems Corporation Millyard Technology Park 75 Pine Street Extension Nashua, NH 03060 Telephone: (603) 598-0005 Facsimile: (603) 598-0066 with a copy to: Lynch, Brewer, Hoffman & Sands LLP 101 Federal Street Boston, MA 02110 Attention: Owen B. Lynch, Esq. Telephone: (617) 951-0800 Facsimile: (617) 951-0811 9.3 INTERPRETATION. The words "include, " "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. Executed counterparts delivered by facsimile transmission shall have the same force and effect as originally executed counterparts delivered personally. 9.5 ENTIRE AGREEMENT: ASSIGNMENT. This Agreement, the Disclosure Document (with the Schedules and Exhibits attached thereto) and the documents and instruments and other agreements among the parties hereto 52 referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that Parent and Merger Sub may assign their respective rights and delegate their respective obligations hereunder to their respective affiliates. 9.6 SEVERABILITY. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonable to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 9.7 OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by any party of any one remedy will not preclude the exercise of any other remedy. 9.8 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each of the parties hereto agrees that process may be served upon them in any manner authorized by the laws of the State of Delaware for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process. 9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 9.10 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and 53 provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 9.11 CORPORATE TRANSACTION INVOLVING PARENT. If after the Effective Time Parent is acquired by merger (including by reverse triangular merger), or is a party to a consolidation, or liquidates, all references to "Parent Common Stock in this Agreement shall thereafter mean, on a per-share basis, the amount of cash, securities and/or other property received by Parent stockholders for their (pre-transaction) Parent Common Stock in such transaction. [Remainder of This Page Intentionally Left Blank] 54 In witness whereof, the parties, by their duly authorized officers, have executed this Agreement and Plan of Reorganization as of the date first above written. STORAGE COMPUTER CORPORATION By: /s/ Theodore J. Goodlander --------------------------- Name: Theodore J. Goodlander Title: Chief Executive Officer CYBER ACQUISITION CORPORATION By: /s/ Edward A. Gardner -------------------------- Name: Edward A. Gardner Title: President CYBERSTORAGE SYSTEMS CORPORATION By:/s/ John L. Thonet ---------------------------- Name: John L. Thonet Title: President