Document:

Prepared by MerrillDirect

 

Exhibit 10.1

ASSET PURCHASE AGREEMENT

by and among

ADS MB Corporation

Alliance Data Systems
Corporation

and

Mail Box Capital Corporation

Kenneth W. Murphy,

C. Cleave Buchanan, Jr.

Robert Meador,

John Erickson,

Richard Bainter,

Earl Johnson,

Charles Buchanan, and

Stacy Riffe

Dated as of September 1, 2001

 

 

 

TABLE OF CONTENTS

	 	 	 
	ARTICLE 1 SALE
  OF ASSETS AND TERMS OF PAYMENT	 
	 	1.1	The Sale.	 
	 	1.2	Purchase Price;
  Manner of Payment.	 
	 	1.3	Allocation	 
	 	1.4	Transfer Taxes	 
	 	1.5	Reporting	 
	 	 	 	 
	ARTICLE 2 THE CLOSING	 
	 	2.1	Time and Place of Closing	 
	 	2.2	Deliveries by the Seller	 
	 	2.3	Deliveries by
  the Buyer and/or the Parent	 
	 	 	 	 
	ARTICLE 3
  REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS	 
	 	3.1	Ownership	 
	 	3.2	Authority Relative
  to this Agreement	 
	 	3.3	Consents and
  Approvals; No Violation.	 
	 	3.4	Litigation	 
	 	3.5	Brokers	 
	 	 	 	 
	ARTICLE 4
  REPRESENTATIONS AND WARRANTIES OF THE SELLER	 
	 	4.1	Organization	 
	 	4.2	Authorization	 
	 	4.3	Consents and Approvals; No
  Violation.	 
	 	4.4	Capitalization	 
	 	4.5	Financial
  Statements and Books and Records.	 
	 	4.6	Absence of Certain
  Changes or Events	 
	 	4.7	Title to Assets	 
	 	4.8	Adequacy of Assets	 
	 	4.9	Indebtedness	 
	 	4.10	Contracts	 
	 	4.11	Legal Proceedings	 
	 	4.12	Employee Benefit Plans.	 
	 	4.13	Employees.	 
	 	4.14	Taxes	 
	 	4.15	Intellectual Property.	 
	 	4.16	Compliance with Law; Permits	 
	 	4.17	Accounts Receivable	 
	 	4.18	Insurance	 
	 	4.19	Real Property	 
	 	4.20	Environmental Matters.	 
	 	4.21	Undisclosed Liabilities	 
	 	4.22	Subsidiaries
  and Affiliate Relationships	 
	 	4.23	Solvency.	 
	 	4.24	Suppliers and Customers	 
	 	4.25	Brokers	 
	 	4.26	Full Disclosure	 
	 	 	 
	ARTICLE 5
  REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE PARENT	 
	 	5.1	Organization	 
	 	5.2	Authority
  Relative to this Agreement	 
	 	5.3	Consents and
  Approvals; No Violation	 
	 	5.4	Litigation	 
	 	5.5	Solvency.	 
	 	5.6	Brokers	 
	 	 	 
	ARTICLE 6 COVENANTS OF
  THE PARTIES	 
	 	6.1	Expenses	 
	 	6.2	Reasonable Efforts	 
	 	6.3	Filings	 
	 	6.4	Public Announcements	 
	 	6.5	Further Assurances.	 
	 	6.6	Employee Matters.	 
	 	6.7	Non-Competition;
  Non-Solicitation.	 
	 	6.8	Access to Information	 
	 	 	 
	ARTICLE 7 INDEMNIFICATION	 
	 	7.1	Indemnification
  by the Seller and the Stockholders	 
	 	7.2	Indemnification
  by the Buyer and Parent	 
	 	7.3	Procedure For
  Non-Third Party Claims	 
	 	7.4	Procedure For Third
  Party Claims.	 
	 	7.5	Exclusive Remedy	 
	 	7.6	Survival of
  Representations and Warranties.	 
	 	7.7	Indemnity Notice	 
	 	7.8	Indemnification
  Basket and Ceiling	 
	 	 	 
	ARTICLE 8 DISPUTE RESOLUTION	 
	 	8.1	Exclusive
  Procedure for Dispute Resolution	 
	 	8.2	Negotiation Between
  Executives.	 
	 	8.3	Mediation	 
	 	8.4	Litigation	 
	 	8.5	Provisional Remedies	 
	 	8.6	Tolling Statutes of
  Limitation	 
	 	8.7	Performance to Continue	 
	 	 	 
	ARTICLE 9 MISCELLANEOUS
  PROVISIONS	 
	 	9.1	Amendment and Modification	 
	 	9.2	Waiver of Compliance;
  Consents	 
	 	9.3	Notices	 
	 	9.4	GOVERNING LAW	 
	 	9.5	Assignment	 
	 	9.6	Counterparts	 
	 	9.7	Interpretation.	 
	 	9.8	Entire Agreement	 
	 	9.9	Severability	 
	 	9.10	No Third Party Beneficiary	 
	 	 	 
	EXHIBITS	 	 
	 	 	 
	Exhibit A	Form of Assignment and Assumption
  Agreement	 
	Exhibit B	Form of Earnout Agreement	 
	Exhibit C	Form of Bill of Sale	 
	Exhibit D	Form of Trademark Assignment Agreement	 
	Exhibit E	Form of Consulting Agreement	 
	Exhibit F	Form of AAFES Side Letter	 
							

 

 

ASSET PURCHASE AGREEMENT

             ASSET PURCHASE AGREEMENT, dated as
of September 1, 2001 (the “Agreement”), between Mail Box Capital Corporation, a
Delaware corporation (the “Seller”), ADS MB Corporation, a Delaware corporation
(the “Buyer”),
Alliance Data Systems Corporation, a Delaware corporation (the “Parent”),
Kenneth W. Murphy, C. Cleave Buchanan, Jr., Robert Meador, John
Erickson, Richard Bainter, Earl Johnson, Charles Buchanan, and Stacy Riffe (the
“Stockholders”).

RECITAL

             The Seller desires to sell to the
Buyer, and the Buyer desires to buy from the Seller, the Assets (as hereinafter
defined) and the business of the Seller relating to automated presort, laser
printing, webb printing, fulfillment, list rental, and data processing,
maintenance, database management, disaster recovery and response analysis
related to any of the foregoing and other products ancillary or relating to or
derived from any of the foregoing (all of the foregoing being hereinafter
referred to as the “Business”).

STATEMENT
OF AGREEMENT

             In consideration of the foregoing
and the mutual covenants, representations, warranties and agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree that, subject to the conditions herein contained:

ARTICLE 1

SALE OF ASSETS AND TERMS
OF PAYMENT

             1.1        The Sale.

                           (a)         Upon the terms and subject to the
conditions of this Agreement, on the Closing Date (as hereinafter defined), the
Seller shall sell, convey, transfer, assign and deliver to the Buyer, and the
Buyer shall purchase and acquire from the Seller, all of the Seller’s right,
title and interest in and to all business, properties, assets, machinery,
equipment, furniture, franchises, goodwill and rights of the Seller of every
nature, kind and description, tangible and intangible, owned or leased,
personal or mixed, including, without limitation, equipment, inventory,
receivables, trade names and trademarks, wherever located, pertaining and/or
related to or used in the Business, whether or not carried or reflected on the
books or records of the Seller, and all of the other Assets hereinafter
referred to, but excluding the Excluded Assets (as hereinafter defined), in
each case as the same exist on the date hereof, in accordance with the terms of
this Agreement.  All of the foregoing
(other than the Excluded Assets) are herein collectively referred to as the
“Assets” and include, without limitation, the following:

                                        (i)          All owned furniture, fixtures,
computers (including both hardware and software) and other assets used in
connection with the operation of the Business as listed in Section 1.1(a)(i)
of the disclosure schedule delivered to the Buyer by the Seller on the date
hereof (the “Disclosure
Schedule”);

                                        (ii)         All machinery, vehicles and equipment
owned by Seller, including, but not limited to, all machinery, vehicles and
equipment listed on Section 1.1(a)(ii) of the Disclosure Schedule;

                                        (iii)        All inventory, supplies and materials of
Seller related to the Business as listed on Section 1.1(a)(iii) of the Disclosure
Schedule, including all inventory in the hands of suppliers for which Seller is
committed with respect to the Business as of the Closing Date;

                                        (iv)       All receivables and all other evidences
of indebtedness owed to the Seller, including, without limitation, those listed
on Section 1.1(a)(iv) of the Disclosure Schedule;

                                        (v)        All leases of real property (including,
without limitation, to the extent leased by Seller, land, buildings,
structures, fixtures, appurtenances and improvements) relating to the Business,
including, without limitation, the leases relating to real property listed on Section
1.1(a)(v) of the Disclosure Schedule (the “Leases”);

                                        (vi)       All contracts to which Seller is a party
listed on Section 1.1(a)(vi) of the Disclosure Schedule;

                                        (vii)      All of Seller’s right, title and interest
in the Intellectual Property (as hereinafter defined) used in connection with
the Business, including, without limitation, those items listed on Section
1.1(a)(vii) of the Disclosure Schedule; and

                                        (viii)     The current assets of Seller as set forth
on the balance sheet attached hereto as Section 1.1(a)(viii) of the
Disclosure Schedule, including, without limitation, any security deposits
transferred to Buyer under the Leases.

                           (b)        Notwithstanding anything in this
Agreement to the contrary, specifically excluded from the Assets are the assets
of the Business listed on Section 1.1(b) of the Disclosure Schedule
(collectively, the “Excluded
Assets”).

                           (c)         The Seller shall sell, transfer, convey
and assign to the Buyer good and valid title to all of the Assets at the
Closing, free and clear of any liens, pledges, charges, mortgages, security
interests, restrictions, easements, liabilities, claims, encumbrances or rights
of others of every kind and description (collectively, “Liens”), except for
Permitted Liens (as hereinafter defined).

                           (d)        (i)          Upon
the terms and subject to the conditions of this Agreement, on the Closing Date,
the Buyer shall execute and deliver to the Seller an Assignment and Assumption
Agreement in the form of Exhibit A (the “Assignment Agreement”) pursuant to which
the Seller shall assign and the Buyer shall assume all of the liabilities and
obligations of the Business set forth in Section 1.1(d)(i) of the
Disclosure Schedule (collectively, the “Assumed Liabilities”) other than the Excluded
Liabilities (as hereinafter defined). 
Except for the Assumed Liabilities expressly set forth in Section
1.1(d)(i) of the Disclosure Schedule, the Buyer shall not assume any other
debts, commitments, obligations or liabilities of the Seller or the Business.
Notwithstanding the foregoing, nothing contained herein shall require Buyer to
pay, perform or discharge any obligations assumed so long as Buyer shall in
good faith contest the amount or validity thereof, provided that the foregoing
shall not relieve Buyer of its obligations to indemnify Seller from any Assumed
Liabilities pursuant to the terms of this Agreement.

                                        (ii)         Notwithstanding anything in this
Agreement to the contrary, specifically excluded from the Assumed Liabilities
are the debts, commitments, obligations and liabilities of the Seller and the
Business listed on Section 1.1(d)(ii) of the Disclosure Schedule
(collectively, the “Excluded Liabilities”)
all of which shall be retained by the Seller.

             1.2        Purchase Price; Manner of Payment.

                           (a)         Upon the terms and subject to the
conditions contained in this Agreement, in reliance upon the representations,
warranties and agreements of the Seller contained herein, and in consideration
of the aforesaid sale, assignment, transfer and delivery of the Assets, on the
Closing Date the Buyer will assume the Assumed Liabilities and will discharge,
pursuant to appropriate payoff letters or otherwise, immediately subsequent to
the Closing the debt of Seller listed
on Section 1.2 of the Disclosure Schedule with an aggregate principal
and interest balance of $32,500,000.00 (the “Up-Front Purchase Price”) plus an
additional aggregate principal and interest balance of $600,289.57. At the
Closing (as hereinafter defined), the Buyer shall deliver the Up-Front Purchase
Price by wire transfer of immediately available funds to the accounts set forth
across from each debtor specified in Section 1.2 of the Disclosure
Schedule.

                           (b)        Pursuant to the terms and conditions of
an Earnout Agreement by and between Buyer and Seller in the form attached
hereto as Exhibit B (the “Earnout Agreement”), the Buyer shall pay
Seller the Earnout Amount (as defined therein), if any, calculated in
accordance with the terms and conditions of the Earnout Agreement and subject
to the Buyer’s right of set-off contained therein.  The Up-Front Purchase Price plus the Earnout Amount is referred
to herein as the “Final
Purchase Price.”

             1.3        Allocation.  The Buyer and Seller agree that they will
use their best efforts to timely enter into an agreement after the Closing
concerning the allocation of the Purchase Price for purposes of Section 1060 of
the Code, and Buyer and Seller will use that Purchase Price allocation for all
federal, state and local tax filings.

             1.4        Transfer
Taxes.  The Seller shall pay and be responsible for
all transfer taxes attributable to the transactions contemplated by this
Agreement, if any.

             1.5        Reporting. 
The Buyer and Seller agree that, for tax purposes, they will report the
transactions contemplated by this agreement as if they were effective September
1, 2001.

 

ARTICLE 2

THE
CLOSING

             2.1        Time and Place of
Closing.  Upon the terms and subject to the conditions
contained in this Agreement, the closing of the transactions contemplated by
this Agreement (the “Closing”) will take place at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue, Suite 4100,
Dallas, Texas at 10:00 A.M. (local time) on such date as the parties may agree,
provided that the Closing Date shall be no later than September 14, 2001.  The date on which the Closing actually
occurs is hereinafter referred to as the “Closing Date.”

             2.2        Deliveries by the Seller.  At the Closing, the Seller will deliver or
cause to be delivered to the Buyer duly executed instruments of transfer and
assignment of the Assets in form reasonably satisfactory to the Buyer, subject
only to Permitted Liens, sufficient to vest in the Buyer good and valid title
to the Assets to be conveyed at the Closing in accordance with the terms of
this Agreement.  In addition, at the
Closing, the Seller shall deliver to Buyer:

                           (a)         the originals (or if not in existence,
copies) of all Material Contracts (as hereinafter defined) and the originals of
all books, records and files included in the Assets, unless copies have
otherwise previously been provided to Buyer or made available to Buyer;

                           (b)        a certificate dated as of the Closing
Date and signed by the secretary of Seller, certifying the certificate of
incorporation, bylaws, board of directors and stockholders approvals and the
incumbency of the officers authorized to execute this Agreement and the
documents contemplated herein;

                           (c)         a certificate of good standing of the
Seller issued as of a recent date by the Secretary of State of the Seller’s
jurisdiction of incorporation (Delaware) and by the Secretary of State of the
State of Texas;

                           (d)        executed counterparts reasonably
satisfactory in form and substance to the Buyer of all consents listed in Section
2.2(d) of the Disclosure Schedule (the “Consents”), other than those listed on Section
4.3 of the Disclosure Schedule;

                           (e)         the Bill of Sale, by and between the
Buyer and the Seller in the form attached hereto as Exhibit C, duly
executed by the Seller (the “Bill of Sale”);

                           (f)         the Assignment Agreement, by and
between the Buyer and the Seller in the form attached hereto as Exhibit A,
duly executed by Seller;

                           (g)        the Earnout Agreement, by and between
the Buyer, the Parent and the Seller in the form attached hereto as Exhibit
B, duly executed by the Seller;

                           (h)        the Trademark Assignment Agreement, by
and between the Seller and the Buyer in the form attached hereto as Exhibit
D, duly executed by the Seller (the “Trademark Assignment Agreement”);

                           (i)          a consulting agreement duly executed
by each of the individuals listed on Section 2.2(j) of the Disclosure
Schedule, in the form attached hereto as Exhibit E (the “Consulting Agreement”);

                           (j)          employment offers duly executed by
each of the individuals listed on Section 2.2(k) of the Disclosure
Schedule (the “Employment
Offers”);

                           (k)         payoff letters in the form reasonably
acceptable to Buyer from each of the lenders of the Seller listed in Section
1.2 of the Disclosure Schedule and indicated thereon to be delivering
payoff letters;

                           (l)          a side letter agreement in the form
attached hereto as Exhibit F (“AAFES Side Letter”) duly executed by Seller
and Blair;

                           (m)        all documents necessary to change the
name of the Seller and to terminate all of its assumed name filings; and

                           (n)        all other documents required by the
terms of this Agreement to be delivered to the Buyer at the Closing.

             2.3        Deliveries by the Buyer
and/or the Parent.  At the Closing, the Buyer and/or the Parent
shall deliver or cause to be delivered:

                           (a)         the Up-Front Purchase Price, including
evidence of repayment of the debt listed in Section 1.2 of the
Disclosure Schedule;

                           (b)        a certificate of good standing of the
Buyer and the Parent, issued as of a recent date by the Secretary of State of
the State of Delaware;

                           (c)         a certificate dated as of the Closing
Date and signed by the secretary of each of the Buyer and the Parent,
certifying the certificate of incorporation, bylaws, board of director
approvals and the incumbency of the officers authorized to execute this
Agreement and the documents contemplated herein;

                           (d)        the Earnout Agreement, duly executed by
the Buyer;

                           (e)         the Assignment Agreement, duly executed
by the Buyer;

                           (f)         the Trademark Assignment Agreement,
duly executed by the Buyer;

                           (g)        the Consulting Agreements, duly executed
by the Buyer;

                           (h)        Employment Offers duly executed by the
Buyer;

                           (i)          the AAFES Side Letter duly executed by
Buyer; and

                           (j)          all other documents required by the
terms of this Agreement to be delivered to the Seller at the Closing.

 

ARTICLE 3

REPRESENTATIONS
AND WARRANTIES OF THE STOCKHOLDERS

             Each Stockholder hereby severally,
but not jointly, represents and warrants to the Buyer and the Parent, except as
set forth in the applicable section of the Disclosure Schedule, as follows:

             3.1        Ownership.  Such Stockholder is the record and
beneficial owner of the number of shares of common stock, par value $0.01 per
share, of the Seller (the “Common Stock”) set forth opposite such Shareholder’s
name on Section 3.1 of the Disclosure Schedule (the “Subject Shares”).  The Subject Shares constitute the only
shares, with respect to which such Stockholder is the record or beneficial
owner, of Common Stock or other capital stock of the Seller.  Such Stockholder does not beneficially own
any options, warrants or other rights (whether or not contingent) to acquire
shares of capital stock of the Seller and is not party to any agreement,
understanding, contract or other arrangement with the Seller pursuant to which
such Stockholder may require Seller to repurchase, redeem or otherwise acquire
any of the Subject Shares.  Except as
set forth in Section 4.22 of the Disclosure Schedule, such Stockholder
does not own any assets that are used in the Business.

             3.2        Authority Relative to
this Agreement.  Such Stockholder has the sole right to vote
the Subject Shares set forth opposite its name on Section 3.1 of the
Disclosure Schedule, and, except for a Securityholder’s Agreement, dated
August, 20, 1999, by and among the Seller and the Stockholders, none of such
Subject Shares is subject to any voting trust or other agreement, arrangement
or restriction with respect to the voting of the Subject Shares.  Such Stockholder is either (i) a natural
person with the legal capacity to execute and deliver this Agreement and to
perform his or her obligations hereunder, or (ii) has all requisite power and
authority, to enter into this Agreement and to consummate the transactions
contemplated hereby.  The execution and
delivery of this Agreement by such Stockholder and the performance by such
Stockholder of its obligations hereunder have been duly authorized by all
necessary action on the part of such Stockholder.  This Agreement has been duly executed and delivered by, and
constitutes a valid and binding agreement of such Stockholder, enforceable
against such Stockholder in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors’ rights generally and
by general equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at law).

             3.3        Consents and Approvals;
No Violation.

                           (a)         There is no requirement applicable to
such Stockholder to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation by such Stockholder of the
transactions contemplated by this Agreement.

                           (b)        Except as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and except
as set forth in that certain Securityholders' Agreement, dated August 20,
1999, by and among the Seller and the other signatories thereto, neither the
execution and delivery of this Agreement by such Stockholder nor the
consummation by such Stockholder of the transactions contemplated hereby nor
compliance by such Stockholder with any of the provisions hereof will (i)
result in a breach of or default, or give rise to any right of termination,
cancellation or acceleration under, any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, license, agreement, lease or
other similar material instrument or obligation to which such Stockholder is a
party or by which any of such Stockholder’s Subject Shares may be bound, or
(ii) violate any material order, judgment, writ, injunction, decree, statute,
rule or regulation applicable to such Stockholder or any of such Stockholder’s
Subject Shares.  If the Stockholder is
married and the Subject Shares of the Stockholder constitute community property
or spousal approval is otherwise required for this Agreement to be legal, valid
and binding, then, to the extent so required, this Agreement has been duly
executed and delivered by, and constitutes a valid and binding agreement of,
the Stockholder’s spouse, enforceable against such spouse in accordance with
its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors’ rights generally and
by general equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at law).

             3.4        Litigation.  There are no actions, suits, proceedings or
government investigations pending or, to the knowledge of such Stockholder,
threatened against such Stockholder which seek to question, delay or prevent
the consummation of or would materially impair the ability of such Stockholder
to consummate the transactions contemplated hereby.

             3.5        Brokers.  No broker, finder or other person is
entitled to any brokerage fees, commissions or finder’s fees from such
Stockholder in connection with the transactions contemplated hereby.

ARTICLE 4

REPRESENTATIONS AND
WARRANTIES OF THE SELLER

             The Seller hereby represents and
warrants to the Buyer and the Parent, except as set forth in the applicable
section of the Disclosure Schedule, as follows:

             4.1        Organization.  The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted,
to own or use the properties and assets that it purports to own or use and to
perform all of its obligations under the Material Contracts, except where the
failure to be so existing and in good standing or to have such power and
authority would not, individually or in the aggregate, have a Material Adverse
Effect (as hereinafter defined).  The
Seller is duly qualified to do business as a foreign corporation, and is in
good standing, in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities make such qualification
necessary, except where the failure to be so qualified and in good standing
would not, individually or in the aggregate, have a Material Adverse
Effect.  For all purposes herein, “Material Adverse Effect”
shall mean any state or states of fact, condition or conditions, event or
events, circumstance or circumstances, change or changes, or effect or effects
that individually or in the aggregate (including, without limitation, an
aggregate combination of one or more of the foregoing whether or not related to
each other or involving or affecting the same or different representations,
warranties and/or covenants) are materially adverse to (a) the business,
financial condition, results of operations or prospects of the Business or the
Assets or (b) the ability of Seller to consummate the transactions contemplated
by this Agreement.

             4.2        Authorization.  The Seller has all requisite corporate power
and authority to execute and deliver this Agreement and each other agreement,
document and instrument to be executed or delivered by it contemplated by this
Agreement (the “Seller Documents”)
and to consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement
or the Seller Documents by the Seller and the consummation of the transactions
contemplated hereby and thereby by the Seller have been duly and validly
authorized by all necessary action on the part of the Seller and no other
corporate proceedings on the part of the Seller are necessary to authorize this
Agreement and the Seller Documents or to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and when executed and
delivered at Closing, the Seller Documents will be, duly and validly executed
and delivered by the Seller, and, assuming the due authorization, execution and
delivery by the Buyer and the Parent, this Agreement constitutes, and the
Seller Documents will constitute, legal, valid and binding obligations of the
Seller, enforceable against the Seller in accordance with their terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors’ rights generally and by general equitable principles (regardless of
whether enforceability is considered in a proceeding in equity or at law).

             4.3        Consents and Approvals;
No Violation.

                           (a)         There is no requirement applicable to
the Seller to make any filing with, or to obtain any permit, authorization,
consent or approval of, any governmental or regulatory authority as a condition
to the lawful consummation by the Seller of the transactions contemplated by
this Agreement.

                           (b)        Assuming the payment immediately
subsequent to Closing of those items set forth on Section 1.2 of the
Disclosure Schedule and except as set forth in Section 4.3 of the
Disclosure Schedule, neither the execution and delivery of this Agreement by
the Seller nor the consummation by the Seller of the transactions contemplated
hereby nor compliance by the Seller with any of the provisions hereof will
directly or indirectly (with or without notice or lapse of time):  (i) contravene, conflict with or result in
any breach or violation of any provision of the certificate of incorporation or
bylaws of the Seller or any resolution adopted by the Board of Directors of
Seller or the stockholders of Seller, (ii) result in a breach of or default, or
give rise to any right of termination, cancellation or acceleration under, any
of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, license, agreement, lease or other similar instrument or obligation
to which the Seller is a party or by which any of its properties or assets may
be bound (for purposes hereof, a note, bond, mortgage, indenture, license,
agreement, lease or similar instrument shall be deemed material only if it
involves (A) executory performance of services or delivery of goods or
materials to or by the Seller of an amount in excess of $50,000, (B) the future
expenditure or receipt by the Seller in excess of $50,000, (C) the lease,
rental or occupancy of real or personal property involving the future
expenditure by the Seller of in excess of $50,000 in the current or any ensuing
fiscal year, (D) any agreement pursuant to which the Seller licenses software
or other intellectual property, other than commercially available software
programs generally available to the public which have been licensed to the
Seller pursuant to standard end-user license agreements or (E) in the case of
any note or other obligation involving debt for money borrowed, it involved
debt other than as disclosed on Section 1.2 of the Disclosure Schedule),
(iii) cause Buyer or the Parent to become subject to or liable for the payment
of any Tax, (iv) violate or conflict with any order, judgment, writ,
injunction, decree, or any statute, rule or regulation which is either
applicable to, binding upon or enforceable against the Seller or the Business
or any of the Seller’s properties or assets or (v) result in the imposition or
creation of any Lien upon or with respect to the Assets.

             4.4        Capitalization.  The authorized, issued and outstanding
capital stock of Seller and each subsidiary of Seller and the legal owner of
such capital stock is set forth on Section 4.4 of the Disclosure Schedule.  Except for the Subject Shares, there are not
outstanding any shares of capital stock of the Seller.  Except for warrants to purchase shares of
Common Stock held by William Blair Mezzanine Capital Fund II, L.P. (“Blair”), there are
not outstanding any options, warrants or other rights (whether or not
contingent) to acquire shares of capital stock of the Seller.  There are no outstanding contract
obligations or understandings of the Seller to repurchase, redeem or otherwise
acquire any of the Subject Shares.

             4.5        Financial Statements and
Books and Records.

                           (a)         The Seller has delivered to the Buyer
copies of the June 30, 2001 balance sheet of the Seller, as attached
hereto as Section 4.5(a) of the Disclosure Schedule (the “Balance Sheet”). The
Balance Sheet fairly presents the financial position of the Seller in all
material respects as of its date and has been prepared in conformity with
generally accepted accounting principles applied on a consistent basis, except
as otherwise noted therein and except for lack of footnotes and for normal
year-end adjustments. The books and records of the Seller relating to the
Business are complete and correct in all material respects.

                           (b)        The Seller has delivered to the Buyer
copies of income statements of the Business for the 12-month period ended
December 31, 2000 and the period from August 20, 1999 to December 31, 1999 and
for the six-month periods ended June 30, 2001 and 2000, as attached hereto
as Section 4.5(b) of the Disclosure Schedule (the “Income Statements”).
The Income Statements fairly present the results of operations of the Business
in all material respects for the periods covered thereby and have been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis, except as otherwise noted therein and, with respect to the
interim Income Statements, except for lack of footnotes and for normal year-end
adjustments.

             4.6        Absence of Certain
Changes or Events.  Except as set forth in Section 4.6 of
the Disclosure Schedule or except as permitted by this Agreement, since June
30, 2001, the Business has not (a) suffered any damage, destruction or casualty
loss adversely affecting the Assets or the Business; (b) incurred or discharged
any obligation or liability or entered into any other transaction except in the
ordinary course of business; (c)
suffered any change in its business, financial condition or in
its relationship with its suppliers, customers, distributors, lessors,
licensors, licensees or other third parties which individually or in the
aggregate would have a Material Adverse Effect; (d) other than with respect to
agreements for which the Buyer or the Parent will have no liability after
Closing, increased the rate or terms of compensation or benefits payable to or to
become payable by it to its directors, officers or key employees or increased
the rate or terms of any bonus, pension or other employee benefit plan covering
any of its directors, officers or key employees; (e) incurred any indebtedness
for borrowed money other than in the ordinary course of business and consistent
with past practice; (f) forgiven or canceled any indebtedness owing to it or
waived any claims or rights of material value; (g) sold, leased, licensed or
otherwise disposed of any of its assets other than sales of inventory in the
ordinary course of business and consistent with past practice or dispositions
of assets not material to the Business; (h) created or assumed any mortgage,
lien, security interest or other encumbrance on any of the Assets, except for
Permitted Liens; (i) entered into, amended or terminated any Material Contract,
Lease or Permit (each as hereinafter defined) or any Assumed Liability except
in the ordinary course of its business; or (j) committed pursuant to a legally
binding agreement to do any of the things set forth in clause (b) and clauses
(d) through (i) above.

             4.7        Title to Assets.  The Seller has good and valid title to all
of the assets, properties and rights that it owns or purports to own (including
all right, title and interest in and to the Intellectual Property), free and
clear of all Liens, except Permitted Liens. 
The Seller has a valid leasehold interest or a royalty-free license to
all of the assets, properties and rights that it leases or licenses or purports
to lease or license.  Other than
services rendered by officers and directors of the Seller who are also
stockholders of Seller, the Business does not receive any services from the
Seller or any of its affiliates which are material to the operation and conduct
of the Business.  As used in this
Agreement, the term “Permitted Liens” shall mean and include (i) those
exceptions to title to the properties and assets of the Seller listed in Section
4.7 of the Disclosure Schedule; (ii) statutory liens for current taxes or
assessments not yet due or delinquent; (iii) mechanics’, carriers’, workers’,
repairers’ and other similar statutory Liens arising or incurred in the
ordinary course of business relating to obligations as to which there is no
default on the part of the Seller; (iv) liens securing the obligations listed
on Section 1.2 of the Disclosure Schedule; and (v) such other minor
imperfections in title, charges, easements, restrictions, and encumbrances
which do not materially detract from the value or transferability of or
interfere with the present use of the properties subject thereto or affected
thereby.

             4.8        Adequacy of Assets.  The Assets are free from defects that would
impair their usage in the manner intended, in good and safe operating condition
and repair (ordinary wear and tear excepted), have been maintained in
accordance with normal industry practice, are adequate for the uses to which
they are being put and currently proposed to be put by the Seller and include
all assets, properties and rights which are necessary in the conduct of the
Business as currently conducted and as are necessary for Buyer to conduct its
business in the same manner as the Business has been conducted during the last
12 months.

             4.9        Indebtedness.  Section 4.9 of the Disclosure
Schedule sets forth a complete and accurate list and description of all
instruments or other documents relating to any direct or indirect indebtedness
for borrowed money of the Seller, including any loan agreements, indentures,
mortgages, pledges, hypothecations, deeds of trust, conditional sale or title
retention agreements, security agreements, equipment financing obligations or
guaranties, or other sources of contingent liability in respect of any
indebtedness or obligations to any other person for borrowed money, or letters
of intent or commitment letters with respect to same as well as indebtedness by
way of lease-purchase arrangements, guarantees, undertakings on which others
rely in extending credit and all conditional sales contracts, chattel mortgages
and other security arrangements with respect to personal property used or owned
by Seller (collectively “Indebtedness”). 
Except as provided in Section 4.9 to the Disclosure Schedule,
Seller has made available to Buyer a true, correct, and complete copy of each
of the items listed on Section 4.9 of the Disclosure Schedule.

             4.10      Contracts.  Section 4.10 of the Disclosure
Schedule sets forth all contracts, agreements and other arrangements of the
Seller or the Business or affecting any of the Assets which
provide for payment or performance obligations having an aggregate value in
excess of $25,000 in any single year or has a term of more than one year from
the Closing Date (collectively, the “Material Contracts”), and except as set forth in Section  4.10 of the Disclosure Schedule, there
are no other Material Contracts.  There
is not, under any of the Material Contracts, any existing default or event of
default on the part of the Seller which could have a Material Adverse
Effect.  Except as set forth in Section
4.10 of the Disclosure Schedule, no consents are required for the
assignment of any Material Contract to the Buyer other than consents listed on Section
2.2(d) of the Disclosure Schedule. 
Each Material Contract is in full force and effect and is a valid and
binding obligation of the Seller and, to the knowledge of the Seller, each
other party thereto, and is enforceable in accordance with its terms, and will,
unless such Material Contract requires the consent of the other party or
parties thereto to its assignment and such consent has not been obtained prior
to Closing, immediately following the Closing be valid, binding and enforceable
by Buyer as assignee thereof in accordance with its terms, except as any such
enforceability may be limited by the effect of bankruptcy, insolvency or
similar laws affecting creditors’ rights generally or by general principles of
equity.

             4.11      Legal Proceedings.  Except as set forth on Section 4.11
of the Disclosure Schedule (the “Litigation Matters”), there are no actions, suits,
proceedings or any legal, administrative, arbitration or other proceedings or
governmental investigations pending or, to the knowledge of the Seller,
threatened against the Seller, any of the Assets or the Business or which seek
to question, delay or prevent the consummation of or could materially impair
the ability of the Seller to consummate the transactions contemplated
hereby.  There are no outstanding
judgments, orders, writs, injunctions, indictments or informations, grand jury
subpoenas or civil investigative demands, plea agreements, stipulations, awards
or decrees of any court, arbitrator or any federal, state, municipal or other
governmental department, commission, board, agency or instrumentality against
or relating to Seller, relating to the Business or the Assets.

             4.12      Employee Benefit Plans.

                           (a)         Section 4.12 of the Disclosure
Schedule lists all employment, retention, severance, deferred compensation,
change of control or other agreements or contracts with any employee of Seller,
and all “employee
benefit plans” as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”) maintained or
contributed to by Seller in which any employee of Seller participates, and all
stock option, restricted stock, stock appreciation or other equity plans and
all bonus, severance, change in control, retention, deferred compensation or
other compensatory plans maintained or contributed to by the Seller in which
any employee of Seller participates, whether any such plans or arrangements are
written or oral (“Employee
Benefit Plans”).  Seller
has made available to Buyer true and complete copies of all Employee Benefit
Plans.  This Agreement and the
consummation of the transactions contemplated herein do not create any
liabilities or trigger any expenses under the Employee Benefits Plans.

                           (b)        With respect to each Employee Benefit
Plan, except as set forth in Section 4.12 of the Disclosure
Schedule:  (i) if intended to qualify
under Section 401(a) or 401(k) of the Internal Revenue Code of 1986, as amended
(the “Code”),
such plan satisfies the requirements of such sections, has received a favorable
determination letter from the Internal Revenue Service, and its related trust
has been determined to be exempt from tax under Section 501(a) of the Code and,
to the knowledge of Seller, nothing has occurred since the date of such letter
to adversely affect such qualification or exemption; (ii) each such plan has
been operated and administered in substantial compliance with its terms
and applicable law; (iii) Seller has not engaged in,
and Seller has no knowledge of any person that has engaged in, any transaction
or acted or failed to act in any manner that would subject Seller to any
liability for a breach of fiduciary duty under ERISA; (iv) no disputes are
pending, or, to the knowledge Seller, threatened; (v) Seller has not engaged in
and has no knowledge of any person that has engaged in, any transaction in
violation of Section 406(a) or (b) of ERISA or Section 4975 of the Code for
which no exemption exists under Section 408 of ERISA or Section 4975(c) of the
Code or Section 4975(d) of the Code or that would result in a civil penalty
being imposed under subsections (i) or (l) of Section 502 of ERISA; (vi) all
contributions due have been made on a timely basis; (vii) no Employee Benefit
Plan is a plan covered by Title IV of ERISA or subject to the funding
requirements of Section 412 of the Code; (viii) except to the extent
required under ERISA Section 601 et seq. and Section 4980B of the Code, Seller
does not provide health or welfare benefits under the Employee Benefit Plans
for any retired or former employee and is not obligated to provide health or
welfare benefits to any active employee following such employee’s retirement or
other termination of service; (ix) the termination of any Employee Benefit Plan
would not result in any material liability or further obligation on the part of
the Seller; and (x) all reports and the documents required to be filed by any
of the Employee Benefit Plans with any governmental agency or distributed to
plan participants or beneficiaries (including notices required by the
Consolidated Omnibus Reconciliation Act of 1985, as amended, actuarial reports,
audits, or tax returns ) have been timely filed or distributed.  All contributions made or required to be
made under any Employee Benefit Plan meet the requirements for deductibility
under the Code, and all contributions that are required and that have not been
made have been properly recorded on the books of Seller.

                           (c)         No Employee Benefit Plan is a “multi-employer plan”
(as defined in Section 4001(a)(3) of ERISA) or a “multiple employer plan” (within the
meaning of Section 413(c) of the Code). 
No event has occurred with respect to Seller in connection with which
Seller would be subject to any liability, lien or encumbrance with respect to
any Employee Benefit Plan or any employee benefit plan described in Section
3(3) of ERISA sponsored, maintained or contributed to by Seller or any trade or
business, whether or not incorporated, which together with Seller would be
deemed a “single
employer” within the meaning of Section 414(b), (c) or (m)
of the Code or Section 4001(b)(1) of ERISA.

             4.13      Employees.

                           (a)         Section 4.13 of the Disclosure
Schedule is a true and complete list as of September 1, 2001 of the name of
each individual who is employed or retained or compensated as an employee,
independent contractor or consultant (either directly or indirectly) by the
Seller (the “Employees”)
on the date hereof along with his or her current job title, compensation and
any employee benefits enjoyed by such Employee which are not generally
available to employees of the Seller.

                           (b)        Except as set forth on Section 4.13
of the Disclosure Schedule, (i) as of September 2, 2001, the Seller has paid or
made provision for the payment of all salaries, commissions and accrued wages
of the Employees up to the Closing; (ii) the Seller has complied
in all material respects with all applicable laws, rules
and regulations relating to the employment of labor, including those relating
to wages, hours, unemployment insurance, collective bargaining and the payment
and withholding of taxes for all Employees; (iii) the Seller has withheld all
amounts required by law or agreement to be withheld from the wages or salaries
of the Employees; and (iv) the Seller is not liable for any arrears of wages or
other taxes or penalties for failure to comply with any of the foregoing to the
extent they are applicable to the Employees or any former employees of the
Business.  There is not pending or, to
the knowledge of the Seller, threatened, any labor dispute, strike, work
stoppage or union organizing effort involving the Business.

                           (c)         Except as set forth in Section 4.13
of the Disclosure Schedule, Seller has not during the past ninety days taken
any action which would require any compliance under the Worker Adjustment and
Retraining Notification Act of 1988, as amended (the “WARN Act”), including
the termination or laying off of any employees, or any other action that could
constitute a “plant closing” or “mass layoff,” as those terms are defined by
the WARN Act.

                           (d)        The Seller is not a party to any
agreement with a labor union or other labor representative of any Employee.

             4.14      Taxes.  Except as set forth on Section 4.14
of the Disclosure Schedule, all taxes, fees, assessments and charges,
including, without limitation, income, property, sales, use, franchise, added
value, employees’ income withholding and social security taxes, imposed by the
United States or by any foreign country or by any state, municipality,
subdivision or instrumentality of the United States or of any foreign country,
or by any other taxing authority, which are due or payable by the Seller with
respect to the Business on or prior to the date hereof, or for which the Seller
may be liable on or prior to the date hereof with respect to the Business
(including any for which the Seller may be liable by reason of its being a
member of an affiliated, consolidated or combined group with any other company
at any time on or prior to the Closing Date), and all interest and penalties
thereon (collectively, “Taxes” or individually, a “Tax”), have been paid in full, or, if not due
on or prior to the date hereof but due on or prior to the Closing Date, will be
timely paid in full when due.  All Tax
returns required to be filed in connection therewith have been, or will be
timely and accurately prepared in all material respects and filed, and all
deposits required by law to be made by the Seller with respect to employees of
the Business and other withholding Taxes due on or prior to the date hereof
have been duly made or, if not due on
or prior to the date hereof but due on or prior to the Closing Date, will be
timely and duly made.  The Seller has
withheld and paid over all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto,
in connection with amounts paid or owing to any employee, creditor, independent
contractor or other third party.  No
deficiency for any Tax or claim for additional Taxes relating to or affecting
in any manner any of the Business or the Assets has been proposed, asserted or
assessed against the Seller or any of the Assets.  There are no Liens on any of the Assets with respect to Taxes,
other than Liens for Taxes not yet due and payable and other Permitted Liens.

             4.15      Intellectual Property.

                           (a)         Section 4.15(a) of the
Disclosure Schedule identifies, illustrates (in the case of marks consisting of
a graphical design or fanciful fonts), describes (in the case of an item’s
trade dress) or lists all of the Seller’s intellectual property that is not
included in the Excluded Assets (the “Intellectual Property”) (i) pertaining to any
product, software or service manufactured, marketed, licensed or sold by the
Seller or used, employed or exploited in the development, license, sale,
marketing, distribution or maintenance thereof and (ii) including all contracts
and other agreements to which the Seller is a party, including such contracts
and agreements where the Seller is either a licensee or licensor, for each item
of the Intellectual Property.  The
Intellectual Property includes, but is not limited to, the Seller’s (or the
Seller’s rights, under a license, in and to), foreign and domestic trademarks,
service marks, appellations of origin, trade names, trade dresses, domain
names, labels, logos, all goodwill associated with all of the foregoing,
computer software, copyrights, patents, inventions, industrial models,
processes, designs, ideas, any proprietary or confidential information,
trade-secrets, all other creative works and measures of protection therefor,
and all related applications, whether filed or unfiled, registrations, and
grants.  To the Seller’s knowledge, the
use of any item of Intellectual Property by the Seller does not infringe or
violate the rights of any third party. The Seller has taken reasonable security
measures to protect the secrecy, confidentiality and value of the Intellectual
Property, to the extent such measures are appropriate.  To the knowledge of the Seller, the
trademarks, service marks, trade names, trade dress, labels and logos described
in Section 4.15(a) of the Disclosure Schedule are sufficient for the
conduct of the Seller’s Business as now conducted.

                           (b)        Except as disclosed in Section
4.15(b) of the Disclosure Schedule, all patents, copyrights, trademarks
(including state, federal and foreign registrations and applications) and other
rights and property listed in Section 4.15(a) of the Disclosure Schedule
are valid, subsisting and in full force and effect.

                           (c)         Except as disclosed in Section
4.15(b) of the Disclosure Schedule, (i) the Seller owns or has the
exclusive right to use the Intellectual Property in connection with the
Business, (ii) no third party has any interest (other than as a stockholder or
lender of the Seller) in, owns, possesses or otherwise holds in any manner any of
the Intellectual Property, (iii) the Seller is not required to pay any royalty
or other amount to anyone with respect to any of the Intellectual Property,
(iv) the rights and properties listed in Section 4.15(a) of the
Disclosure Schedule are not subject to any maintenance fees or renewal fees,
(v) the Seller has not received any notice of infringement of, or conflict
with, asserted rights of others with respect to any of the Intellectual
Property, and there is no claim, action, suit, investigation or proceeding
pending or, to the knowledge of the Seller, threatened against the Seller with
respect thereto, and (vi) since August 10, 1999, the Seller has never
agreed to indemnify or has never indemnified any person for or against any
interference, infringement, misappropriation, or other conflict with respect to
any item of the Intellectual Property.

                           (d)        Except as disclosed in Section
4.15(b) of the Disclosure Schedule, (i) the development or sale by the
Seller of all computer software developed by or for the Seller (the “Software”) did not
and do not violate any rights of any other person or entity, and the Seller has
not received any communication alleging such a violation, (ii) the Seller has
not granted to any other person or entity any license, option or other right to
develop or sell the Software, whether requiring the payment of royalties or
not, and (iii) the Seller does not have any obligation to compensate any person
for the development, use, sale or exploitation of the Software.

             4.16      Compliance with Law;
Permits.  Each of the Seller and the Business is in
compliance with all applicable laws, rules and regulations, including, without
limitation, any applicable laws, rules, regulations, ordinances, codes, orders,
judgments or decrees as to hiring, employment, environmental, health and/or
safety matters, except where the failure to so comply would not have a Material
Adverse Effect.  The Business has all of
the licenses, permits and other governmental authorizations required for the
operation of the Business as conducted as of the date of this Agreement (the “Permits”), each of
which is identified on Section 4.16 of the Disclosure Schedule, except
where the failure to possess any such license, permits and other governmental
authorizations would not have a Material Adverse Effect.

             4.17      Accounts Receivable.  Section 4.17 of the Disclosure
Schedule contains a true and complete list and aging of the accounts receivable
pertaining or related to any of the Assets or the Business as of the date set
forth thereon.  All of the Receivables
are valid and legally binding, represent bona fide transactions, and arose in
the ordinary course of business and are reflected properly in Seller’s books
and records.  To Seller’s knowledge the
Receivables are collectible and will be collected in accordance with past
practice and the terms of such receivables (and in any event within six months
following the Closing Date), without set off or counterclaims, subject to the
allowance for doubtful accounts, if any, set forth in the Balance Sheet, as
such allowance has been adjusted up to the Closing Date consistent with the
past practices of Seller; provided, however, any breach of the
forgoing will be cured upon Buyer’s subsequent collection of such
receivables.  For purposes of this
Agreement, the term “Receivables” means all receivables of the Seller,
including, without limitation, all contracts in transit, manufacturer’s
warranty receivables and all trade account receivables arising from the
provision of services, sale of inventory, notes receivable, and insurance
proceeds receivable.

             4.18      Insurance.  The Assets and the Business are insured for
Seller’s benefit and will be so insured through the Closing Date, in amounts
and against risks consistent with levels and types commonly used in the
industry in which the Seller operates.  Section
4.18 of the Disclosure Schedule contains a true and complete list of all
policies providing such insurance.

             4.19      Real Property.  The Seller does not own any real
property.  Section 4.19 of the Disclosure
Schedule sets forth a true and complete list of all Leases.  All of the Leases are in full force and
effect and have not been modified or amended, and there are no disputes, oral
agreements or forbearance programs in effect as to the Leases.  There has not occurred any default by the
Seller under any Lease and, to the knowledge of the Seller, there has not
occurred any default thereunder by any other party thereto.

             4.20      Environmental Matters.

                           (a)         All activities of the Business have
been conducted in substantial compliance with, and all properties owned, leased
or operated by Seller in connection with the Business’s operations have and
continue to substantially comply with, all Environmental Laws.

                           (b)        Except as set forth on Section 4.20
of the Disclosure Schedule, no Hazardous Material (as hereinafter defined) is
located or is suspected to be located in the soil, groundwater, surface water,
or waterways at or under any property now or previously owned, leased or
operated by Seller, in quantities or concentrations sufficient to require
investigation, removal or remediation under any Environmental Laws.

                           (c)         Seller has not (i) treated, stored,
disposed of, arranged for or permitted the disposal of, transported, handled,
or released any substance, including any Hazardous Material, or (ii) owned or
operated property or facilities, either of which in a manner that has given or
would give rise to any damages, including any damages for response costs,
corrective action costs, personal injury, property damage or natural resources
damages, pursuant to any Environmental Laws.

                           (d)        As used herein, “Environmental Law”
means all federal, state, and local laws, regulations, licenses, and common law
related to the environment, health and safety, including, without limitation,
the Federal Clean Water Act, Oil Pollution Act, Resource Conservation and
Recovery Act, Clean Air Act, Comprehensive Environmental Response, Compensation
and Liability Act, and the Occupational Health and Safety Act, each as amended
and currently in effect; and “Hazardous Material” means any hazardous or toxic
substance, material, pollutant, contaminant or waste which is regulated by any
federal, state or local governmental authority, regulated under any
Environmental Law, including any petroleum produce, any explosives, any
radioactive material and any asbestos containing material.

             4.21      Undisclosed Liabilities.  Except as set forth in Section 4.21
of the Disclosure Schedule and except as set forth or reflected in the Seller’s
Balance Sheet, the Business does not have any liability or obligation of any
kind or nature (fixed or contingent) that is required to be reflected on a
balance sheet in accordance with generally accepted accounting principles which
is not reflected, reserved against or disclosed in the Balance Sheet, except
for customary accounts payable and accrued business expenses incurred since
June 30, 2001 in the ordinary course of business.

             4.22      Subsidiaries
and Affiliate Relationships.  Except as set forth on Section 4.22
of the Disclosure Schedule, the Seller has no subsidiary nor any interest,
direct or indirect, nor has any commitment to purchase any interest, direct or
indirect, in any other corporation or in any partnership, joint venture or
other business enterprise or entity, which has any involvement with or
possesses or uses any of the Business and/or the Assets.  Since August 1999, the Business and the
operations of the Seller have not been conducted through any direct or indirect
subsidiary or any direct or indirect affiliate of the Seller.  Except as set forth on Section 4.22
of the Disclosure Schedule, none of the Stockholders or affiliates of the
Seller own any assets that are used in the Business.

             4.23      Solvency.

                           (a)         No insolvency proceedings of any
character, including, without limitation, bankruptcy, receivership,
reorganization, composition or arrangement with creditors, voluntary or
involuntary, involving Seller as a debtor are pending, or to Seller’s
knowledge, threatened, and Seller has not made any assignment for the benefit
of creditors or taken any action with a view to, or which would constitute the
basis for the institution of, any such insolvency proceedings.

                           (b)        After giving effect to the transactions
contemplated by this Agreement (i) the fair market value of the assets retained
by the Seller will exceed the amount that will be required to be paid on or in
respect of the existing debts and other liabilities (including contingent
liabilities) retained by Seller as they mature, (ii) the assets of the Seller
will not constitute unreasonably small capital to carry out its business as
conducted or as proposed to be conducted, including the capital needs of the
Seller, (iii) the Seller does not intend to incur debts beyond its ability to
pay such debts as they mature, (iv) the Seller has not made any conveyance or
transfer and has not incurred any obligation with any intent to hinder, delay
or defraud any of its creditors or any other entity or person, and (v) the
Seller acknowledges that the transactions contemplated by this Agreement have
been entered into on terms which are commercially reasonably.

             4.24      Suppliers
and Customers.  Since June 30, 2001, no customer or supplier has
cancelled or otherwise terminated, or, to Seller’s knowledge, threatened to cancel
or otherwise terminate, its relationship with Seller, or indicated that it
intends to decrease its services to Seller or its usage of the services of
Seller.

             4.25      Brokers.  No broker, finder or other person is
entitled to any brokerage fees, commissions or finder’s fees from the Seller in
connection with the transactions contemplated hereby.

             4.26      Full Disclosure.  This Agreement, the Disclosure Schedule and
the Seller Documents are true, complete and correct.  This Agreement, the Disclosure Schedule and the Seller Documents
do not contain any untrue statement of a material fact and do not omit to state
any material fact necessary to make the statements made, in the context in
which they were made, not false or misleading.  Seller has not knowingly withheld and will
not withhold from Buyer or the Parent information of any events, conditions or
facts that could have a Material Adverse Effect.

ARTICLE 5

REPRESENTATIONS AND
WARRANTIES OF THE BUYER AND THE PARENT

             The Buyer and the Parent represent
and warrant to the Seller as follows:

             5.1        Organization.  Each of the Buyer and the Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and
each of the Buyer and the Parent has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to be so existing and in good
standing or to have such power and authority would not individually or in the
aggregate have a material adverse effect on the business, financial condition
or results of operations, on a consolidated basis, of the Parent.

             5.2        Authority Relative to
this Agreement.  Each of the Buyer and the Parent has all
requisite corporate power and authority to execute and deliver this Agreement
and each other agreement, document or instrument to be executed or delivered by
it contemplated by this Agreement (the “Buyer Documents”) and to consummate the transactions
contemplated hereby and thereby.  The execution
and delivery of this Agreement and the Buyer Documents by each of the Buyer and
the Parent and the consummation of the transactions contemplated hereby and
thereby by each of the Buyer and the Parent have been duly and validly
authorized by all necessary action on the part of the Buyer and the Parent and
no other proceedings on the part of the Buyer and the Parent are necessary to
authorize this Agreement and the Buyer Documents or to consummate the
transactions contemplated hereby and thereby. 
This Agreement has been, and when executed and delivered at the Closing,
the Buyer Documents will be, duly and validly executed and delivered by each of
the Buyer and the Parent and, assuming the due authorization, execution and
delivery by the Seller and each Stockholder, this Agreement constitutes, and
the Buyer Documents will constitute, a legal, valid and binding obligation of
the Buyer and the Parent, enforceable against the Buyer and the Parent in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors’ rights generally and by general equitable principles
(regardless of whether enforceability is considered in a proceeding in equity
or at law).

             5.3        Consents and Approvals;
No Violation.  There is no requirement applicable to the
Buyer and the Parent, including under the HSR Act, to make any filing with, or
to obtain any permit, authorization, consent or approval of, any governmental
or regulatory authority as a condition to the lawful consummation by the Buyer
of the transactions contemplated by this Agreement.  Neither the execution and delivery of this Agreement by each of
the Buyer and the Parent nor the consummation by each of the Buyer and the
Parent of the transactions contemplated hereby nor compliance by each of the
Buyer and the Parent with any of the provisions hereof will (i) conflict with
or result in a breach or violation of any provision of the certificate of
incorporation or bylaws of the Buyer or the Parent, (ii) result in a breach of
or default, or give rise to any right of termination, cancellation or
acceleration under, any of the terms, conditions or provisions of any material
note, bond, mortgage, indenture, license, agreement, lease or other similar
material instrument or obligation to which the Buyer or the Parent is a party
or by which any of the Buyer’s or the Parent’s properties or assets may be
bound, or (iii) violate any material order, judgment, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer and the Parent or any of
the Buyer’s and the Parent’s properties or assets.  Other than as provided in this Agreement or
the Buyer Documents, there are no other restrictions which would prevent or
delay in any material fashion the Buyer’s and the Parent’s obligations under
the Earnout Agreement.

             5.4        Litigation.  There are no actions, suits, proceedings or
any legal, administrative, arbitration or other proceedings or government
investigations pending or, to the knowledge of the Buyer and the Parent,
threatened against Buyer or the Parent which seek to question,
delay or prevent the consummation of or could impair the ability
of the Buyer to consummate the transactions contemplated hereby.

             5.5        Solvency.

                           (a)         No insolvency proceedings of any
character, including, without limitation, bankruptcy, receivership,
reorganization, composition or arrangement with creditors, voluntary or
involuntary, involving the Buyer or the Parent as a debtor are pending, or to
Buyer’s and Parent’s knowledge, threatened, and neither the Buyer nor the
Parent has made any assignment for the benefit of creditors or taken any action
with a view to, or which would constitute the basis for the institution of, any
such insolvency proceedings.

                           (b)        Each of the Buyer and the Parent has the
necessary financial capacity to consummate the transactions hereby and to
perform all of its obligation under the Earnout Agreement without violating any
solvency requirements applicable to the Buyer and the Parent.

             5.6        Brokers.  No broker, finder or other person is
entitled to any brokerage fees, commissions or finder’s fees from the Buyer or
the Parent in connection with the transactions contemplated hereby.

ARTICLE 6

COVENANTS OF THE PARTIES

             6.1        Expenses.  Except as otherwise specifically provided in
this Agreement, all costs and expenses incurred by the Buyer and the Parent in
connection with this Agreement and the transactions contemplated hereby will be
paid by the Buyer or the Parent and all costs and expenses incurred by the
Seller and each Stockholder in connection with this Agreement and the
transactions contemplated hereby will be paid by such Seller or Stockholder.

             6.2        Reasonable Efforts.  Subject to the terms and conditions of this
Agreement, each of the parties hereto will use its reasonable efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
“Reasonable efforts”
for such purpose, and for all other purposes of this Agreement, shall mean the
reasonable commercial efforts that a prudent person desirous of achieving a
result would use in similar circumstances in an effort to ensure that such
result is achieved as expeditiously as possible.  As used herein, the term “reasonable efforts” shall not include
any obligation on the part of any party to agree to any material adverse
modification of the terms of any document or contractual arrangement or to
repay or incur additional material obligations to any person or entity that
would be effective prior to the Closing or to pay any monetary amount or other
expenses exceeding, in the aggregate, $20,000 in furtherance of such
efforts.  The parties hereto acknowledge
that time shall be of the essence and agree not to take any action that will
have the effect of unreasonably delaying, impairing or impeding the receipt of
any required authorizations, consents, orders or approvals.

             6.3        Filings.  The Seller and each Stockholder and each of
the Buyer and the Parent will use their reasonable efforts to make or cause to
be made all such filings and submissions as may be required under applicable
laws and regulations, if any, including, without limitation, the filing by the
Parent of a Current Report on Form 8-K under the Securities Exchange Act of
1934, as amended, if required to be filed in connection with the consummation
of the transactions contemplated by this Agreement.  Each of the parties hereto will coordinate and cooperate with one
another in exchanging such information and providing such reasonable assistance
as another may request in connection with all of the foregoing.

             6.4        Public Announcements.  None of the parties to this Agreement shall
issue any press release with respect to the terms of this Agreement and the
transactions contemplated hereby without the prior approval of the other
parties, except as may be required by applicable law or by any listing agreement
with a national securities exchange; provided, however that
nothing contained herein shall preclude or restrict the Buyer and the Parent
from making any statement regarding the conduct of the Business and its
operations at any time after the Closing.

             6.5        Further Assurances.

                           (a)         From time to time, without further
consideration, the Seller and each Stockholder will execute and deliver such
documents to the Buyer and the Parent as the Buyer and the Parent may
reasonably request in order more effectively to consummate the transactions
contemplated hereby.  From time to time,
without further consideration, the Buyer and the Parent will execute and
deliver such documents as the Seller may reasonably request in order more
effectively to consummate the transactions contemplated hereby.  In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement, each party to this Agreement will take or cause its proper officers
and directors to take all such necessary action.

                           (b)        Parent covenants and agrees that Buyer
will have the necessary financial capacity to perform all of its obligations
under the Earnout Agreement.

             6.6        Employee Matters.

                           (a)         Effective as of September 10, 2001, the
Buyer shall offer employment on an at-will basis commencing on the Closing Date
to each employee listed on Section 6.6 of the Disclosure Schedule, who
is working for the Seller as of the Closing Date.  Each individual listed on Section 6.6 of the Disclosure
Schedule was an employee on the payroll of Seller immediately prior to the
Closing, other than those terminated or added in the ordinary course.  All such employees who accept such offer of
employment are referred to herein as “Transferred Employees.”  Beginning on the day following the Closing
Date, the Buyer shall provide each Transferred Employee with compensation
comparable to the compensation currently provided by the Seller.

                           (b)        At
the Closing Date, Buyer shall adopt, assume and otherwise become responsible for,
either primarily or as a successor employer, the Employee Benefit Plans
currently sponsored by the Seller listed on Section 6.6(b) of the
Disclosure Schedule. The Seller’s 401(k) plan and any Employee Benefit Plan not
specifically listed on Section 6.6(b) of the Disclosure Schedule shall
not be assumed by Buyer and Buyer shall not become responsible for, or have any
liability relating to, any such Employee Benefit Plan. Buyer agrees to provide
immediate coverage for the Transferred Employees, effective as of 12:00 a.m. on
the Closing Date, under a group health insurance plan sponsored or assumed by
the Buyer, which provides group health insurance coverage consistent with that
currently provided by the Seller. Buyer agrees to grant service credit to Transferred
Employees for periods of service with the Seller for purposes of eligibility
and vesting under the tax-qualified retirement plan of the Buyer.

             6.7        Non-Competition; Non-Solicitation.

                           (a)         For a period ending on
December 31, 2005, the Seller and each of Kenneth W. Murphy, C. Cleave
Buchanan, Jr., Robert Meador, Richard Bainter and John Erickson will not,
directly or indirectly, (i) enter into, conduct, carry on or engage in any
business engaged in the Business (the “Competitive Business”) within the area
specified in Section 6.7 of the Disclosure Schedule (the “Restricted Territory”);
(ii) other than for the businesses of Matrix Digital Technologies, L.P. and
Matrix Digital Capital Corp. (together “Matrix”) as such businesses are being
conducted as of the Closing Date, be engaged by any person engaged in a
Competitive Business or render any services to any person for use in a
Competitive Business; (iii) other than for Matrix, have an interest in any
person engaged in any such Competitive Business, directly or indirectly, in any
capacity, including without limitation, as an individual, partner, shareholder,
officer, director, principal, agent, employee, trustee or consultant or any
other relationship or capacity; provided, however, that Seller and each Stockholder
may invest in any publicly held company so long as such investment does not
exceed five percent of such company’s total ownership; (iv) solicit for
employment or hire any person who is a Transferred Employee, unless that person
is hereafter terminated by the Buyer or voluntarily leaves the employ of the
Buyer at least one year prior to any such hire; (v) divert or attempt to divert
from the Buyer any Business, nor interfere with the relationships of the Buyer
with customers or sources of supply; or (vi) publish any oral or written
statement(s) to any person that (A) disparage in any manner, the Assets, the
Business, the Buyer or the Parent or any of its affiliates, its or their
business reputation, or the personal or business reputations of its or their
directors, officers, stockholders or employees or engage in any disparaging
conduct or make any negative or derogatory statements concerning any of the
foregoing or (B) in any way impede, disrupt or interfere with the contracts,
agreements, understandings, communications or relationships of the Buyer or the
Parent and any of its affiliates with any third party.

                           (b)        For a period ending on June 30,
2004 for each of Earl Johnson and Stacy Riffe, and ending on December 31,
2004 for Charles Buchanan (each of such periods, along with the periods set
forth in Section 6.7(a), being a “Noncompete Period”), each of Earl Johnson,
Charles Buchanan and Stacy Riffe will not, directly or indirectly, (i) enter
into, conduct, carry on or engage in any business engaged in the Business (the
“Competitive Business”)
within the area specified in Section 6.7 of the Disclosure Schedule (the
“Restricted Territory”);
(ii) be engaged by any person engaged in a Competitive Business or render any
services to any person for use in a Competitive Business; (iii) have an
interest in any person engaged in any such Competitive Business, directly or
indirectly, in any capacity, including without limitation, as an individual,
partner, shareholder, officer, director, principal, agent, employee, trustee or
consultant or any other relationship or capacity; provided, however, that
Seller and each Stockholder may invest in any publicly held company so long as
such investment does not exceed five percent of such company’s total ownership;
(iv) solicit for employment or hire any person who is a Transferred Employee,
unless that person is hereafter terminated by the Buyer or voluntarily leaves
the employ of the Buyer at least one year prior to any such hire; (v) divert or
attempt to divert from the Buyer any Business, nor interfere with the
relationships of the Buyer with customers or sources of supply; or (vi) publish
any oral or written statement(s) to any person that (A) disparage in any
manner, the Assets, the Business, the Buyer or the Parent or any of its
affiliates, its or their business reputation, or the personal or business
reputations of its or their directors, officers, stockholders or employees or
engage in any disparaging conduct or make any negative or derogatory statements
concerning any of the foregoing or (B) in any way impede, disrupt or interfere
with the contracts, agreements, understandings, communications or relationships
of the Buyer or the Parent and any of its affiliates with any third party.  Notwithstanding the foregoing, each of Earl
Johnson, Charles Buchanan and Stacy Riffe may be employed by a business engaged
in a Competitive Business so long as the revenue generated by such business’
Competitive Business is less than 10% of such business’ total revenue and for
so long as such Stockholder is not personally involved in such business’
Competitive Business.  Notwithstanding
(ii) and (iii), Stacy Riffe’s involvement in the business of Matrix as such
businesses are being conducted as of the Closing Date shall not constitute a
breach of Section 6.7 (ii) and (iii).

                           (c)         (i) Notwithstanding anything
contained herein to the contrary, the provisions of Section 6.7(a) and (b)
shall immediately terminate and be of no further force or effect with respect
to any Stockholder if such Stockholder is Terminated Without Cause (as defined
in the Earnout Agreement) during the Earnout Period and Buyer and/or Parent
cease paying such Stockholder his or her salary, wages and benefits existing as
of the day immediately prior to such termination.  (ii) Notwithstanding anything contained herein to the
contrary if Buyer, Parent or whichever affiliate of Parent such Stockholder is
then currently employed terminates such Stockholder subsequent to the Earnout
Period, the provisions of Section 6.7(a) and (b) shall immediately
terminate and be of no further force and effect on the later to occur of (A)
twelve (12) months after Buyer and/or Parent ceases to pay (or twelve (12)
months after the period to which such severance relates if paid in a lump sum) such
Stockholder severance pay, and (B) the end of the applicable Noncompete
Period.

             6.8        Access to Information.
After the Closing Date, upon reasonable notice, the Buyer shall afford to the
Seller and its representatives reasonable access during normal business hours
to the books and records relating to the Business and the Assets to the extent
they relate to a period prior to the Closing Date (and shall permit such
persons to examine and photocopy such books and records at such persons’
expense to the extent reasonably requested by such person) in connection with
financial reporting and tax matters (including financial and tax audits and tax
contests) and other matters reasonably related to the Business, or as provided
in Article 8 to enable the Seller and/or the Stockholders to defend any
third party claim or contest any claim for indemnity hereunder; provided,
however, that any such access or investigation shall be conducted by
Seller and its representatives in such a manner as not to unreasonably interfere
with the operation of the Business by the Buyer.  Seller will bear all reasonable out–of–pocket costs
and expenses incurred by the Buyer or the Parent with respect to such access or
investigation.

ARTICLE 7

INDEMNIFICATION

             7.1        Indemnification by the Seller
and the Stockholders.  The Seller (with respect to Sections
7.1(a) through (c)) and the Stockholders (with respect to Sections 7.1(a)
and (b) only) hereby agree, severally, and not jointly, to indemnify
each of the Buyer and the Parent and their respective officers, directors,
employees and stockholders against, and agree to defend and hold them harmless
from, any loss, liability, claim, judgment, settlement, award, penalty, damage,
cost or expense (including reasonable attorneys’ fees and expenses) (a “Loss”) incurred by
Buyer or the Parent or their respective officers, directors, employees and
stockholders for or on account of or arising from or in connection with or
otherwise with respect to:

                           (a)         any breach by the Seller or such
Stockholder of any of the representations or warranties made by such party
contained in this Agreement or any agreement, document or certificate delivered
in connection herewith;

                           (b)        any breach by the Seller or such
Stockholder of any of its covenants or agreements contained in this Agreement
or any breach by the Seller or any Stockholder of its covenants and agreements
contained in the Seller Documents;
or

                           (c)         the Litigation Matters or
any of the Excluded Assets or the Excluded Liabilities.

Except
as set forth in Section 7.8, it is hereby expressly agreed and
acknowledged that each Stockholder shall not be liable for any Losses resulting
from the breaches of any other Stockholderor the Seller.

             7.2        Indemnification by the
Buyer and Parent.  The Buyer and Parent hereby agree to
indemnify each of the Stockholders, the Seller and its officers, directors,
employees and stockholders against, and agrees to defend and hold them harmless
from, any Loss incurred by such person for or on account of or arising from or
in connection with or otherwise with respect to:

                           (a)         any breach by the Buyer of any of its
representations or warranties contained in this Agreement or any agreement,
document or certificate delivered in connection herewith;
or

                           (b)        any
breach by the Buyer of any of its covenants or agreements contained in this
Agreement or in the Buyer Documents.

             7.3        Procedure For Non-Third Party Claims.  Claims for indemnification hereunder other
than a Third Party Claim (as hereinafter defined)
shall be resolved in the manner provided in Article 8.

             7.4        Procedure For Third
Party Claims.

                           (a)         In order for a party (the “Indemnified Party”)
to be entitled to any indemnification provided for under this Article 7
in respect of, arising out of or involving a claim made by any entity or person
not a party hereto against the Indemnified Party (a “Third Party Claim”),
such Indemnified Party must notify the indemnifying party (the “Indemnifying Party”)
promptly in writing of the Third Party Claim and such notice shall state in
reasonable detail the nature, basis and amount of such claim; provided,
however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the indemnifying party
actually shall have been prejudiced as a result of such failure (except that
the indemnifying party shall not be liable for any expenses incurred during the
period in which the Indemnified Party failed to give such notice). Thereafter,
the Indemnified Party shall deliver to the indemnifying party, within five (5)
Business Days after the Indemnified Party’s receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified
Party relating to the Third Party Claim.

                           (b)        If a Third Party Claim is made against
an Indemnified Party, the Indemnifying Party will be entitled to participate in
the defense thereof and, if it chooses, to assume the defense thereof at its
own cost and expense with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party.  Should the Indemnifying Party elect to assume the defense of a
Third Party Claim, the Indemnifying Party will not be liable to the Indemnified
Party for any legal expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof unless the Indemnified Party shall have
reasonably determined that there may be one or more defenses which are
available to it which are different from or in addition to those available to
the Indemnifying Party.  If the
Indemnifying Party assumes such defense, the Indemnified Party shall have the
right to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnifying Party, it being
understood that the Indemnifying Party shall control such defense unless the
circumstances described in the immediately preceding sentence are present.  The Indemnifying Party shall be liable for
the reasonable fees and expenses of counsel employed by the Indemnified Party
for any period during which the Indemnifying Party has not assumed the defense
thereof (other than during any period in which the Indemnified Party shall have
failed to give notice of the Third Party Claim as provided above unless it is
finally determined that the Indemnified Party is not entitled to
indemnification under this Article 7). 
If the Indemnifying Party chooses to defend a Third Party Claim, the
parties hereto shall reasonably cooperate in the defense thereof.  Such cooperation shall include, at the sole
cost and expense of the Indemnifying Party, the retention and (upon the
Indemnifying Party’s request) the provision to the Indemnifying Party of
records and information which are reasonably relevant to such Third Party
Claim, and making employees, consultants and independent contractors available
on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder and to provide testimony.  If the Indemnifying Party chooses to defend
any Third Party Claim, the Indemnifying Party shall not agree to any
settlement, compromise or discharge of such Third Party Claim without the prior
written consent of the Indemnified Party, unless such settlement, compromise or
discharge provides solely for monetary relief and the full
and complete release of the Indemnified Party is the
result thereof.  Whether or not the
Indemnifying Party shall have assumed the defense of a Third Party Claim, the
Indemnified Party shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnifying
Party’s prior written consent; provided, however, that if the Indemnifying
Party does not elect to control or defend a Third Party Claim, or after so
electing does not actively contest and defend the same in good faith, the
Indemnified Party shall be entitled to contest, defend and/or settle such Third
Party Claim on such terms and with such counsel as the Indemnified Party deems
appropriate, and at the cost and expense of the Indemnifying Party unless it is
finally determined that the Indemnified Party is not entitled to
indemnification.

             7.5        Exclusive Remedy.  After
the Closing, this Article 7 shall provide the sole and exclusive remedy
for any and all Losses sustained or incurred by a party in connection with the
transactions contemplated by this Agreement; provided, however, that a party
may seek specific performance or damages for fraud or willful misconduct on the
part of the party or parties against whom damages are sought.  Notwithstanding the foregoing, the parties
hereto agree and acknowledge that (i) Buyer and Parent may exercise the right
of set-off as provided in the Earnout Agreement and (ii) money damages may not
be an adequate remedy for any breach or threatened breach of Section 6.7
and the Buyer or the Parent may, in its sole discretion, apply to any court of
law or equity of competent jurisdiction and be entitled to specific performance
and/or injunctive relief in order to enforce or prevent any violation of Section
6.7.

             7.6        Survival of
Representations and Warranties.

                           (a)         Any rights of Buyer and Parent to
indemnification under this Agreement (including under Section 7.1) shall
apply only to those claims written notice of which shall have been delivered by
Buyer or Parent to Seller on or before September 30, 2003.

                           (b)        Any rights of  the Seller and any of its officers, directors, employees and
stockholders to indemnification under this Agreement (including under Section
7.2) shall apply only to those claims written notice of which shall have
been delivered by Seller to Buyer on or before September 30, 2003.

                           (c)         Notwithstanding anything in this Section
7.6 to the contrary, (i) the representations and warranties of Seller
regarding title to the assets shall survive indefinitely, and (ii) the
representations and warranties of Seller regarding tax related matters shall
survive until the expiration of the applicable statute of limitations.

             7.7        Indemnity
Notice.  No party shall be entitled to assert any
claims against the other for misrepresentations or breaches of representations
and warranties under or pursuant to this Agreement (or for indemnification
under Article 7 hereof for such misrepresentations or breaches of
representations and warranties), unless the party asserting such claim shall
notify the other of such claim with reasonable specificity and outlining the
basis of alleged liability within the survival period of the applicable
representation and warranty and in the event of such notice the party asserting
such claim shall be entitled to pursue and seek recovery for all Losses
relating thereto, subject to the limitations set forth in Article 7.

             7.8        Indemnification Basket and Ceiling.  Any right of Buyer or Parent to
indemnification under this Agreement shall not apply to any claim until the
aggregate of all such claims totals $100,000 (the “Indemnity Basket”), in which event such
indemnity shall apply to all such claims, but only to the extent of the amount
in excess of the Indemnity Basket. 
Seller’s aggregate liability for Losses under this Article 7 will
not exceed the aggregate amount earned by the Seller pursuant to the Earnout
Agreement and such Losses shall only be payable from or offset against the
proceeds of the Earnout Agreement; provided, however, in the
event that all or a portion of the Earnout Amount under the Earnout Agreement
has been paid to Seller under the Earnout Agreement and Seller has subsequently
distributed all or a portion of such amounts to Blair and/or the Stockholders,
in addition to pursuing its rights to indemnification under this Agreement
against the Seller, each Stockholder covenants and agrees to return such
proceeds to Buyer and/or Parent (without duplication) as are necessary to
satisfy any indemnification obligations of Seller determined to be owing to
Buyer subsequent to such distributions (the “Indemnification Amount”) within 30 days of
notice of such indemnification obligation (the “Stockholder Notice”). To the extent that
Buyer and/or Parent, using commercially reasonable efforts, has not collected
such amounts from the Stockholders within 90 days of the Stockholder Notice,
the Buyer and/or Parent may pursue any uncollected portion of the
Indemnification Amount against Blair to satisfy the Indemnification Amount and
Blair covenants and agrees to promptly return an amount equal to such
uncollected portion of the Indemnification Amount.  Notwithstanding the foregoing, to the extent that the
Indemnification Amount exceeds the amount actually received by the
Stockholders, the Buyer and/or the Parent may immediately pursue such excess
against Blair in partial satisfaction of the Indemnification Amount and Blair
covenants and agrees to promptly return such excess to Buyer and/or
Parent.  Notwithstanding the foregoing,
Blair’s maximum liability under this provision shall be the amount of proceeds
actually received by Blair from the Seller under the Earnout Agreement.  The term “commercially reasonable efforts”
as such term is used in this Section 7.8 shall not include or otherwise
require the filing of any suit, claim, petition, appeal, charge, litigation,
proceeding or other similar action, in a court of law or otherwise, or the use
of a collection agency.

ARTICLE 8

DISPUTE RESOLUTION

             8.1        Exclusive
Procedure for Dispute Resolution.  Any dispute arising out of or relating to
this Agreement, including claims for indemnification pursuant to Article 7,
shall be resolved in accordance with the procedures specified in this Article
8, which shall be sole and exclusive procedures for the resolution of any
such disputes.

             8.2        Negotiation Between Executives.

                           (a)         The parties shall attempt in good faith
to resolve any dispute arising out of or relating to this Agreement promptly by
negotiation between executives of the Seller and executives of Buyer who, if
possible, shall be at a higher management level than the individuals with
direct responsibility for administration of this Agreement (the “Negotiators”).  Any party may give the other parties written
notice of any dispute not resolved in the normal course of business.  Within 15 days after delivery of the notice,
the receiving party shall submit to the others a written response.  The notice and response shall include (i) a
statement of each party’s position and a summary of arguments supporting that
position, and (ii) the name and title of the Negotiators and of any other
person who will accompany them.  Within
30 days after delivery of the disputing party’s notice, the Negotiators shall
meet at a mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, to attempt to resolve the dispute.  All reasonable requests for information made
by one party to the others will be honored.

                           (b)        If the matter has not been resolved by
these persons within 60 days of the disputing party’s notice, or if the parties
fail to meet within 30 days, any party may initiate mediation as provided
below.

                           (c)         All negotiations pursuant to this
clause shall be confidential and shall be treated as compromise and settlement
negotiations for purposes of the Federal Rules of Evidence and state rules of
evidence.

             8.3        Mediation.  If the dispute has not been resolved by
negotiation as provided above, the parties shall endeavor to settle the dispute
by mediation under the then current Center for Public Resources (CPR) Model
Procedure for Mediation of Business Disputes. 
The neutral third party will be selected from the CPR Panels of
Neutrals, with the assistance of CPR, unless the parties agree otherwise.

             8.4        Litigation.  If the dispute has not been resolved by non-binding
means as provided herein within 90 days of the initiation of such procedure
contemplated by Section 8.3 hereof, any party may initiate litigation
(upon 30 days written notice to the other party); provided, however, that if
one party has requested the others to participate in a non-binding procedure
and the others have failed to participate, the requesting party may initiate
litigation before expiration of such period.

             8.5        Provisional
Remedies.  The procedures specified in this Article
8 shall be the sole and exclusive procedures for the resolution of disputes
between the parties arising out of or relating to this Agreement; provided,
however, that a party, without prejudice to the above procedures, may file a
complaint (for statute of limitations or venue reasons or to seek preliminary
injunction or other provisional judicial relief), if in its reasonable judgment
such action is necessary to avoid irreparable damage or to preserve the status
quo.  Despite such action the parties
will continue to participate in good faith in following the dispute resolution
procedures specified in this Article 8. 
Notwithstanding the foregoing, the Buyer and the Parent may, in its sole
discretion, apply to any court of law or equity of competent jurisdiction and
be entitled to specific performance and/or injunctive relief in order to
enforce or prevent any violation of Section 6.7.

             8.6        Tolling
Statutes of Limitation.  All applicable statutes of limitation and
defenses based upon the passage of time shall be tolled while the procedures
specified in this Article 8 are pending. The parties will take such
action, if any, reasonably required to effectuate such tolling.

             8.7        Performance to Continue.  Each party shall continue to perform his or
its obligations under this Agreement pending final resolution of any dispute
arising out of or relating hereto; provided that no amounts shall be paid
pursuant to the Earnout Agreement to the extent such amounts are subject to
set-off or may become subject to set-off upon final resolution of a dispute so
arising.

ARTICLE 9

MISCELLANEOUS PROVISIONS

             9.1        Amendment and
Modification. 
Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of the Seller, the Buyer and the
Stockholders.

             9.2        Waiver of Compliance;
Consents.  Except
as otherwise provided in this Agreement, any failure of any of the parties to
comply with any obligation, covenant, agreement or condition herein may be
waived by the party or parties entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. 
Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
9.2.

             9.3        Notices.  All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, when actually received, or, if mailed by registered or certified
mail (return receipt requested), postage prepaid, two (2) business days after
being properly posted to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice; provided,
however, that notices of a change of address shall be effective only upon receipt
thereof):

	(a)	if
  to the Buyer or the Parent:
	 	 
	 	Alliance
  Data Systems Corporation
	 	17655
  Waterview Parkway
	 	Dallas,
  Texas  75292
	 	Attention:        General Counsel

 

	 	with
  a copy to:
	 	 
	 	Akin,
  Gump, Strauss, Hauer & Feld, L.L.P.
	 	1700
  Pacific Avenue
	 	Suite
  4100
	 	Dallas,
  Texas  75201
	 	Attention:        Alex Frutos

 

 

	(b)	if
  to the Seller:
	 	 
	 	Mail
  Box Capital Corporation
	 	3700
  Pipestone
	 	Dallas,
  Texas  75212
	 	Attention:        Kenneth W. Murphy
	 	 

 

	 	with
  a copy to:
	 	 
	 	Jenkens
  & Gilchrist, P.C.
	 	1445
  Ross Ave.
	 	Suite
  3200
	 	Dallas,
  Texas  75202
	 	Attention:        L. Steven Leshin

 

	(c)	if
  to a Stockholder:
	 	 
	 	To
  the Address set forth across from such Stockholder’s name on Section 9.3 of
  the Disclosure Schedule.

             9.4        GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF TEXAS (REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE TEXAS PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING
BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES.  All actions and proceedings arising out of
or relating to this Agreement shall be heard and determined in a Texas state or
federal court sitting in the City of Dallas, and the parties hereto hereby
irrevocably submit to the exclusive jurisdiction of such courts in any such
action or proceeding and irrevocably waive the defense of an inconvenient forum
to the maintenance of any such action or proceeding.

             9.5        Assignment.  This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.  Neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned by any party hereto without the prior
written consent of the other parties; provided however that the Buyer
may assign this Agreement or any of the Buyer Documents in whole or in part to
an affiliate of the Buyer or the Parent without the consent of the Seller or
the Stockholders; provided however, Buyer acknowledges and agrees that any such
assignment shall not relieve or release Buyer from its agreements and
obligations hereunder, all of which, shall survive such assignment.

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

             9.7        Interpretation.

                           (a)         The article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the
meaning or interpretation of this Agreement.

                           (b)        Whenever the words “include,” “includes” or “including” are used
in this Agreement they shall be deemed to be followed by the words “without limitation.”

                           (c)         The words “hereof,” “herein” and “herewith” and words
of similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement unless
otherwise specified.

                           (d)        As used in this Agreement, the term “person” shall mean
and include an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization and a
government or any department or agency thereof.

                           (e)         As used in this Agreement, an
individual will be deemed to have “knowledge” of a particular fact or matter if
(a) such individual is actually aware of such fact or other matter or (b) such
individual should be aware of such fact or matter after reasonable
investigation.  The terms “known,” “to Seller’s knowledge”
and “to the knowledge of
Seller” and words of similar import shall mean the knowledge of
(x) any individual serving as a director, manager, officer or similar position
of Seller or (y) any Stockholder.

                           (f)         The plural of any defined term shall
have a meaning correlative to such defined term, and words denoting any gender
shall include all genders.  Where a word
or phrase is defined herein, each of its other grammatical forms shall have a
corresponding meaning.

                           (g)        A reference to any party to this
Agreement or any other agreement or document shall include such party’s
successors and permitted assigns.

                           (h)        A reference to any legislation or to any
provision of any legislation shall include any modification or re-enactment
thereof, any legislative provision substituted therefor and all regulations and
statutory instruments issued thereunder or pursuant thereto.

                           (i)          The parties have participated jointly
in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties,
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Agreement.

             9.8        Entire Agreement.  This Agreement, including the Exhibits and
Disclosure Schedules and the documents, certificates and instruments referred
to herein,
and that certain Confidentiality Agreement by and between the Parent
and the Seller dated March 26, 2001 (the “Confidentiality Agreement”) embody the entire
agreement and understanding of the parties hereto in respect of the
transactions contemplated by this Agreement. 
There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred to
herein.  This Agreement supersedes all
prior agreements and understandings, other than the Confidentiality Agreement
(which shall remain in full force and effect), between the parties with respect
to such transactions.

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

             9.10      No Third Party
Beneficiary. 
Nothing herein, expressed or implied, is intended or shall be construed
to confer upon or give to any person, firm, corporation or legal entity, other
than the parties hereto and their respective successors and permitted assigns,
any right, remedy, or other benefit under or by reason of this Agreement or any
documents executed in connection with this Agreement.

[SIGNATURE PAGES FOLLOW]

 

             IN WITNESS WHEREOF, each of the
Seller, the Stockholders, the Buyer and the Parent has caused this Agreement to
be signed by its duly authorized officers as of the date first above written.

	 	ALLIANCE DATA SYSTEMS CORPORATION
	 	 	 
	 	 	 
	 	By:	

	 	Name:	 
	 	Title:	 
	 	 	 
	 	 	 
	 	ADS MB CORPORATION
	 	 	 
	 	By:	

	 	Name:	 
	 	Title:	 
	 	 	 
	 	 	 
	 	MAIL BOX CAPITAL CORPORATION
	 	 
	 	By:	

	 	Name:	 
	 	Title:	 

 

 

STOCKHOLDERS

	 	By:	

	 	 	Kenneth W. Murphy, individually
	 	 	 
	 	By:	

	 	 	C. Cleave Buchanan, Jr., individually
	 	 	 
	 	By:	

	 	 	Robert Meador, individually
	 	 	 
	 	By:	

	 	 	John Erickson, individually
	 	 	 
	 	By:	

	 	 	Richard Bainter, individually
	 	 	 
	 	By:	

	 	 	Earl Johnson, individually
	 	 	 
	 	By:	

	 	 	Charles Buchanan, individually
	 	 	 
	 	By:	

	 	 	Stacy Riffe, individuallyPrepared by MerrillDirect

EXHIBIT 10.2

EARNOUT AGREEMENT

             THIS EARNOUT AGREEMENT (this “Agreement”), dated as
of September 1, 2001 (the “Closing Date”), is made by and between ADS MB
Corporation, a Delaware corporation (“Buyer”) and Mail Box Capital Corporation, a Delaware
corporation (“Seller”).  Buyer
and Seller are sometimes collectively referred to as the “Parties,” and individually referred to as a “Party.”

RECITALS

             A.         Buyer, Alliance Data Systems Corporation, a
Delaware corporation (the “Parent”) and Seller, among others, are a party to
that certain Asset Purchase Agreement, dated as of the date hereof (the “Purchase Agreement”),
pursuant to which Buyer has agreed to purchase and assume and Seller has agreed
to sell and assign all of the Assets and Assumed Liabilities (as defined in the
Purchase Agreement) of Seller.

             B.          The
Purchase Agreement provides for, among other things, the execution and delivery
of this Agreement in order to establish the terms and conditions of the earnout
portion of the purchase price specified in the Purchase Agreement.

             C.          Capitalized terms used in this Agreement but not
defined herein shall have the meanings set forth in the Purchase Agreement.

STATEMENT OF AGREEMENT

             NOW, THEREFORE, in consideration of
the premises and the mutual agreements, covenants, representations and
warranties set forth in this Agreement and for other good, valid and binding
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I.

DEFINITIONS

             Section 1.1       Definitions. 
The terms defined in this Article I will have the meanings
specified below for all purposes of this Agreement:

             “Agreement” has the meaning set forth in
the first paragraph.

             “Books and Records” means the books and
records maintained for or related to the Buyer, as the case may be, including
all accounting records, computerized records and storage media and the software
used in connection therewith.

             “Calculation Statement” has the meaning
set forth in Section 2.3(a).

             “Closing Date” has the meaning set forth
in the first paragraph.

             “Earnout Period” means the consecutive
twelve (12) month period beginning on January 1, 2002 and ending on
December 31, 2002.

             “EBITDA” means, with respect to a
particular period, the consolidated net income of the Buyer before any
deduction for interest, income taxes, depreciation or amortization.  EBITDA will be determined on a consolidated
basis for the Buyer in accordance with GAAP, consistently applied as to the
Buyer, prepared from the applicable accounts as reflected on the Books and
Records after making all year-end adjustments, modified as set forth on Exhibit
A attached hereto.

             “Financial Statements” has the meaning
set forth in Section 2.3(a).

             “GAAP” means generally accepted
accounting principles in effect in the United States of America as of the date
the Financial Statements are prepared.

             “Objection Notice” has the meaning set
forth in Section 2.4(b).

             “Parties” and “Party” has the
meaning set forth in the first paragraph.

             “Purchase Agreement” will have the
meaning set forth in the Recitals.

             “Representatives” means, such entity’s
directors, employees, officers, agents, accountants, attorneys and
shareholders.

             Section 1.2       Accounting Terms. 
Except as otherwise provided in this Agreement, all accounting terms
defined in this Agreement, whether defined herein or otherwise, will be
construed in accordance with GAAP.

             Section 1.3       Articles, Sections and Exhibits.  Except as specifically stated otherwise,
references to Articles, Sections and Exhibits refer to the Articles, Sections
and Schedules of this Agreement.

             Section 1.4       Drafting. 
Neither this Agreement nor any provision set forth in this Agreement
will be interpreted in favor of or against any Party because such Party or its
legal counsel drafted this Agreement or such provision.  No prior draft of this Agreement or any
provision set forth in this Agreement will be used when interpreting this
Agreement or its provisions.

             Section 1.5       Headings. 
Article and section headings are used in this Agreement only as a matter
of convenience and will not have any effect upon the construction or
interpretation of this Agreement.

             Section 1.6       Include.  The
term “include” or any derivative of such term does not mean that the items following
such term are the only types of such items.

             Section 1.7       Plural and Singular Words.  Whenever the plural form of a word is used in this Agreement,
that word will include the singular form of that word.  Whenever the singular form of a word is used
in this Agreement, that word will include the plural form of that word.

             Section 1.8       Pronouns. 
Whenever a pronoun of a particular gender is used in this Agreement, if
appropriate that pronoun also will refer to the other gender and the
neuter.  Whenever a neuter pronoun is
used in this Agreement, if appropriate that pronoun also will refer to the
masculine and feminine gender.

ARTICLE II.

EARNOUT PAYMENTS

             Section 2.1       Earnout Payments. 
As a component of the Final Purchase Price, Buyer will pay to Seller the
Earnout Amount (as defined below) within ten (10) Business Days after the date
on which such Earnout Amount is deemed final in accordance with Section
2.4(c).  Buyer will make such
payments by wire transfer of immediately available funds to the bank account(s)
set forth on a notice given by Seller to Buyer on the date that the Earnout
Amount is deemed final in accordance with Section 2.4(c).  Buyer acknowledges that Seller has entered
into an Agreement with William Blair Mezzanine Capital Fund II, L.P. (“Blair”), dated as of
the date hereof, which sets forth certain understandings between Seller and
Blair with respect to the priority of payments by the Seller of the Earnout
Amount (the “Blair
Letter”).

             Section 2.2       Earnout Amount. 
The Earnout Amount shall be equal to (a) actual EBITDA for the Earnout
Period multiplied by six, minus (b) the Up-Front Purchase Price; provided,
however, (i) if actual EBITDA for the four months ended December 31,
2001 (the period is hereinafter referred to as the “2001 Period,” and the
amount is hereinafter referred to as the “2001 EBITDA”) is less than $1,900,000, the
Earnout Amount shall be reduced by an amount equal to six multiplied by the
amount by which 2001 EBITDA is less than $1,900,000 or (ii) if 2001 EBITDA is
greater than $2,500,000, the Earnout Amount shall be increased by an amount
equal to six multiplied by the amount by which 2001 EBITDA is greater than
$2,500,000.  Notwithstanding the
foregoing, the Earnout Amount shall not exceed $60,000,000 less the Up-Front
Purchase Price.  By way of example only,
Exhibit B attached hereto, sets forth example calculations for four
scenarios.

             Section 2.3       Calculation of 2001 EBITDA.

             (a)         Preparation
of the Calculation Statement. 
As soon as reasonably practicable, but not later than 90 calendar days
after the end of the 2001 Period, Buyer will deliver to Seller (i) the audited
balance sheet of Buyer as of the end of such period and the statement of
operations and cash flows of Buyer for the period ended on such date, prepared in
accordance with GAAP consistently applied as to the Buyer, with the exception
of footnotes thereto (the “2001 Financial Statements”), and (ii) a statement
setting forth in reasonable detail the computation of 2001 EBITDA for the 2001
Period, including identification of all excluded items and adjustments and all
necessary back up calculations (the work papers showing such calculation, the “2001 Calculation Statement”).

             (b)        Review of
the 2001 Financial Statements and the 2001 Calculation Statement.  As soon as practicable, but not later than
25 calendar days after receipt of the 2001 Financial Statements and the 2001
Calculation Statement, Seller will inform Buyer in writing of any objection it
has to the 2001 Financial Statements or the 2001 Calculation Statement, which
objection, if any, will set forth in reasonable detail Seller’s objections and
the basis for those objections (an “Objection Notice”). 
If Seller so objects and the Parties do not resolve such objections on a
mutually agreeable basis within 120 calendar days after the end of the 2001
Period, then the disagreement will be resolved as soon as practicable
thereafter, but not later than 150 calendar days after the end of the 2001
Period, by an accounting firm of national reputation, which accounting firm
will be selected jointly by Buyer on the one hand and Seller on the other hand
and in no event may such accounting firm resolve the objection in a manner that
would result in 2001 EBITDA being greater or lesser in the aggregate than such
amounts originally proposed by Buyer and Seller.  The Parties acknowledge that the scope of such accounting firm’s
work will be limited to resolving the objections set forth in the Objection
Notice.  The decision of such accounting
firm, which shall be set forth in writing, shall be final and binding upon the
Parties, and may be entered as a final judgment in any court of proper
jurisdiction.

             (c)         Calculation
Deemed Final.  The 2001
Financial Statements, the 2001 Calculation Statement (as both or either may be
adjusted, if applicable, by the agreement of the Parties or the decision of the
accounting firm) and 2001 EBITDA based thereon will be deemed final upon the
earlier to occur of (i) the agreement of the Parties, (ii) the decision of the
accounting firm, or (iii) the failure of Seller to deliver an Objection Notice
to Buyer within 25 calendar days after receipt by Seller of the 2001 Financial
Statements and the 2001 Calculation Statement. 
The finally determined 2001 EBITDA shall be the amount used in the final
calculation of the Earnout Amount as set forth in Section 2.2.

             Section 2.4       Calculation of Earnout Payments.

             (a)         Preparation
of the 2002 Calculation Statement. 
As soon as reasonably practicable, but not later than 90 calendar days
after the end of the Earnout Period, Buyer will deliver to Seller (i) the
audited balance sheet of Buyer as of the end of such period and the statement
of operations and cash flows of Buyer for the period ended on such date,
prepared in accordance with GAAP consistently applied as to the Buyer, with the
exception of footnotes thereto (the “2002 Financial Statements”), (ii) a calculation of the
Earnout Amount in the manner provided in Section 2.2, based on the 2002
Financial Statements and the final amount of 2001 EBITDA, along with a
statement setting forth in reasonable detail the computation of EBITDA for the
Earnout Period, including identification of all excluded items and adjustments
and all necessary back up calculations (the work papers showing such
calculation, the “2002 Calculation
Statement”) and (iii) by wire transfer of immediately available
funds an amount equal to half of the amount shown as owing to Seller in the
Calculation Statement.

             (b)        Review of the 2002 Financial Statements and the 2002
Calculation Statement.  As
soon as practicable, but not later than 25 calendar days after receipt of the
2002 Financial Statements and the 2002 Calculation Statement, Seller will
inform Buyer in writing of any objection it has to the 2002 Financial
Statements or the 2002 Calculation Statement, which objection, if any, will set
forth in reasonable detail Seller’s objections and the basis for those
objections.  If Seller so objects and
the Parties do not resolve such objections on a mutually agreeable basis within
120 calendar days after the end of the Earnout Period, then the disagreement
will be resolved as soon as practicable thereafter, but not later than 150
calendar days after the end of the Earnout Period, by an accounting firm of
national reputation, which accounting firm will be selected jointly by Buyer on
the one hand and Seller on the other hand and in no event may such accounting
firm resolve the objection in a manner that would result in the Earnout Amount
being greater or lesser in the aggregate than the amounts originally proposed
by Buyer and Seller.  The Parties
acknowledge that the scope of such accounting firm’s work will be limited to
resolving the objections set forth in the Objection Notice.  The decision of such accounting firm, which
shall be set forth in writing, shall be final and binding upon the Parties, and
may be entered as a final judgment in any court of proper jurisdiction.

             (c)         Calculation Deemed Final; Payment.  The 2002 Financial Statements, the 2002
Calculation Statement (as both or either may be adjusted, if applicable, by the
agreement of the Parties or the decision of the accounting firm) and the
Earnout Amount based thereon will be deemed final upon the earlier to occur of
(i) the agreement of the Parties, (ii) the decision of the accounting firm, or
(iii) the failure of Seller to deliver an Objection Notice to Buyer within 25
calendar days after receipt by Seller of the 2002 Financial Statements and the
2002 Calculation Statement.  The Buyer
shall pay to Seller the balance of the finally determined Earnout Amount, after
deducting amounts already paid to Seller pursuant to Section 2.4(a) and
subject to Section 2.6, within ten (10) Business Days of the 2002
Financial Statements, the 2002 Calculation Statement and the Earnout Amount
becoming final pursuant to this Section 2.4(c).

             Section 2.5       Fees and Expenses. 
Each Party will bear the fees, costs and expenses of its own
accountants, and will share equally in the fees, costs and expenses of the
accounting firm selected by the Parties to resolve any disagreements regarding
any Objection Notice.

             Section 2.6       Right to Set-off. 
Buyer shall have the right to withhold and set-off against the Earnout
Amount any amount owed or subject to final resolution of any dispute arising
out of or relating to the Purchase Agreement to Buyer and/or Parent by Seller.

             Section 2.7       Access to Books and Records.  Each of Buyer and Seller will permit the other’s representatives
reasonable access to the Books and Records (and shall permit such persons to
examine and photocopy such Books and Records at such person’s expense to the
extent reasonably requested by such person) necessary to perform any analysis
such party deems necessary in order to calculate the 2001 EBITDA and/or the
Earnout Amount; provided, however, that any such access or
investigation shall be conducted by Seller and Seller’s Representatives in such
a manner as not to unreasonably interfere with the operation of the business of
the Buyer.

 

ARTICLE III.

OPERATION OF THE

BUSINESS; OTHER AGREEMENTS

             Section 3.1       Operation of the Business.

             (a)         The
Buyer agrees that during the Earnout Period, for so long as Buyer achieves at
least 70% of the business plan of the Seller at the Closing Date attached
hereto as Exhibit C (the “Business Plan”) as of March 31, 2002, June 30, 2002 and
September 30, 2002, Buyer shall not, without the written consent of Seller:

             (i)          acquire
the stock or assets of any other businesses;

             (ii)         sell or dispose of the stock or assets of the Buyer, other
than in the ordinary course of business;

             (iii)        engage in any unrelated line of business in which the Seller
is not engaged at the Closing;

 

             (v)        open
any additional offices, manufacturing plants or other facilities;

             (vi)       effect any change of more than 10% in the number of employees
or the total payroll of the Seller at the Closing, other than in the ordinary
course of business; and

             (vii)      discontinue any line of business in which the Seller is engaged
at the Closing.

             (b)        The
Buyer agrees that during the Earnout Period, for so long as Buyer achieves at
least 70% of the Business Plan as of March 31, 2002, June 30, 2002 and
September 30, 2002:

             (i)          Buyer
will remain a separate corporation rather than a division of Parent and that
substantially all of the assets of Buyer will continue to be owned by Buyer,
except such assets as may be disposed in the ordinary course of business;

             (ii)         Buyer will operate the business acquired from the Seller in
the ordinary course consistent with the Business Plan;

             (iii)        Buyer will ensure that Buyer is sufficiently capitalized and
has sufficient working capital to operate the business acquired from the Seller
in the ordinary course consistent with the Business Plan and assuming capital
expenditures do not exceed $500,000 during the Earnout Period; and

             (iv)       any purchases or sales of goods or services or any other
transactions between Buyer on the one hand and Parent or any of its other
subsidiaries or affiliates on the other, will be on terms no less favorable to
Buyer than would be obtainable by it in any arms-length transaction with an
unaffiliated third party.

             (c)         For
purposes of this Section 3.1, Kenneth W. Murphy, Robert Meador, John
Erickson and Charles Buchanan (the “Consent Panel”) shall have all requisite power and
authority to bind the Seller, subject to any contractual restrictions of the
Seller contained in the Blair Letter. 
The size and composition of the Consent Panel shall not be changed in
any fashion during the Earnout Period.

             (d)        During
the Earnout Period, Buyer may Terminate with Cause any Designated Individual;
provided, however, Buyer shall not, during the Earnout Period, Terminate
Without Cause any Designated Individual. 
For purposes of this Section 3.2(d): “Designated Individual” means each of Kenneth
W. Murphy, Charles Buchanan, Robert Meador, Earl Johnson and Stacy Riffe; “Terminate Without Cause”
means the termination of an individual’s employment with the Buyer or the
reduction of his or her salary, benefits or responsibilities (other than as
provided in the final sentence of this Section 3.1(d)) for any reason
other than Voluntary Termination or Termination With Cause; “Termination With Cause”
means the termination of an individual’s employment due to (i) misappropriation
of funds or property of the Buyer or any of its affiliates or such individual’s
admission or conviction of fraud or embezzlement against the Buyer or any of
its affiliates (including a plea of nolo contendere), (ii) the conviction of or
entry of a plea of nolo contendere by such individual for any felony or any
misdemeanor involving moral turpitude, or (iii) any action by such individual
which is intended to result in substantial enrichment of such individual at the
expense of the Buyer or any of its affiliates or any willful gross misconduct
which has an adverse impact on the business, reputation or standing of the
Buyer in the community, including, without limitation, acts related to moral
turpitude and acts prohibited by the Buyer’s or the Parent’s policy on ethics;
“Voluntary Termination”
means an individual’s voluntary termination of his or her employment hereunder
for any reason.  Notwithstanding the
foregoing, Buyer may reduce the responsibilities (but not the salary or
benefits) of any Designated Individual if Buyer fails to achieve at least 70%
of the Business Plan as of March 31, 2002, June 30, 2002 and September 30,
2002.

             Section 3.2       Sale or Discontinuation.  If the business of the Parent shall be sold as an entirety
(either by sale of capital stock or assets, a merger or otherwise) to an
unaffiliated third party (the “Acquiror”) at any time from the Closing Date through the
Earnout Period, the Parent shall cause the Acquiror to assume the obligations
of the Buyer and the Parent under this Agreement.  Upon satisfaction of such obligation, the Buyer and the Parent
shall not have any further liability to Seller under this Agreement.

ARTICLE IV.

MISCELLANEOUS

             Section 4.1       Amendment and Modification.  Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of the
Parties with respect to any of the terms contained herein.

             Section 4.2       Waiver of Compliance; Consents.  Except as otherwise provided in this
Agreement, any failure of any of the Parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the Party or Parties
entitled to the benefits thereof only by a written instrument signed by the
Party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.  Whenever this Agreement
requires or permits consent by or on behalf of any Party hereto, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 4.2.

             Section 4.3       Notices.  All
notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally or mailed by registered or certified mail
(return receipt requested), postage prepaid, to the Parties at the following
addresses (or at such other address for a Party as shall be specified by like
notice; provided, however, that notices of a change of address
shall be effective only upon receipt thereof):

             

	(a)	if
  to Buyer or Parent:
	 	 
	 	Alliance
  Data Systems Corporation
	 	17655
  Waterview Parkway
	 	Dallas,
  Texas  75292
	 	Attention:        General Counsel

 

	 	with
  a copy to:
	 	 
	 	Akin,
  Gump, Strauss, Hauer & Feld L.L.P.
	 	1700
  Pacific Avenue
	 	Suite
  1700
	 	Dallas,
  Texas  75201
	 	Attention:        Alex Frutos

 

 

	(b)	if
  to Seller:
	 	 
	 	Mail
  Box Capital Corporation
	 	3700
  Pipestone
	 	Dallas,
  Texas  75212
	 	Attention:        Kenneth W. Murphy

 

	 	with
  a copy to
	 	 
	 	Jenkens
  & Gilchrist, P.C.
	 	1445
  Ross Ave.
	 	Suite
  3200
	 	Dallas,
  Texas  75202
	 	Attention:  L. Steven Leshin

 

	(c)	if
  to Blair:
	 	 
	 	William
  Blair Mezzanine Capital Fund II, L.P.
	 	222
  West Adams Street
	 	Chicago,
  Illinois 60606
	 	Attention:        Terrance M. Shipp & David M. Jones

 

	(d)	with
  a copy to:  Winston & Strawn
	 	 
	 	35
  West Wacker Drive
	 	Chicago,
  Illinois  60601
	 	Attn:  Laurence R. Bronska, Esq.
	 	Telecopy:  (312) 558-5700

             Section 4.4       GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF TEXAS (REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE TEXAS PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING
BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND
REMEDIES.  All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined in a
Texas state or federal court sitting in the City of Dallas, and the Parties
hereto hereby irrevocably submit to the exclusive jurisdiction of such courts
in any such action or proceeding and irrevocably waive the defense of an
inconvenient forum to the maintenance of any such action or proceeding.

             Section 4.5       Assignment.  This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the Parties hereto and
their respective successors and permitted assigns.  Except as provided in Section 3.2 hereof, neither this
Agreement nor any of the rights, interests or obligations hereunder may be
assigned by any Party hereto without the prior written consent of the other
Parties; provided, however, that Buyer may assign this Agreement
in whole or in part to any of its affiliates without the consent of Seller; provided,
further, Buyer acknowledges and agrees that any such assignment shall
not relieve or release Buyer from its agreements and obligations hereunder, all
of which shall survive such assignment.

             Section 4.6       Counterparts.  This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

             Section 4.7       Entire Agreement.  This Agreement, the Purchase Agreement
(including the Exhibits and Disclosure Schedules thereto and the documents,
certificates and instruments referred to therein) and that certain
Confidentiality Agreement by and between Parent and Seller dated March 26, 2001
(the “Confidentiality
Agreement”) embody the entire agreement and understanding of the
parties hereto in respect of the transactions contemplated by this
Agreement.  There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein.  This Agreement supersedes all prior agreements and
understandings, other than the Purchase Agreement and the Confidentiality
Agreement, between the Parties with respect to such transactions.

             Section 4.8       Severability.  If any term or other provision of this
Agreement is determined to be invalid, illegal or incapable of being enforced
by any rule of law or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any Party. 
Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.

             Section 4.9       No Third Party Beneficiary.  Nothing herein, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
corporation or legal entity, other than the Parties hereto and their respective
successors and permitted assigns, any right, remedy, or other benefit under or
by reason of this Agreement or any documents executed in connection with this
Agreement.  Buyer acknowledges that Seller has entered
into an Agreement with Blair, dated as of the date hereof, which sets forth
certain understandings between Seller and Blair with respect to the priority of
payments by the Seller of the Earnout Amount.

             Section 4.10     Representation by Legal Counsel.  Each Party is a sophisticated party that was
advised by experienced legal counsel and other advisors in the negotiation and
preparation of this Agreement.

[SIGNATURE PAGE FOLLOWS]

 

                           IN
WITNESS WHEREOF, each Party has caused this Agreement to be signed by its duly
authorized officers as of the date first above written.

	BUYER:	ADS
  MB CORPORATION
	 	 
	 	By:

	 	Name:
	 	Title:
	 	 
	 	 
	SELLER:	MAIL BOX CAPITAL CORPORATION
	 	 
	 	By:

	 	Name:
	 	Title:

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