AGREEMENT AND PLAN OF MERGER

Between

BUSINESS SERVICES HOLDINGS, INC.

and

WORLD FINANCIAL NETWORK HOLDING CORPORATION

Dated as of August 30, 1996

TABLE OF CONTENTS

                                                                              PAGE
                                    ARTICLE I

                                   THE MERGER

SECTION 1.01  The Merger ....................................................   1
SECTION 1.02  Effect of the Merger ..........................................   1
SECTION 1.03  Consummation of the Merger ....................................   2
SECTION 1.04  Charter; By-Laws; Directors and
              Officers ......................................................   2
SECTION 1.05  Further Assurances ............................................   3


                                   ARTICLE II

                            CONVERSION OF SECURITIES

SECTION 2.01  Conversion of Common and Preferred
              Stock of BSI .................................................   3
SECTION 2.02  Stock Options, Warrants, Etc .................................   4
SECTION 2.03  Surrender and Exchange of Securities .........................   4
SECTION 2.04  Closing of Stock Transfer Books ..............................   5


                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

SECTION 3.01  Representations and Warranties of
              BSI and WFN ..................................................   5


                                   ARTICLE IV

                                    COVENANTS

SECTION 4.01  Certain Covenants ...........................................   13
SECTION 4.02  Access to Information .......................................   14
SECTION 4.03  Other Agreements ............................................   14
SECTION 4.04  Notification of Certain Matters .............................   14
SECTION 4.05  Indemnification .............................................   14

                                    ARTICLE V

                       CONDITIONS PRECEDENT TO THE MERGER

SECTION 5.01  Conditions Precedent to the Merger ..........................   15


                                   ARTICLE VI

                           TERMINATION AND ABANDONMENT

SECTION 6.01  Termination and Abandonment .................................   17
SECTION 6.02  Effect of Termination .......................................   17


                                   ARTICLE VII

                                  MISCELLANEOUS

SECTION 7.01  Expenses, Etc ...............................................   17
SECTION 7.02  Publicity ...................................................   18
SECTION 7.03  Execution in Counterparts ...................................   18
SECTION 7.04  Notices .....................................................   18
SECTION 7.05  Waivers .....................................................   18
SECTION 7.06  Amendments, Supplements, Etc ................................   19
SECTION 7.07  Entire Agreement ............................................   19
SECTION 7.08  Applicable Law ..............................................   19
SECTION 7.09  Binding Effect, Benefits ....................................   19
SECTION 7.10  Assignability ...............................................   19
SECTION 7.11  Variation and Amendment .....................................   20


                                       ii

                         INDEX TO SCHEDULES AND EXHIBITS


SCHEDULE                         DESCRIPTION

3.01 (b)                   Subsidiaries
3.01 (c)                   Capitalization
3.01 (e)                   Effect of Agreements
3.01 (f)                   Financial Statements
3.01 (g)                   Certain Changes
3.01 (i)                   Litigation
3.01 (j)                   Labor Controversies
3.01 (l)                   Approvals
3.01 (m)                   Employee Benefit Plans
5.01 (e)                   Consents



EXHIBIT          SECTION  REF.            DESCRIPTION

   A                5.01(f)           Form of Amended and Restated Stockholders
                                      Agreement

   B                5.01(g)           Form of Securities Purchase Agreement

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of August 30, 1996, between BUSINESS SERVICES HOLDINGS, INC., a Delaware corporation ("BSI"), and WORLD FINANCIAL NETWORK HOLDING CORPORATION, a Delaware corporation ("WFN"). BSI and WFN are hereinafter sometimes referred to as the "Constituent Corporations" and WFN as the "Surviving Corporation".

WHEREAS, BSI and WFN desire that BSI merge with and into WFN (the "Merger"), upon the terms and conditions set forth herein and in accordance with the General Corporation Law of the State of Delaware (the "Delaware GCL"), with the result that WFN shall continue as the surviving corporation and the separate existence of BSI shall cease; and

WHEREAS, BSI and WFN desire that at the Effective Time (as hereinafter defined) all issued and outstanding shares of Common Stock, $.01 par value ("BSI Common Stock"), and Preferred Stock, $1.00 par value ("BSI Preferred Stock"), of BSI (excluding shares held in the treasury of BSI) be converted into the right to receive fully paid and nonassessable shares of Common Stock, $.01 par value ("WFN Common Stock"), of WFN, as hereinafter provided; and

WHEREAS, the respective Boards of Directors and stockholders of BSI and WFN have approved the Merger;

NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants, agreements and conditions contained herein, and in order to set forth the terms and conditions of the Merger and the mode of carrying the same into effect, the parties hereto hereby agree as follows:

ARTICLE I

THE MERGER

SECTION 1.01 THE MERGER. Subject to the terms and conditions of this Agreement, at the Effective Time, in accordance with this Agreement and the Delaware GCL, BSI shall be merged with and into WFN, the separate existence of BSI shall cease, and WFN shall continue as the surviving corporation under the corporate name of "World Financial Network Holding Corporation".

SECTION 1.02 EFFECT OF THE MERGER. Upon the effectiveness of the Merger, the Surviving Corporation shall possess all of the rights, privileges, powers and franchises as well of a public as of a private nature, and be subject to all the

restrictions, disabilities and duties, of each of the Constituent Corporations; and all and singular, the rights, privileges, powers and franchises of each of the Constituent Corporations, and all property, real, personal and mixed, and all debts due to any of the Constituent Corporations on whatever account, as well for stock subscriptions as all other things in action or belonging to each of the Constituent Corporations, shall be vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of the Constituent Corporations, and the title to any real estate vested by deed or otherwise in any of the Constituent Corporations shall not revert or be in any way impaired by reason of the Merger; but all rights of creditors and all liens upon any property of any of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities and duties of the Constituent Corporations (including, without limitation, the indebtedness evidenced by the 10% Subordinated Note due January 24, 2002 of BSI in the aggregate principal amount of $50,000,000 (the "Note")) shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it. In connection with the foregoing, the Surviving Corporation shall, at the Effective Time (as hereinafter defined), in addition to such other actions as may be required in connection with the Merger, execute and deliver to the holder of the Note, in substitution therefore, a 10% Subordinated Note due January 24, 2002 of the Surviving Corporation having terms identical to those contained in the Note.

SECTION 1.03 CONSUMMATION OF THE MERGER. As soon as practicable after the satisfaction or waiver of the conditions to the obligations of the parties to effect the Merger set forth herein, provided that this Agreement has not been terminated previously, the parties hereto will cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware a properly executed Certificate of Merger (the time of such filing being the "Effective Time").

SECTION 1.04 CHARTER; BY-LAWS; DIRECTORS AND OFFICERS. The Certificate of Incorporation of the Surviving Corporation from and after the Effective Time shall be the Certificate of Incorporation of WFN as in effect immediately prior to the Effective Time, until thereafter amended in accordance with the provisions thereof, the terms of the Amended and Restated Stockholders Agreement referred to in Section 5.01(f) hereof and as provided by the Delaware GCL. The By-Laws of the Surviving Corporation from and after the Effective Time shall be the By-Laws of WFN as in effect immediately prior to the Effective Time, continuing until thereafter amended in accordance with the

provisions thereof, the terms of the Amended and Restated Stockholders Agreement referred to in Section 5.01(f) hereof and the Certificate of Incorporation of the Surviving Corporation and as provided by the Delaware GCL. The initial directors and officers of the Surviving Corporation shall be the directors and officers, respectively, of WFN immediately prior to the Effective Time, in each case until their respective successors are duly elected and qualified.

SECTION 1.05 FURTHER ASSURANCES. If at any time after the Effective Time the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of either of the Constituent Corporations, or (ii) otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of either of the Constituent Corporations, all such deeds, bills of sale, assignments and assurances and do, in the name and on behalf of such Constituent Corporation, all such other acts and things necessary, desirable or proper to vest, perfect or confirm its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of such Constituent Corporation and otherwise to carry out the purposes of this Agreement.

ARTICLE II

CONVERSION OF SECURITIES

SECTION 2.01 CONVERSION OF COMMON AND PREFERRED STOCK OF BSI. By virtue of the Merger and without any action on the part of the holders of the capital stock of BSI, at the Effective Time all outstanding shares of the capital stock of BSI (excluding shares held in the treasury of BSI, which shall be cancelled as provided in paragraph (d) below) shall be converted into the right to receive fully paid and nonassessable shares of WFN Common Stock on the following basis:

(a) BSI COMMON STOCK. Each share of BSI Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive fully paid and nonassessable shares of WFN Common Stock, at the rate of one (1) share of WFN Common Stock for each share of BSI Common Stock.

(b) BSI PREFERRED STOCK. Each share of BSI Preferred Stock issued and outstanding immediately prior to the Effective

Time shall be converted into the right to receive a number of fully paid and nonassessable shares of WFN Common Stock equal to the quotient derived by dividing:

(i) an amount equal to the sum of (x) $100 (the liquidation value of each share of BSI Preferred Stock), plus (y) any accrued and unpaid dividends thereon through the Effective Time; by

(ii) $1.00.

(c) PREFERRED STOCK DIVIDENDS. At the Effective Time the obligations of BSI to pay accrued and unpaid dividends on the issued and outstanding shares of BSI Preferred Stock shall be cancelled.

(d) TREASURY STOCK. Each share of capital stock of BSI that is held in the treasury of BSI shall be cancel led and retired at the Effective Time and no capital stock of WFN, cash or other consideration shall be paid or delivered in exchange therefor.

SECTION 2.02 STOCK OPTIONS, WARRANTS. ETC. Each outstanding stock option, warrant or other right to purchase BSI Common Stock, whether or not then exercisable or vested, shall remain outstanding after the Effective Time and shall at the Effective Time, subject to the satisfaction of the vesting provisions and the payment of the exercise price thereof, be converted, subject to Section 2.03(c) hereof, into and become the right to purchase that number of shares of WFN Common Stock equal to the number of shares of BSI Common Stock that would have been issued if such option, warrant or other right had been exercised immediately prior to the Effective Time.

SECTION 2.03 SURRENDER AND EXCHANGE OF SECURITIES. (a) At the Effective Time, each holder of an outstanding certificate or certificates that prior thereto represented shares of BSI Common Stock or BSI Preferred Stock shall surrender the same to WFN or its agent, and each such holder shall be entitled upon such surrender to receive in exchange therefor, without cost to it, the number of shares of WFN Common Stock into which the shares theretofore represented by the certificate so surrendered shall have been converted as provided in Section 2.01 hereof, and the certificate or certificates so surrendered in exchange for such consideration shall forthwith be cancelled by WFN.

(b) If a holder of BSI Common Stock or BSI Preferred Stock has lost the certificate owned by such holder, then such holder shall submit an affidavit describing the lost certificate, the number of shares evidenced thereby and affirming the loss of that certificate in lieu of surrendering the lost certificate to

WFN, which shall deem such lost certificate cancelled. Until so surrendered, the outstanding certificates that, prior to the Effective Time, represented shares of the capital stock of BSI that shall have been converted as aforesaid shall be deemed for all corporate purposes, except as hereinafter provided, to evidence the ownership of the consideration into which such shares have been so converted.

(c) At the Effective Time, each holder of an outstanding option or warrant to purchase shares of BSI Common Stock shall surrender the same to WFN or its agent, and each such holder shall be entitled upon such surrender to receive in exchange therefor, without cost to it, an option or warrant to purchase the number of shares of WFN Common Stock calculated as provided in
Section 2.02 hereof, and the option or warrant so surrendered in exchange shall forthwith be cancelled by WFN.

(d) No certificates or scrip representing fractional shares of WFN Common Stock shall be issued upon the surrender for exchange of certificates held by stockholders of BSI and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of WFN.

SECTION 2.04 CLOSING OF STOCK TRANSFER BOOKS. On and after the Effective Time there shall be no transfers on the stock transfer books of BSI of shares of capital stock of BSI that were issued and outstanding immediately prior to the Effective Time.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF BSI AND WFN. Each of BSI and WFN (being hereinafter referred to, collectively, as the "Merger Parties" and, individually, as a "Merger Party") represents and warrants, only as to itself and its subsidiaries, to the other Merger Party as follows:

(a) ORGANIZATION, POWER, ETC. (i) Such Merger Party is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified or licensed and is in good standing to do business as a foreign corporation in each jurisdiction in which the property owned, leased or operated by it or the nature of its business, as now being conducted, makes such qualification or licensing necessary (other than any such jurisdictions in which the failure to be so qualified would not, in the aggregate, have a material adverse effect on its business, properties or financial condition), and has all requisite corporate power and authority to own, operate and lease its properties, to carry on its busi-

ness as now being conducted and to execute, deliver and perform this Agreement.

(ii) WFN has all requisite corporate power and authority to execute, deliver and perform the Amended and Restated Stockholders Agreement (as hereinafter defined) and to issue and deliver the shares of WFN Common Stock issuable upon the Merger at the Effective Time, as contemplated herein.

(b) SUBSIDIARIES. Except as set forth in Schedule 3.01(b) hereto, in Part I thereof in the case of BSI and in Part II thereof in the case of WFN, neither such Merger Party nor any of its subsidiaries owns of record or beneficially, directly or indirectly, (i) any shares of outstanding capital stock or securities convertible into capital stock of any other corporation or
(ii) any participating interest in any partnership, joint venture or other non-corporate business enterprise. Except as set forth in Schedule 3.01(b), each subsidiary of such Merger Party is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as it is now being conducted. Except as set forth in Schedule 3.01(b), each such subsidiary is duly qualified or licensed and is in good standing to do business as a foreign corporation in each jurisdiction in which the property owned, leased or operated by it or the nature of its business as now being conducted makes such qualification or licensing necessary (other than any such jurisdiction in which the failure to be so qualified would not, in the aggregate, have a material adverse effect on the business, properties or financial condition of such Merger Party and its subsidiaries, taken as a whole). All the outstanding shares of capital stock of such Merger Party's subsidiaries are validly issued, fully paid and nonassessable and are owned by such Merger Party or by a wholly-owned subsidiary of such Merger Party, free and clear of any liens, claims, charges or encumbrances, and there are no irrevocable proxies outstanding with respect to any such shares. For purposes of this Agreement, the term "subsidiary" shall mean any corporation or other business entity a majority of the outstanding voting stock of which is entitled to vote for the election of directors is at the time owned by such Merger Party and/or one or more other subsidiaries.

(c) CAPITALIZATION. (i) The authorized capital stock of BSI consists of 34,000,000 shares of BSI Common Stock, $.01 par value, and 250,000 shares of BSI Preferred Stock, $1.00 par value, of which 28,571,429 shares of BSI Common Stock and 250,000 shares of BSI Preferred Stock are issued and outstanding, fully paid and nonassessable, and 1,503,759 shares of BSI Common Stock are reserved for issuance pursuant to an outstanding warrant to purchase BSI Common Stock.

(ii) The authorized capital stock of WFN consists of 350,000,000 shares of WFN Common Stock, $.01 par value, of which 275,000,000 shares of WFN Common Stock are issued and outstanding, fully paid and nonassessable and 8,270,000 shares are reserved for issuance upon the exercise of outstanding options granted under the World Financial Network Holding Corporation and its Subsidiaries Stock Option and Restricted Stock Purchase Plan.

(iii) Schedule 3.01(c) hereto, in Part I thereof in the case of BSI and Part II thereof in the case of WFN, contains a true and complete list of all the holders of shares of capital stock of such Merger Party and their respective share holdings, and all outstanding options, warrants, calls or other rights to subscribe for or purchase or acquire from such Merger Party, or any plans, contracts or commitments providing for the issuance of, or the granting of rights to acquire (i) any capital stock of such Merger Party or
(ii) any securities convertible into or exchangeable for any capital stock of such Merger Party. Except as set forth in Schedule 3.01(c), such Merger Party is not contractually obligated to repurchase, redeem or otherwise acquire any of its outstanding shares of capital stock or options to acquire such stock and there are no agreements among the stockholders of such Merger Party regarding the voting of securities of such Merger Party.

(d) AUTHORIZATION OF AGREEMENTS. ETC. (i) The execution, delivery and performance by such Merger Party of this Agreement and, in the case of WFN, the Amended and Restated Stockholders Agreement and the consummation by it of the transactions contemplated hereby and thereby, as the case may be, have been duly and effectively authorized by all requisite corporate and stockholder action. In furtherance of the foregoing, this Agreement has been duly approved and adopted by a unanimous vote of the Boards of Directors and stockholders of each of WFN and BSI. This Agreement constitutes, and the Amended and Restated Stockholders Agreement, when executed and delivered by WFN in accordance herewith, will constitute, the legal, valid and binding obligation of such Merger Party, enforceable against such Merger Party in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights in general and to general principles of equity, regardless of whether enforcement is sought in a proceeding in equity or at law.

(ii) The issuance and delivery by WFN of the shares of WFN Common Stock issuable upon the consummation of the Merger at the Effective Time, as contemplated herein, have been duly and effectively authorized by all requisite corporate and stockholder

action, and such shares, when issued and delivered in accordance with this Agreement, will be validly issued and outstanding, fully paid and nonassessable shares of WFN Common Stock. The issuance and delivery of the shares of WFN Common Stock under the circumstances contemplated by this Agreement are not subject to any preemptive rights of stockholders of WFN or to any right of first refusal or other similar right in favor of any person and are exempt from the registration requirements of the Securities Act of 1933.

(e) EFFECT OF AGREEMENTS. Except as set forth in Section 3.01(e) hereto, the execution and delivery by such Merger Party of this Agreement and, in the case of WFN, the Amended and Restated Stockholders Agreement, and performance by it of its obligations hereunder and thereunder, as the case may be, will not violate, in any material respect, any provision of any statute or regulation, the Certificate of Incorporation or Bylaws of such Merger Party or any of its subsidiaries or any by-law, rule or regulation of MasterCard International, Inc., VISA U.S.A., Inc. and VISA International, Inc. or any order of any court or other agency of government, or any judgment, award or decree or any indenture, agreement or other instrument to which such Merger Party or any of its subsidiaries is a party, or by which such Merger Party or any of its subsidiaries or any of their respective properties or assets is bound, or conflict with in any material respect, result in a material breach of or constitute (with due notice or lapse of time or both) a material default under, any such indenture, or any agreement or other instrument, or result in the creation or imposition of any lien, charge, security interest or encumbrance of any nature whatsoever upon any of the material properties or assets of such Merger Party and its subsidiaries, taken as a whole.

(f) FINANCIAL STATEMENTS. (i) BSI has furnished to WFN: (A) the unaudited balance sheet of BSI's wholly-owned subsidiary BSI Business Services, Inc., a Delaware corporation ("Business Services"), and its subsidiaries as of January 28, 1995 and the related statement of income for the fiscal year then ended, (B) the unaudited balance sheet of Business Services and its subsidiaries as of December 2, 1995 and the related statements of income and cash flow for the period then ended and (C) the unaudited balance sheet of BSI and its subsidiaries as of July 27, 1996 and the related statements of income and cash flows for the six-month period then ended, certified by the principal financial officer of BSI.

(ii) WFN has furnished to BSI: (A) the consolidated statements of condition of World Financial Network National Bank as of January 29, 1994 and January 28, 1995 and the related consolidated statements of income, stockholders' equity and cash flows, certified by Coopers & Lybrand, and (B) the consolidated

balance sheet of WFN as of August 3, 1996 and the related statements of income and cash flows for the six-month period then ended, certified by the principal financial officer of WFN.

(iii) All such financial statements of such Merger Party (including any related schedules and/or notes, if any) have been prepared in accordance with generally accepted accounting principles consistently applied and consistent with prior periods, except that such interim statements are subject to year-end adjustments (which consist of normal recurring accruals) and do not contain footnote disclosures and except that the financial statements of BSI subsequent to January 10, 1996 reflect the effects of purchase accounting. Except as set forth in Schedule 3.01(f) hereto, in Part I thereof in the case of BSI and Part II thereof in the case of WFN, such financial statements fairly present in all material respects the financial position of the applicable Merger Party and its subsidiaries as of their respective dates and present in all material respects the results of operations of the applicable Merger Party and its subsidiaries for the respective periods then ended, subject, in the case of unaudited financial statements, to normal year-end adjustments and the absence of footnote disclosure. Except (A) as set forth in the financial statements of such Merger Party and its subsidiaries, (B) as incurred in the ordinary course of business and consistent with past practice, or (C) as set forth in said Schedule 3.01(f), such Merger Party and its subsidiaries have not incurred any material liabilities or obligations of any kind or nature, whether known or unknown (whether absolute, secured, contingent or otherwise) and whether due or to become due since July 27, 1996, in the case of BSI, and August 3, 1996, in the case of WFN.

(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as otherwise set forth in Schedule 3.01(g) hereto, in Part I thereof in the case of BSI and Part II thereof in the case of WFN, since July 27, 1996, in the case of BSI, and August 3, 1996, in the case of WFN, neither such Merger Party nor any of its subsidiaries has:

(i) incurred any obligation or liability (fixed or contingent), except normal trade or business obligations incurred in the ordinary course of business and consistent with past practice, none of which, individually or in the aggregate, is materially adverse, and except in connection with this Agreement and the transactions contemplated hereby;

(ii) discharged or satisfied any lien, security interest, charge or other encumbrance or paid any obligation or liability (fixed or contingent), other than in the ordinary course of business and consistent with past practice;

(iii) mortgaged, pledged or subjected to any lien, security interest, charge or other encumbrance any of its assets or properties with a value in excess of $100,000 (other than mechanic's, materialman's and similar statutory liens arising in the ordinary course of business and purchase money security interests arising as a matter of law between the date of delivery and payment);

(iv) transferred, leased or otherwise disposed of any of its assets or properties except for a fair consideration in the ordinary course of business and consistent with past practice or, except in the ordinary course of business and consistent with past practice, acquired any assets or properties;

(v) authorized, declared or paid any dividend or made any other distribution on or in respect of any class of its capital stock or established a record date for any of the foregoing;

(vi) cancelled or compromised any debt or claim greater than $100,000 individually, other than in the ordinary course of business consistent with past practice;

(vii) waived or released any rights of material value;

(viii) transferred or granted any rights under any concessions, leases, licenses, agreements, patents, inventions, trademarks, trade names, servicemarks or copyrights or with respect to any know-how other than in the ordinary course of business consistent with past practice;

(ix) made or granted any wage or salary increase applicable to any group or classification of employees generally, entered into any employment contract with, or made any loan to, or entered into any material transaction of any other nature with, any officer or employee of such Merger Party or any of its subsidiaries or affiliates;

(x) entered into any transaction, contract or commitment that, individually or in the aggregate, is material, except this Agreement and the transactions contemplated hereby and as permitted by Section 4.01 hereof;

(xi) suffered any casualty loss or damage (whether or not such loss or damage shall have been covered by insurance) that affects in any material respect its ability to conduct its business; or

(xii) suffered any material adverse change in its business, operations or financial condition.

(h) ACQUISITION AGREEMENTS. (i) To the knowledge of BSI, (A) the representations and warranties of the parties contained in the Acquisition Agreement dated as of January 12, 1996 (the "BSI Acquisition Agreement") between BSI and JCP Telecom Systems, Inc. are true and correct in all material respects as if made at and as of the date hereof, except to the extent any such representation or warranty was expressly made as of a specified date, in which case, to the knowledge of BSI, such representation or warranty was true and correct in all material respects as of such date, and (B) the schedules to the BSI Acquisition Agreement were complete and accurate in all material respects as of the date of the BSI Acquisition Agreement and, except as set forth in the Schedules to this Agreement, since the closing under the BSI Acquisition Agreement nothing has come to the attention of BSI that would require any modification to or supplement of the schedules to the BSI Acquisition Agreement.

(ii) To the knowledge of WFN, (A) the representations and warranties of the parties contained in the Stock Purchase Agreement, dated as of October 24, 1995 (the "WFN Acquisition Agreement"), among Limited Commerce Corp., a Delaware corporation ("Limited"), WFN and Welsh, Carson, Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"), are true and correct in all material respects as if made at and as of the date hereof, except to the extent any such representation or warranty was expressly made as of a specified date, in which case, to the knowledge of WFN, such representation or warranty was true and correct in all material respects as of such date, and (B) the schedules to the WFN Acquisition Agreement were complete and accurate in all material respects as of the date of the WFN Acquisition Agreement and, except as set forth in the Schedules to this Agreement, since the closing under the WFN Acquisition Agreement nothing has come to the attention of WFN that would require any modification to or supplement of the schedules to the WFN Acquisition Agreement.

(i) LITIGATION. Schedule 3.01(i) hereto, in Part I thereof in the case of BSI and in Part II thereof in the case of WFN, sets forth, to such Merger Party's knowledge, a complete list and an accurate description of all actions, suits or proceedings involving claims relating to the business of such Merger Party or any of its subsidiaries by or against such Merger Party or any of its subsidiaries pending or threatened against such Merger Party or any of its subsidiaries or any of their respective divisions or other operating entities at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality. Except for the matters set forth in said Schedule 3.01(i), (i) no such pending or threatened claims, actions, suits, proceedings or investigations, if adversely determined,

would, individually or in the aggregate, materially adversely affect the business, properties or financial condition or prospects of such Merger Party and its subsidiaries, taken as a whole, (ii) to such Merger Party's knowledge, there is no basis for any other such claim, action, suit, proceeding or investigation which, if adversely decided, would have such a material adverse effect, and (iii) there are no actions, suits, proceedings or claims pending before or by any court, arbitrator or government agency against or affecting such Merger Party or any of its subsidiaries that seek to enjoin or prevent the consummation of the transactions contemplated by this Agreement.

(j) LABOR CONTROVERSIES. Neither such Merger Party nor any of its subsidiaries is a party to any collective bargaining agreement, and no such agreement is applicable to any employees of such Merger Party. There are not any controversies between such Merger Party or any of its subsidiaries and any of such employees that might reasonably be expected to materially adversely affect the conduct of the business of such Merger Party or any of its subsidiaries, or any unresolved labor union grievances or unfair labor practice or labor arbitration proceedings pending, or to the knowledge of such Merger Party, threatened relating to the business of such Merger Party or any of its subsidiaries. To the knowledge of such Merger Party, there are not any organizational efforts presently being made or threatened involving any of such employees. Except as set forth in Schedule 3.01(j), in Part I thereof in the case of BSI and in Part II thereof in the case of WFN, neither such Merger Party nor any of its subsidiaries has received written notice of any claim that such Merger Party or any of its subsidiaries has not complied with any laws relating to the employment of labor, including any provisions thereof relating to wages, hours, collective bargaining, the payment of social security and similar taxes, equal employment opportunity, employment discrimination and employment safety, or that either such Merger Party or any of its subsidiaries is liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing.

(k) COMPLIANCE WITH LAW. To the knowledge of such Merger Party, neither such Merger Party nor any of its subsidiaries is in default of any order of any court, governmental authority or arbitration board or tribunal to which such Merger Party or any of its subsidiaries is a party or is subject, and, to the knowledge of such Merger Party, each of such Merger Party and its subsidiaries is in substantial compliance with all material laws, ordinances, governmental rules or regulations to which it is subject and has all material licenses, registrations, qualifications, permits, franchises or other governmental authorizations necessary to its ownership of its assets or to conduct its business.

(l) GOVERNMENTAL APPROVALS. Except as set forth in Schedule 3.01(1) hereto, in Part I thereof in the case of BSI and in Part 11 thereof in the case of WFN, no approval, authorization, consent or order or action of or filing with any court, administrative agency or other governmental authority is required for the execution and delivery by such Merger Party of this Agreement or the consummation by such Merger Party of the transactions contemplated hereby.

(m) EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule 3.01(m), in Part I thereof in the case of BSI and in Part II thereof in the case of WFN, to the knowledge of such Merger Party, such Merger Party and each of its subsidiaries have been and currently are in compliance, both as to form and operation, with the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of 1986, as amended (the "Code"), respectively, with respect to each employee benefit plan within the meaning of Section 3(3) of ERISA (a "Plan") maintained for the benefit of employees by such Merger Party or any of its subsidiaries or to which such Merger Party or any of its subsidiaries contributes or is required to contribute or in which any employee of such Merger Party or any of its subsidiaries participates. To the knowledge of such Merger Party, no event has occurred, and there exists no condition or set of circumstances which has resulted in, or which could result in, the imposition of any liability on such Merger Party or any of its subsidiaries under ERISA, the Code or other applicable law with respect to any Plan maintained for the benefit of employees of such Merger Party or any of its subsidiaries.

(n) BROKER'S OR FINDERS' FEES. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by such Merger Party directly with the other party hereto, without the intervention of any person on behalf of such Merger Party in such manner as to give rise to any claim by any person against the other parties hereto for a finder's fee, brokerage commission or similar payment.

ARTICLE IV

COVENANTS

SECTION 4.01 CERTAIN COVENANTS. During the period from the date of this Agreement to the Effective Time, each Merger Party will conduct its business and operations in the ordinary course consistent with past practice and use its reasonable efforts to preserve its relationships with business partners, suppliers, employees and customers. Without limiting the generality of the foregoing, except as otherwise contemplated by

this Agreement, from the date of this Agreement until the Effective Time, without the prior written consent of the other party hereto, each Merger Party will not do any of the things required to be disclosed in Section 3.01(g) above.

SECTION 4.02 ACCESS TO INFORMATION. Between the date hereof and the Effective Time, each Merger Party will afford to the representatives of the other party hereto reasonable access during normal business hours and after reasonable notice to the offices, facilities, books and records of such Merger Party and the opportunity to discuss the affairs of such Merger Party with officers and employees of such Merger Party familiar therewith. Such activities shall be performed, so far as is reasonably possible, in such a manner as to avoid disruption of normal operations.

SECTION 4.03 OTHER AGREEMENTS. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all 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 to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including, without limitation, using all reasonable efforts to obtain all necessary waivers, consents and approvals and to effect all necessary registrations and filings and submissions of information requested by governmental authorities.

SECTION 4.04 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt notice to the other party hereto of (i) the occurrence, or failure to occur, of any event which such party believes would be likely to cause any of its representations or warranties contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Effective Time and (ii) any failure of such party, or of any officer, director, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that failure to give such notice shall not constitute a waiver of any defense that may be validly asserted.

SECTION 4.05 INDEMNIFICATION. From and after the Effective Time, WFN shall indemnify and hold harmless each current and former director and officer of BSI against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that BSI would have been permitted under its Certificate of

Incorporation and By-Laws as in effect on the date hereof to indemnify such person (and WFN shall advance expenses as incurred to the fullest extent permitted under BSI's Certificate of Incorporation and By-Laws as in effect on the date hereof, provided the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification)

ARTICLE V

CONDITIONS PRECEDENT TO THE MERGER

SECTION 5.01 CONDITIONS PRECEDENT TO THE MERGER. The obligation of each Merger Party to effect the Merger is subject, at its option, to the satisfaction at or prior to the Effective Time of each of the following conditions:

(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the other Merger Party contained in this Agreement or in any certificate or document delivered pursuant hereto shall be true and correct in all material respects on and as of the Effective Time as though made at and as of that date.

(b) COMPLIANCE WITH COVENANTS. The other Merger Party shall have performed and complied with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by it at or prior to the Effective Time.

(c) ALL PROCEEDINGS TO BE SATISFACTORY. All proceedings to be taken by the other Merger Party in connection with the transactions contemplated hereby and all documents incident there to shall be reasonably" satisfactory in form and substance to such Merger Party and its counsel, and such Merger Party and said counsel shall have received all such counterpart originals or certified or other copies of such documents as it or they may reasonably request.

(d) LEGAL ACTIONS OR PROCEEDINGS. No legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated hereby or which would, if adversely decided, have a material adverse effect on the business, properties or financial condition or prospects of either Merger Party.

(e) CONSENTS. The consents and actions set forth in Schedule 5.01(e) hereto shall have been obtained or consummated, as the case may be.

(f) AMENDED AND RESTATED STOCKHOLDERS AGREEMENT. The stockholders of BSI and WFN shall have executed and delivered an Amended and Restated Stockholders Agreement, substantially in the form of Exhibit A hereto, amending and restating the Stockholders Agreement dated as of January 31, 1996 among WFN, Limited, WCAS VII and the several investors named in Annex I thereto.

(g) SECURITIES PURCHASE AGREEMENT. The Company, Limited and the other parties thereto shall have executed and delivered the Securities Purchase Agreement substantially in the form of Exhibit B hereto.

(h) SUPPORTING DOCUMENTS. On or prior to the Effective Time, each Merger Party and its counsel shall have received copies of the following supporting documents:

(i) (1) copies of the Certificate of Incorporation of the other Merger Party and all amendments thereto, certified as of a recent date by the Secretary of State of the State of Delaware, and (2) a certificate of said Secretary dated as of a recent date as to the due incorporation and good standing of the other Merger Party and listing all documents on file with said Secretary, and (3) confirmation from said Secretary as of the close of business on the next business day preceding the Effective Time as to the continued good standing of the other Merger Party and to the effect that no amendment to its Certificate of Incorporation has been filed since the date of the certificate referred to in clause (2) above; and

(ii) a certificate of the Secretary or an Assistant Secretary of the other Merger Party dated the Effective Time and certifying: (1) that attached thereto is a true and complete copy of its By-laws as in effect on the date of such certification; (2) that attached thereto is a true and complete copy of the resolutions adopted by its Board of Directors and stockholders authorizing the execution, delivery and performance of this Agreement and the Merger and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement; (3) that its Certificate of Incorporation has not been amended since the date of the last amendment referred to in the certificate delivered pursuant to clause (i) (2) above; and (4) as to the incumbency and specimen signature of each of its officers executing this Agreement and any certificate or instrument furnished pursuant hereto, and a certification by another officer as to the incumbency and signature of the officer signing the certificate referred to in this paragraph (ii).

All such documents shall be satisfactory in form and substance to such Merger Party and its counsel.

ARTICLE VI

TERMINATION AND ABANDONMENT

SECTION 6.01 TERMINATION AND ABANDONMENT. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time:

(a) by mutual action of the Boards of Directors of BSI and WFN; or

(b) by either BSI or WFN, if the conditions set forth in Section 5.01 shall not have been complied with or performed in any material respect by the other Merger Party and such noncompliance or nonperformance shall not have been cured or eliminated (or by its nature cannot be cured or eliminated) on or before October 31, 1996.

SECTION 6.02 EFFECT OF TERMINATION. In the event of the termination of this Agreement and the abandonment of the Merger pursuant to Section 6.01, this Agreement shall thereafter become void and have no effect, and no party hereto shall have any liability to the other party hereto or its stockholders or directors or officers in respect thereof, and each party shall be responsible for its own expenses, except that nothing herein shall relieve either party from liability for any willful breach hereof.

ARTICLE VII

MISCELLANEOUS

SECTION 7.01 EXPENSES, ETC. Whether or not the transactions contemplated by this Agreement are consummated, neither of the parties hereto shall have any obligation to pay any of the fees and expenses of the other party incident to the negotiation, preparation and execution of this Agreement, including the fees and expenses of counsel, accountants, investment bankers and other experts. BSI, on the one hand, and WFN, on the other hand, shall indemnify the other and hold it harmless from and against any claims for finders' fees or brokerage commissions in relation to or in connection with such transactions as a result of any agreement or understanding between such indemnifying party and any third party.

SECTION 7.02 PUBLICITY. The parties hereto agree to cooperate in issuing any press release or other public announcement concerning this Agreement or the transactions contemplated hereby. Each party shall furnish to the other drafts of all such press releases or announcements prior to their release. Nothing contained herein shall prevent either party from at any time furnishing any information required by any government authority.

SECTION 7.03 EXECUTION IN COUNTERPARTS. For the convenience of the parties, 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 7.04 NOTICES. All notices that are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and delivered or mailed by registered or certified mail, postage prepaid, as follows:

If to WFN to:

World Financial Network Holding Corporation 4590 East Broad Street
Columbus, Ohio 43213
Attention: General Counsel

If to BSI to:

Business Services Holdings, Inc. 5001 Spring Valley Road
Dallas, Texas 75244

or such other address or addresses as either party hereto shall have designated by notice in writing to the other party hereto.

SECTION 7.05 WAIVERS. Either party hereto may, by written notice to the other party hereto, (i) extend the time for the performance of any of the obligations or other actions of the other party under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other party contained in this Agreement or in any document delivered pursuant to this Agreement; (iii) waive compliance with any of the conditions or covenants of the other contained in this Agreement; or (iv) waive performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation any investigation by or on behalf of either party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver

by either party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.

SECTION 7.06 AMENDMENTS, SUPPLEMENTS, ETC. At any time this Agreement may be amended or supplemented by such additional agreements, articles or certificates, as may be determined by the parties hereto to be necessary, desirable or expedient to further the purposes of this Agreement, or to clarify the intention of the parties hereto, or to add to or modify the covenants, terms or conditions hereof or to effect or facilitate any governmental approval or acceptance of this Agreement or to effect or facilitate the filing or recording of this Agreement or the consummation of any of the transactions contemplated hereby. Any such instrument must be in writing and signed by both parties.

SECTION 7.07 ENTIRE AGREEMENT. This Agreement, its Exhibits and Schedules, and the documents executed at the Effective Time in connection herewith, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. No representation, warranty, promise, inducement or statement of intention has been made by either party that is not embodied in this Agreement or such other documents, and neither party shall be bound by, or be liable for, any alleged representation, warranty, promise, inducement or statement of intention not embodied herein or therein. The representations and warranties contained in this Agreement shall not survive after the Effective Time.

SECTION 7.08 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

SECTION 7.09 BINDING EFFECT, BENEFITS. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

SECTION 7.10 ASSIGNABILITY. Neither this Agreement nor any of the parties' rights hereunder shall be assignable by either party hereto without the prior written consent of the other party hereto.

SECTION 7.11 VARIATION AND AMENDMENT. This Agreement may be varied or amended at any time by action of the respective Boards of Directors of BSI or WFN, without action by the stockholders thereof, PROVIDED that no such variance or amendment shall, without consent of such stockholders, modify the consideration that the holders of shares of BSI Common Stock and BSI Preferred Stock shall be entitled to receive upon the Effective Time pursuant to Section 2.01 hereof and PROVIDED FURTHER that no such amendment or variation shall be agreed to by WFN unless any approvals required under the WFN Stockholders Agreement have theretofore been obtained.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the day and year first above written.

WORLD FINANCIAL NETWORK HOLDING
CORPORATION

                                                By /s/ Ralph E. Spurgin
                                                  ------------------------------
ATTEST:

/s/ Illegible
----------------------------------

                                                BUSINESS SERVICES HOLDINGS, INC.



                                                By /s/ Anthony J. deNicola
                                                  ------------------------------

ATTEST:

/s/ Robert A. Minicucci
----------------------------------

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

ALLIANCE DATA SYSTEMS CORPORATION

HSI ACQUISITION CORP.,

AND

HARMONIC SYSTEMS INCORPORATED

August 14, 1998

                                TABLE OF CONTENTS



                                                                           Page

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


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

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



                                       i

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

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

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



                                       ii

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

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

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

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

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



                                      iii

EXHIBITS:

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

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

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

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

AGREEMENT AND PLAN OF MERGER

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

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

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

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

ARTICLE 1
THE MERGER: CONVERSION OF SHARES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(c) Parent is entitled to rely exclusively upon communications or writings given or executed by the Shareholders' Representative with respect to the matters described in the Escrow Agreement and is not liable in any manner whatsoever for any action taken or

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

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

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

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

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

ARTICLE 2
CLOSING

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

Fredrikson & Byron, P.A., 1100 International Centre, 900 Second Avenue South, Minneapolis, Minnesota 55402, or at such other place or in such other manner (E.G., by facsimile exchange of signature pages with originals to follow by overnight delivery) as the parties hereto may agree.

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

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUBSIDIARY

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

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

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

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

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

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

ARTICLE 5
COVENANTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(m) agree to do any of the foregoing.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE 6
CLOSING CONDITIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE 7
INDEMNIFICATION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE 8
TERMINATION AND ABANDONMENT

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

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

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

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

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

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

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

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

ARTICLE 9
MISCELLANEOUS

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

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

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

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

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

Alliance Data Systems
5001 Spring Valley Road, Suite 650W Dallas, TX 75244
FAX: (972) 960-5330
Attention: Michael Beltz

with separate copies thereof addressed to

Alliance Data Systems
800 Techcenter Drive
Gahanna, OH 43230
FAX: (614) 729-4949
Attention: Carolyn Melvin, General Counsel

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

Harmonic Systems Incorporated 701 4th Avenue South
Minneapolis, MN 55415
FAX: (612) 672-3549
Attention: Barrs S. Lewis

with a copy to:

Fredrikson & Byron, P.A.

1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402-3397

FAX: (612) 347-7077
Attention: Thomas W. Garton

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

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

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

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

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

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

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

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

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

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

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

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

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

ALLIANCE DATA SYSTEMS CORPORATION

By /s/ Michael Beltz
   ----------------------------------
   Its Executive Vice President
       ------------------------------

HSI ACQUISITION CORP.

By /s/ Ron Carter
   ----------------------------------
   Its President
       ------------------------------

HARMONIC SYSTEMS INCORPORATED

By /s/ Barrs S. Lewis
   ----------------------------------
   Its Chairman & CEO
       ------------------------------

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

Barrs S. Lewis, as Shareholders' Representative

By: /s/ Barrs S. Lewis
    ------------------

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

ALLIANCE DATA SYSTEMS CORPORATION

HSI ACQUISITION CORP.

HARMONIC SYSTEMS INCORPORATED

By /s/ Barrs S. Lewis
   ----------------------------------
       Its Chairman & CEO
           --------------------------

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

Barrs S. Lewis, as Shareholders' Representative

By: /s/ Barrs S. Lewis
    ------------------

EXHIBIT A

PLAN OF MERGER

ARTICLE 1

NAMES OF CONSTITUENT
CORPORATIONS AND SURVIVING CORPORATION

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

ARTICLE 2
THE MERGER; CONVERSION OF SHARES

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

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

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

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

(b) An aggregate amount of $7,000,000 which shall be paid by wire transfer of immediately available funds to the escrow agent under an Escrow Agreement substantially in the form attached as Exhibit B to the Merger Agreement (the "Escrow

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Series F Warrants
-----------------
Donald F. Swanson Revocable Trust          69,444     $    179,242.57     $     8,586.23     $      96,248.98     $      74,407.36
Barrs S. & Holly Lewis                      9,470     $     24,442.42     $     1,170.86     $      13,125.00     $      10,146.56
Richard W. & Loviah E. Aldinger            26,256     $     67,771.16     $     3,246.43     $      36,391.49     $      28,133.23
T.W. Ireland                               71,910     $    185,608.77     $     8,891.19     $      99,667.48     $      77,050.10
Floor Seal Technology Profit Sharing        6,106     $     15,760.47     $       754.97     $       8,463.00     $       6,542.50
Addison Piper                              31,566     $     81,475.67     $     3,902.92     $      43,750.49     $      33,822.27
Oscar Y. Lewis Sr.                         14,498     $     37,420.65     $     1,792.56     $      20,094.00     $      15,534.10
Helayne Bruntjen                           31,566     $     81,475.67     $     3,902.92     $      43,750.49     $      33,822.27
George N. Nelson Jr.                       41,957     $    108,295.29     $     5,187.65     $      58,151.99     $      44,955.65
Sally J. & Craig F. Smith                   7,210     $     18,609.76     $       891.46     $       9,993.00     $       7,725.30
Kenneth H. Dahlberg                       632,934     $  1,633,678.43     $    78,257.84     $     877,246.32     $     678,174.28
Warren Mack                                41,036     $    105,918.09     $     5,073.78     $      56,875.49     $      43,968.83
Norwest Equity Partners, IV                31,566     $     81,475.67     $     3,902.92     $      43,750.49     $      33,822.27
Norwest Equity Partners, V                 63,131     $    162,948.55     $     7,805.70     $      87,499.48     $      67,643.37
Philip O. Rick Revocable Living Trust       2,525     $      6,517.05     $       312.19     $       3,499.50     $       2,705.36
James P. Stephenson                        11,359     $     29,319.73     $     1,404.50     $      15,744.00     $      12,171.24
Thomas L. Kimer                             9,470     $     24,442.42     $     1,170.86     $      13,125.00     $      10,146.56
Advanta Partners LP                       791,936     $  2,044,082.07     $    97,917.34     $   1,097,623.27     $     848,541.46
                                        ------------------------------------------------------------------------------------------

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


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




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

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


Series F Warrants
Donald F. Swanson Revocable Trust          0.15230%        $   10,660.85      $     63,746.51      $   10,660.85
Barrs S. & Holly Lewis                     0.02077%        $    1,453.77      $      8,692.80      $    1,453.77
Richard W. & Loviah E. Aldinger            0.05758%        $    4,030.84      $     24,102.39      $    4,030.84
T.W. Ireland                               0.15771%        $   11,039.49      $     66,010.61      $   11,039.49
Floor Seal Technology Profit Sharing       0.01339%        $      937.39      $      5,605.12      $      937.39
Addison Piper                              0.06923%        $    4,845.95      $     28,976.32      $    4,845.95
Oscar Y. Lewis Sr.                         0.03180%        $    2,225.68      $     13,308.42      $    2,225.68
Helayne Bruntjen                           0.06923%        $    4,845.95      $     28,976.32      $    4,845.95
George N. Nelson Jr.                       0.09202%        $    6,441.10      $     38,514.55      $    6,441.10
Sally J. & Craig F. Smith                  0.01581%        $    1,106.86      $      6,618.45      $    1,106.86
Kenneth H. Dahlberg                        1.38809%        $   97,166.64      $    581,007.64      $   97,166.64
Warren Mack                                0.09000%        $    6,299.71      $     37,669.12      $    6,299.71
Norwest Equity Partners, IV                0.06923%        $    4,845.95      $     28,976.32      $    4,845.95
Norwest Equity Partners, V                 0.13845%        $    9,691.73      $     57,951.64      $    9,691.73
Philip O. Rick Revocable Living Trust      0.00554%        $      387.62      $      2,317.75      $      387.62
James P. Stephenson                        0.02491%        $    1,743.86      $     10,427.38      $    1,743.86
Thomas L. Kimer                            0,02077%        $    1,453.77      $      8,692.80      $    1,453.77
Advanta Partners LP                        1.73680%        $  121,576.31      $    726,965.15      $  121,576.31
                                           -----------------------------------------------------------------------

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


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

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

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


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


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


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




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


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


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


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

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

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

Daniel Hunt            $  0.875        50,000   $      129,056.02      $    6,182.15      $      43,750.00      $       79,123.87

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

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

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

Rohert Schwartz        $   2.00         8,000   $       20,648.96      $      989.14      $      16,000.00      $        3,659.82
Robert Schwartz        $   2.50           -     $            -         $     -            $        -            $         -
                                     ----------------------------------------------------------------------------------------------
 Sub-total                              8,000   $       20,648.96      $      989.14      $      16,000.00      $        3,659.82

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

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




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

Michael Burke                                      $    18,103.50     $      108,249.82       $    18,103.50
Michael Burke                                      $        -         $            -          $          -
                                      ----------------------------------------------------------------------
 Sub-total                            0.25862%     $    18,103.50     $      108,249.82       $    18,103.50

Daniel Hunt                           0.16195%     $    11,336.61     $       67,787.25       $    11,336.61

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

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

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

Rohert Schwartz                                    $       524.37     $        3,135.45       $       524.37
Robert Schwartz                                    $       -          $           -           $         -
                                      ----------------------------------------------------------------------
 Sub-total                            0.00749%     $       524.37     $        3,135.45       $       524.37

Don Denzer                                         $      2294.11     $       13,717.60       $     2,294.11
Don Denzer                                         $       -          $           -           $         -
                                      ----------------------------------------------------------------------
 Sub-total                            0.03277%     $     2,294.11     $       13,717.60       $     2,294.11

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

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

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

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

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

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

Dave Carroll           $   2.50           -        $      -               $     -             $      -             $     -

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

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

Mike Oland             $   2.50           -        $     -                $     -             $      -             $     -
Mike Oland             $   2.50           -        $     -                $     -             $      -             $     -
                                   --------------------------------------------------------------------------------------------
 Sub-total                                -        $     -                $    -              $     -              $    -




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

Renee McPherson                          $    524.37          $   3,135.45         $    524.37
Renee McPherson                          $    -               $     -              $     -
                          --------------------------------------------------------------------
 Sub-total                0.00749%       $    524.37          $   3,135.45         $    524.37

Charles Price                            $  1,638.65          $   9,798.29         $  1,638.65
Charles Price                            $    -               $     -              $     -
                          --------------------------------------------------------------------
 Subtotal                 0.02341%       $  1,638.65          $   9,798.29         $  1,638.65

Craig Twedt                              $    262.18          $   1,567.73         $    262.18
Craig Twedt                              $    -               $     -              $     -
                          --------------------------------------------------------------------
 Sub-total                0.00375%       $    262.18          $   1,567.73         $    262.18

Dan Donovan                              $    -               $     -              $     -
Dan Donovan                              $  2,072.43          $  12,392.07         $  2,072.43
                          --------------------------------------------------------------------
 Sub-total                0.02961%       $  2,072.43          $  12,392.07         $  2,072.43

Dave Carroll              0.00000%       $    -               $     -              $     -

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

Scott Fraser                             $    -               $     -              $     -
Scott Fraser                             $    -               $     -              $     -
Scott Fraser                             $  1,884.02          $  11,265.52         $  1,884.02
                          --------------------------------------------------------------------
 Sub-total                0.02691%       $  1,884.02          $  11,265.52         $  1,884.02

Mike Oland                               $     -              $      -             $     -
Mike Oland                               $     -              $      -             $     -
                          --------------------------------------------------------------------
 Sub-total                0.00000%       $     -              $      -             $     -

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

Ron Zins                $   2.50           -      $        -            $      -               $      -             $     -
Ron Zins                $   2.50           -      $        -            $      -               $      -             $     -
                                    --------------------------------------------------------------------------------------------
 Sub-total                                 -      $        -            $      -               $      -             $     -

Daniel Savage           $   2.50           -      $        -            $      -               $      -             $     -
Daniel Savage           $   2.50           -      $        -            $      -               $      -             $     -
                                    --------------------------------------------------------------------------------------------
 Sub-total                                 -      $        -            $      -               $      -             $     -

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

Suzanne Orimme(Bost     $   2.50           -      $        -            $      -               $      -             $     -

Tim Hurley              $   2.50           -      $        -            $      -               $      -             $     -

Jim Johnson             $   2.50           -      $        -            $      -               $      -             $     -

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

Bob Ludwig              $   2.50           -      $        -            $      -               $      -             $     -

Tom Ring                $   2.50           -      $        -            $      -               $      -             $     -
Ted Sanft               $   2.50                  $        -            $      -               $      -             $     -
Ted Sanft               $   1.80         5,000    $     12,905.60       $      618.21          $    9,000.00        $   3,287.39
                                    --------------------------------------------------------------------------------------------
 Sub-total                               5,000    $     12,905.60       $      618.21          $    9,000.00        $   3,287.39

Steve McGuinness        $   1.80        10,000    $     25,811.20       $    1,236.43          $   18,000.00        $   6,574.77
                                    --------------------------------------------------------------------------------------------

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



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

Ron Zins                                     $         -         $         -        $         -
Ron Zins                                     $         -         $         -        $         -
                                ----------------------------------------------------------------
 Sub-total                      0.00000%     $         -         $         -        $         -

Daniel Savage                                $         -         $         -        $         -
Daniel Savage                                $         -         $         -        $         -
                                ----------------------------------------------------------------
 Sub-total                      0.00000%     $         -         $         -        $         -

Ed Learned                      0.00000%     $         -         $         -        $         -

Suzanne Orimme(Bost             0.00000%     $         -         $         -        $         -

Tim Hurley                      0.00000%     $         -         $         -        $         -

Jim Johnson                     0.00000%     $         -         $         -        $         -

Shawn Lovett                                 $         -         $        -         $         -
Shawn Lovett                                 $     376.80        $   2,253.10       $     376.80
                                ----------------------------------------------------------------
 Sub-total                      0.00538%     $     376.80        $   2,253.10       $     376.80

Bob Ludwig                      0.00000%     $     -             $     -            $     -

Tom Ring                        0.00000%     $     -             $     -            $     -
Ted Sanft                                    $     -             $      -           $       -
Ted Sanft                                    $     471.01        $   2,816.38       $     471.01
                                ----------------------------------------------------------------
 Sub-total                      0.00673%     $     471.01        $   2,816.38       $     471.01

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

                                                    Options
                                    Exercise      Outstanding              Gross             Allocated              Exercise
GRANTEE                              Price         8/10/98                Proceeds            Expenses              Proceeds
-------                              -----         -------                --------            --------              --------
Erika Schwamb                      $    1.80           500         $        1,290.56       $        61.82      $        900.00
Brett Lasson                       $    1.80           800         $        2,064.90       $        98.91      $      1,440.00
Andy Roberts                       $    1.80       250,000         $      645,280.08       $    30,910.75      $    450,000.00
Nency Koob                         $    1.80           250         $          645.28       $        30.91      $        450.00
Vicki Caron                        $    1.80           500         $        1,290.56       $        61.82      $        900.00
Rick Wilson                        $    1.80       100,000         $      258,112.03       $    12,364.30      $    180,000.00
Michael Thompson                   $    1.80        25,000         $       64,528.01       $     3,091.07      $     45,000.00
Tom Smith                          $    1.80         3,000         $        7,743.36       $       370.93      $      5,400.00
Catherine Chen                     $    1.80         7,000         $       18,067.84       $       865.50      $     12,600.00

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

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

Alson Toavs                        $    1.80         3,500         $        9,033.92       $       432.75      $      6,300.00
Gerry Fischer                      $    1.80         3,000         $        7,743.36       $       370.93      $      5,400.00
Milton Miller                      $    1.80           800         $        2,064.90       $        98.91      $      1,440.00

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

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

Michael Knapp                      $    1.80           500         $        1,290.56       $        61.82      $        900.00
Michael Reilly                     $    1.80           500         $        1,290.56       $        61.82      $        900.00

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

Michael Fremming                   $    1.80           500         $        1,290.56       $        61.82      $        900.00
Tracy Cook                         $    1.80        17,000         $       43,879.05       $     2,101.93      $     30,600.00

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

Jerry Eidsvoog                     $    1.80           250         $          645.28       $        30.91      $        450.00
Tom Lee                            $    1.80        10,000         $       25,811.20       $     1,236.43      $     18,000.00

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

Frank Baker                        $    1.80        10,000         $       25,811.20       $     1,236.43      $     18,000.00
Pat Conlan                         $    1.80           500         $        1,290.56       $        61.82      $        900.00
Jeanie Close                       $    1.80         5,000         $       12,905.60       $       618.21      $      9,000.00
Peter Landry                       $    1.80         6,000         $       15,486.72       $       741.86      $     10,800.00
Asnake Meshesha                    $    1.80           250         $          645.28       $        30.91      $        450.00
Chip Bergquist                     $    1.80         2,500         $        6,452.80       $       309.11      $      4,500.00
Joleen Persien                     $    1.80         1,000         $        2,581.12       $       123.64      $      1,800.00
Holly Jepson                       $    1.80         2,500         $        6,432.80       $       309.11      $      4,500.00
Dave Duggan                        $    1.80         1,000         $        2,581.12       $       123.64      $      1,800.00
                                                  ----------------------------------------------------------------------------
Sub-total                                          497,850         $    1,285,010.76        $   61,555.67       $   896,130.00



                                     Net               Escrow          Escrow              First                Second
GRANTEE                           Proceeds               %               $'s            Distribution         Distribution
-------                           --------              ---              ---            ------------         ------------
Erika Schwamb                $        328.74          0.00067%     $       47.10       $       281.64       $       47.10
Brett Lasson                 $        525.98          0.00108%     $       75.36       $       450.62       $       75.36
Andy Roberts                 $    164,369.33          0.33643%     $   23,550.31       $   140,819.02       $   23,550.31
Nency Koob                   $        164.37          0.00034%     $       23.55       $       140.82       $       23.55
Vicki Caron                  $        328.74          0.00067%     $       47.10       $       281.64       $       47.10
Rick Wilson                  $     65,747.73          0.13457%     $    9,420.12       $    56,327.61       $    9,420.12
Michael Thompson             $     16,436.93          0.03364%     $    2,355.03       $    14,081.90       $    2,355.03
Tom Smith                    $      1,972.43          0.00404%     $      282.60       $     1,689.83       $      282.60
Catherine Chen               $      4,602.34          0.00942%     $      659.41       $     3,942.93       $      659.41

Leon Retzlaff                $        328.74                       $       47.10       $       281.64       $       47.10
Leon Retzlaff                $        657.48                       $       94.20       $       563.28       $       94.20
                             --------------------------------------------------------------------------------------------
 Sub-total                   $        986.22          0.00202%     $      141.30       $       844.91       $      141.30

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

Alson Toavs                  $      2,301.17          0.00471%     $      329.70       $     1,971.47       $      329.70
Gerry Fischer                $      1,972.43          0.00404%     $      282.60       $     1,689.83       $      282.60
Milton Miller                $        525.98          0.00108%     $       75.36       $       450.62       $       75.36

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

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

Michael Knapp                $        328.74          0.00067%     $       47.10       $       281.64       $       47.10
Michael Reilly               $        328.74          0.00067%     $       47.10       $       281.64       $       47.10

Michael Holmberg             $        328.74                       $       47.10       $       281.64       $       47.10
Michael Holmberg             $        657.48                       $       94.20       $       563.28       $       94.20
                             --------------------------------------------------------------------------------------------
 Sub-total                   $        986.22          0.00202%     $      141.30       $       844.91       $      141.30

Michael Fremming             $        328.74          0.00067%     $       47.10       $       281.64       $       47.10
Tracy Cook                   $     11,177.11          0.02288%     $    1,601.42       $     9,575.69       $    1,601.42

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

Jerry Eidsvoog               $        164.37          0.00034%     $       23.55       $       140.82       $       23.55
Tom Lee                      $      6,574.77          0.01346%     $      942.01       $     5,632.76       $      942.01

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

Frank Baker                  $      6,574.77          0.01346%     $      942.01       $     5,632.76       $      942.01
Pat Conlan                   $        328.74          0.00067%     $       47.10       $       281.64       $       47.10
Jeanie Close                 $      3,287.39          0.00067%     $      471.01       $      2816.38       $      471.01
Peter Landry                 $      3,944.86          0.00807%     $      565.21       $     3,379.66       $      565.21
Asnake Meshesha              $        164.37          0.00034%     $       23.55       $       140.82       $       23.55
Chip Bergquist               $      1,643.69          0.00336%     $      235.50       $     1,408.19       $      235.50
Joleen Persien               $        657.48          0.00135%     $       94.20       $       563.28       $       94.20
Holly Jepson                 $      1,643.69          0.00336%     $      235.50       $     1,408.19       $      235.50
Dave Duggan                  $        657.48          0.00035%     $       94.20       $       563.28       $       94.20
                             --------------------------------------------------------------------------------------------
Sub-total                    $   327,325.09           0.66997%      $  46,898.09       $   280,427.00       $   46,898.09

                                                        Options
                                         Exercise      Outstanding            Gross         Allocated              Exercise
GRANTEE                                   Price          8/10/98             Proceeds        Expenses              Proceeds
-------                                   -----          -------             --------        --------              --------
Michael Chmelowsky                       $   1.80           750     $       1,935.84    $        92.73     $       1,350.00
Martha Barness                           $   1.80         2,000     $       5,162.24    $       247.29     $       3,600.00
Brenda Esson                             $   1.80           500     $       1,290.56    $        61.82     $         900.00
Wayne Garrison                           $   1.80        20,000     $      51,622.41    $     2,472.86     $      36,000.00
Kathy Grauberger                         $   1.80           500     $       1,290.56    $        61.82     $         900.00
Jeffrey Hale                             $   1.80           -       $         -         $       -          $         -
Jeffrey Hale (Terminated 1/9/98)                                                                -                    -
Laura Holmbeck                           $   1.80           500     $       1,290.56    $        61.82     $         900.00
David Ingwald                            $   1.80           -       $         -         $         -        $         -
David Ingwald (Terminated)
James Kaufman                            $   1.80         1,000     $       2,581.12    $       123.64     $       1,800.00
Jennifer Korby                           $   1.80           500     $       1,290.56    $        61.82     $         900.00
Frank Kuhar                              $   1.80       130,000     $     335,545.64    $    16,073.59     $     234,000.00
Steve Larson                             $   1.80           500     $       1,290.56    $        61.82     $         900.00
Sayyara Munshi                           $   1.80           -       $                   $       -          $         -
Sayyara Munshi (Terminated 7/22/98)
Taylor Root                              $   1.80         1,000     $       2,581.12    $       123.64     $       1,800.00
Robert Stokes                            $   1.80         5,000     $      12,905.60    $       618.21     $       9,000.00
Lindsey Swint                            $   1.80        10,000     $      25,811.20    $     1,236.43     $      18,000.00
Patrick Weisman                          $   1.80         1,000     $       2,581.12    $       123.64     $       1,800.00
Christine Woefle                         $   1.80         1,000     $       2,581.12    $       123.64     $       1,800.00
Chris Radlinski                          $   1.80           500     $       1,290.56    $        61.82     $         900.00
                                                       -------------------------------------------------------------------
Subtotal New Employees 1998                             174,750     $    451,050.78     $   21,606.61      $    314,550.00

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



                                              Net             Escrow             Escrow              First                Second
GRANTEE                                     Proceeds             %                 $'s            Distribution         Distribution
-------                                     --------            ---                ---            ------------         ------------
Michael Chmelowsky                      $         493.11       0.00101%       $      70.65     $       422.46     $         70.65
Martha Barness                          $       1,314.95       0.00269%       $     188.40     $     1,126.55     $        188.40
Brenda Esson                            $         328.74       0.00067%       $      47.10     $       281.64     $         47.10
Wayne Garrison                          $      13,149.55       0.02691%       $   1,884.02     $    11,265.52     $      1,884.02
Kathy Grauberger                        $         328.74       0.00067%       $      47.10     $       281.64     $         47.10
Jeffrey Hale                            $            -         0.00000%       $     -          $        -         $        -
Jeffrey Hale (Terminated 1/9/98)                     -         0.00000%             -                   -                  -
Laura Holmbeck                          $         328.74       0.00067%       $      47.10     $       281.64     $         47.10
David Ingwald                           $            -         0.00000%       $     -          $        -         $        -
David Ingwald (Terminated)                                     0.00000%
James Kaufman                           $         657.48       0.00135%       $        94.20   $       563.28     $         94.20
Jennifer Korby                          $         328.74       0.00067%       $        47.10   $       281.64     $         47.10
Frank Kuhar                             $      85,472.05       0.17495%       $    12,246.16   $    73,225.89     $     12,246.16
Steve Larson                            $         328.74       0.00067%       $        47.10   $       281.64     $         47.10
Sayyara Munshi                          $            -         0.00000%       $     -          $        -         $        -
Sayyara Munshi (Terminated 7/22/98)                            0.00000%
Taylor Root                             $         657.48       0.00135%       $        94.20   $       563.28     $         94.20
Robert Stokes                           $       3,287.39       0.00673%       $       471.01   $     2,816.38     $        471.01
Lindsey Swint                           $       6,574.77       0.01346%       $       942.01   $     5,632.76     $        942.01
Patrick Weisman                         $         657.48       0.00135%       $        94.20   $       563.28     $         94.20
Christine Woefle                        $         657.48       0.00135%       $        94.20   $       563.28     $         94.20
Chris Radlinski                         $         328.74       0.00067%       $        47.10   $       281.64     $         47.10
                                        ----------------------------------------------------------------------------------------
Subtotal New Employees 1998             $    114,894.16       0.23517%        $   16,461.67    $   98,432.50      $    16,461.67
                                        ----------------------------------------------------------------------------------------
Total Qualified Options                 $    989,912.41       2.02616%        $  141,831.48    $  848,080.92      $   141,831.48

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

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

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

Paul Waldon                     $    2.50           -         $                  $     -             $      -         $     -

Bob Wilsey                      $   0.875        12,000       $    30,973.44     $   1,483.72        $   10,500.00    $  18,989.73

Shawn Gillam                    $    1.80        20,000       $    51,622.41     $   2,472.86        $   36,000.00    $  13,149.55

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


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

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

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

Paul Waldon                       0.00000%     $     -            $      -             $     -

Bob Wilsey                        0.03887%     $   2,720.79       $   16,268.94        $   2,720.79

Shawn Gillam                      0.02691%     $   1,884.02       $   11,265.52        $   1,884.02

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

Exhibit B to the Agreement and Plan of Merger

ESCROW AGREEMENT

among

ALLIANCE DATA SYSTEMS CORPORATION

as Shareholders' Representative

and

as Escrow Agent

Dated as of , 1998

TABLE OF CONTENTS

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

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

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

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

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

ESCROW AGREEMENT

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

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

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

NOW, THEREFORE, the parties hereto agree as follows:

SECTION I

APPOINTMENT OF ESCROW AGENT; RESIGNATION AND SUCCESSOR

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

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

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

SECTION II

ESCROW ARRANGEMENTS

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

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

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

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

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

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

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

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

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

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

SECTION III

RELEASE OF THE ESCROW AMOUNT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION IV

ESCROW AGENT

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION V

MISCELLANEOUS

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

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

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

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

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

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

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

a. If to Parent:

Attention:
Phone:
Fax:

with a copy to:

b. If to the Shareholders' Representative:

with a copy to:

c. If to the Escrow Agent:

Attention:
Phone:
Fax:

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

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

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

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

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

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

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

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

ALLIANCE DATA SYSTEMS CORPORATION

Title:

Barrs S. Lewis, as Shareholders' Representative

[Name of Escrow Agent]

Title:

                                        TOTAL
                                        SHARES               GROSS                ALLOCATED            EXERCISE
SUMMARY                               EXERCISED             PROCEEDS              EXPENSES             PROCEEDS
-------                               ---------             --------              --------             --------
Total Stock Converted to Common       18,588,648        $  47,979,537.33       $  2,298,356.14

Total Debentures Converted                   -          $            -         $           -

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

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

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


                                           NET            ESCROW             ESCROW           FIRST              SECOND
SUMMARY                                  PROCEEDS           %                  $'s         DISTRIBUTION        DISTRIBUTION
-------                                  --------         ------             ------        ------------        ------------
Total Stock Converted to Common     $   45,611,181.19    93.50076%     $  6,545,053.49   $  39,136,127.70    $  6,545,053.49

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

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

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

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

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

                                             TOTAL
                                             SHARES             GROSS              ALLOCATED              NET
SHAREHOLDER                                OUTSTANDING         PROCEEDS             EXPENSES            PROCEEDS
-----------                                -----------         --------             --------            --------
  TOTAL PNC PARTNERS                         3,842,080     $    9,916,870.81     $   475,046.28     $    9,441,824.53

Barr S. & Holly Lewis                           24,065     $       62,115.83     $     2,975.52     $       59,140.31

Jonathan D. Rick                                10,000     $       25,811.20     $     1,236.43     $       24,574.77

Judith H. Rick                                   4,500     $       11,615.04     $       556.39     $       11,058.65

Lewis B. & Elizabeth Elliot                     28,572     $       73,747.77     $     3,532.73     $       70,215.04

Richard W. & Loviah E. Aldinger                111,330     $      287,355.83     $    13,765.16     $      273,590.67

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

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

Melvin T. & Carol A. Lehman                     57,144     $      147,495.54     $     7,065.46     $      140,430.08

Randall T. & Carol A. Lehman                    57,144     $      147,495.54     $     7,065.46     $      140,430.08

Christopher & Jill Zollinger                    57,144     $      147,495.54     $     7,065.46     $      140,430.08

Jerry D. & Laquetta J. Freeman                  28,572     $       73,747.77     $     3,532.73     $       70,215.04

R. Hunt Greene                                  28,056     $       72,415.91     $     3,468.93     $       68,946.98

Frank Trafton                                   28,572     $       73,747.77     $     3,532.73     $       70,215.04

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


                                               ESCROW          ESCROW               FIRST                SECOND
SHAREHOLDER                                       %             $'s              DISTRIBUTION         DISTRIBUTION
-----------                                    -------         ------            ------------         ------------
  TOTAL PNC PARTNERS                          19.32563%    $  1,352,794.41     $   8,089,030.12     $   1,352,794.41

Barr S. & Holly Lewis                          0.12105%    $      8,473.43     $      50,666.87     $       8,473.43

Jonathan D. Rick                               0.05030%    $      3,520.99     $      21,053.72     $       3,520.99

Judith H. Rick                                 0.02263%    $      1,584.45     $       9,474.20     $       1,384.45

Lewis B. & Elizabeth Elliot                    0.14372%    $     10,060.19     $      60,154.86     $      10,060.19

Richard W. & Loviah E. Aldinger                0.55999%    $     39,199.20     $     234,391.47     $      39,199.20

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

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

Melvin T. & Carol A. Lehman                    0.28743%    $     20,120.37     $     120,309.71     $      20,120.37

Randall T. & Carol A. Lehman                   0.28743%    $     20,120.37     $     120,309.71     $      20,120.37

Christopher & Jill Zollinger                   0.28743%    $     20,120.37     $     120,309.71     $      20,120.37

Jerry D. & Laquetta J. Freeman                 0.14372%    $     10,060.19     $      60,154.86     $      10,060.19

R. Hunt Greene                                 0.14112%    $      9,878.50     $      59,068.48     $       9,878.50

Frank Trafton                                  0.14372%    $     10,060.19     $      60,154.86     $      10,060.19

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

                                           TOTAL
                                           SHARES             GROSS               ALLOCATED               NET
SHAREHOLDER                             OUTSTANDING          PROCEEDS             EXPENSES             PROCEEDS
-----------                             -----------          --------             ---------            --------
  SUB-TOTAL PAGE 1                        4,550,793      $  11,746,145.31      $   562,673.73      $  11,183,471.58

Addison Piper                                71,123      $     183,576.55      $     8,793.84      $     174,782.71

James J. Ingram                              41,228      $     106,414.43      $     5,097.55      $     101,316.88

Gary M. Petrucci                             22,858      $      58,999.25      $     2,826.23      $      56,173.02

Oscar Y. Lewis Sr.                           61,476      $     158,676.66      $     7,601.06      $     151,075.60

John A. Bruntjen
Helayne Bruntjen                            169,598      $     437,751.79      $    20,969.55      $     416,782.23

George N. Nelson Jr.                        177,593      $     458,387.96      $    21,958.09      $     436,429.87

Paul R. Waldon                               22,616      $      58,374.62      $     2,796.31      $      55,578.31

Sally J. & Craig F. Smith                    30,574      $      78,914.17      $     3,780.21      $      75,133.96

Louise M. & William J. Brady                114,286      $     294,985.92      $    14,130.66      $     280,855.25

Diana H. & Van L. Brady                     114,286      $     294,985.92      $    14,130.66      $     280,855.25

Donald Davis                                247,620      $     639,137.02      $    30,616.48      $     608,520.54

JoAnne Trafton                              133,334      $     344,151.10      $    16,485.82      $     327,665.28

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



                                        ESCROW           ESCROW              FIRST               SECOND
SHAREHOLDER                                %               $'s            DISTRIBUTION        DISTRIBUTION
-----------                             ------           ------           ------------        ------------
  SUB-TOTAL PAGE 1                     22.89046%    $  1,602,332.03     $   9,581,139.55    $  1,602,332.03
Addison Piper                           0.35775%    $     25,042.31     $     149,740.40    $     25,042.31

James J. Ingram                         0.20738%    $     14,516.36     $      86,800.52    $     14,516.36

Gary M. Petrucci                        0.11498%    $      8,048.29     $      48,124.73    $      8,048.29

Oscar Y. Lewis Sr.                      0.30922%    $     21,645.63     $     129,429.97    $     21,645.63

John A. Bruntjen
Helayne Bruntjen                        0.85307%    $     59,715.22     $     357,067.01    $     59,715.22

George N. Nelson Jr.                    0.89329%    $     62,530.28     $     373,899.60    $     62,530.28

Paul R. Waldon                          0.11376%    $      7,963.08     $      47,615.23    $      7,963.08

Sally J. & Craig F. Smith               0.15379%    $     10,764.95     $      64,369.01    $     10,764.95

Louise M. & William J. Brady            0.57486%    $     40,240.04     $     240,615.21    $     40,240.04

Diana H. & Van L. Brady                 0.57486%    $     40,240.04     $     240,615.21    $     40,240.04

Donald Davis                            1.24553%    $     87,186.88     $     521,333.66    $     87,186.88

JoAnne Trafton                          0.67067%    $     46,946.83     $     280,718.45    $     46,946.83

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

                                                TOTAL
                                                SHARES            GROSS              ALLOCATED             NET
SHAREHOLDER                                  OUTSTANDING         PROCEEDS             EXPENSES           PROCEEDS
-----------                                  -----------         --------             --------           --------
  SUB-TOTAL PAGE 2                             5,837,548     $  15,067,413.61     $    721,771.91    $  14,345,641.69

Kenneth H. Dahlberg
Carefree Capital, Inc.                         2,131,341     $   5,501,247.19     $    263,525.37    $   5,237,721.83

Warren E. Mack                                   152,628     $     393,950.00     $     18,871.32    $     375,078.67

Donald F. Swanson Revocable Trust                237,302     $     612,505.94     $     29,340.77    $     583,165.17

William D. & Rita M. Witmer                       10,000     $      25,811.20     $      1,236.43    $      24,574.77

Marc E. Poirier                                   10,000     $      25,811.20     $      1,236.43    $      24,574.77

Jerry J. & Kathleen L. Krause                     10,000     $      25,811.20     $      1,236.43    $      24,574.77

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

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

Philip O. Rick Revocable Living Trust             12,436     $      32,099.16     $      1,537.64    $      30,561.52

James E. Nicholson                                 5,716     $      14,733.68     $        706.74    $      14,046.94

James P. Stephenson                               48,158     $     124,302.47     $      5,954.44    $     118,348.03

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


                                                  ESCROW          ESCROW               FIRST                SECOND
SHAREHOLDER                                         %               $'s            DISTRIBUTION          DISTRIBUTION
-----------                                       ------          ------           ------------          ------------
  SUB-TOTAL PAGE 2                              29.36282%    $  2,055,397.64     $  12,290,244.05      $  2,055,397.64

Kenneth H. Dahlberg
Carefree Capital, Inc.                          10.72063%    $    750,444.03     $   4,487,277.80      $    750,444.03

Warren E. Mack                                   0.76772%    $     53,740.07     $     321,338.60      $     53,740.07

Donald F. Swanson Revocable Trust                1.19363%    $     83,554.04     $     499,611.13      $     83,554.04

William D. & Rita M. Witmer                      0.05030%    $      3,520.99     $      21,053.78      $      3,520.99

Marc E. Poirier                                  0.05030%    $      3,520.99     $      21,053.78      $      3,520.99

Jerry J. & Kathleen L. Krause                    0.05030%    $      3,520.99     $      21,053.78      $      3,520.99

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

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

Philip O. Rick Revocable Living Trust            0.06255%    $      4,378.76     $      26,182.77      $      4,378.76

James E. Nicholson                               0.02875%    $      2,012.60     $      12,034.34      $      2,012.60

James P. Stephenson                              0.24224%    $     16,956.53     $     101,391.50      $     16,956.53

Gale R. Mellum                                   0.23138%    $     16,196.58     $      96,847.38      $     16,196.58
                                                ----------------------------------------------------------------------
  SUB-TOTAL PAGE 3                              52.40396%    $  3,668,277.05     $  21,934,451.63      $  3,668,277.05

                                              TOTAL
                                              SHARES            GROSS              ALLOCATED                NET
SHAREHOLDER                                 OUTSTANDING        PROCEEDS            EXPENSES               PROCEEDS
-----------                                 -----------        --------            --------               --------
  SUB-TOTAL PAGE 3                          10,418,297      $  26,890,878.14     $   1,288,149.45     $   25,602,728.68
Thomas L. Kimer                                 43,693      $     112,776.07     $       5,402.29     $      107,373.77

John K. Steffen                                 13,928      $      35,949.84     $       1,722.10     $       34,227.74

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

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

Donald J. Sieb                                  46,250      $     119,376.82     $       5,718.49     $      113,658.33

Sieb Trafton Associates                        911,670      $   2,353,129.97     $     112,721.61     $    2,240,408.36

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


                                              ESCROW           ESCROW              FIRST              SECOND
SHAREHOLDER                                      %               $'s           DISTRIBUTION         DISTRIBUTION
-----------                                   ------           -------         ------------         -------------
  SUB-TOTAL PAGE 3                           52.40396%    $  3,668,277.05    $  21,934,451.63    $   3,668,277.05

Thomas L. Kimer                               0.21977%    $     15,384.17    $      91,989.60    $      15,384.17

John K. Steffen                               0.07006%    $      4,904.04    $      29,323.70    $       4,904.04

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

William Blair Capital Partners V LP          17.14770%    $  1,200,338.97    $   7,177,423.28    $   1,200,338.97

Donald J. Sieb                                0.23264%    $     16,284.60    $      97,373.73    $      16,284.60

Sieb Trafton Associates                       4.58569%    $    320,998.54    $   1,919,409.82    $     320,998.54

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

EXHIBIT 2.4

STOCK PURCHASE AGREEMENT

among

SPS PAYMENT SYSTEMS, INC.,

as

SELLER,

ALLIANCE DATA SYSTEMS CORPORATION,

as

PURCHASER, and

SPS COMMERCIAL SERVICES, INC. and ADS NETWORK SERVICES, INC.,
as SUBSIDIARIES.

June 8, 1999

                                TABLE OF CONTENTS

                                                                                        PAGE
ARTICLE I.  PURCHASE AND SALE OF SHARES                                                 1
      1.1             Purchase and Sale of Shares                                       1
      1.2             Payment of Purchase Price                                         1
      1.3             Post-Closing Purchase Price Adjustment                            2
      1.4             Closing                                                           3
      1.5             AFCC's, Seller's and the Subsidiaries'Deliveries to Purchaser     3
      1.6             Purchaser's Deliveries to Seller                                  3

ARTICLE II.  REPRESENTATIONS AND WARRANTIES OF SELLER                                   4
      2.1             Authority                                                         4
      2.2             No Conflicts; Consents                                            4
      2.3             Organization and Standing                                         5
      2.4             Capital Stock of the Subsidiaries                                 5
      2.5             Subsidiaries'Equity Interests                                     6
      2.6             Business Premises                                                 6
      2.7             Litigation                                                        7
      2.8             Taxes                                                             7
      2.9             Benefit Plans                                                     9
      2.10            Employee and Employee Relations                                   9
      2.11            Compliance, Licenses and Permits                                 10
      2.12            Takeover Statutes                                                10
      2.13            Contracts in Full Force and Effect                               10
      2.14            Brokers, Finders, etc.                                           11
      2.15            Insurance                                                        11
      2.16            Tangible Personal Property                                       12
      2.17            Intentionally Omitted                                            12
      2.18            Guaranties                                                       12
      2.19            Powers of Attorney                                               12
      2.20            Intellectual Property                                            12
      2.21            Warranties and Warranty Claims                                   15
      2.22            Officers and Directors                                           15
      2.23            Books and Records                                                16
      2.24            Certain Payments                                                 16
      2.25            Bank Accounts                                                    16
      2.26            Year 2000                                                        16
      2.27            Service Levels                                                   17
      2.28            Financial Statements                                             17
      2.29            Inventory                                                        18
      2.30            Accounts Receivable                                              18
      2.31            Customers and Suppliers                                          19
      2.32            Relationships with Related Persons                               19
      2.33            Disclosure                                                       19

                                       i

                                                                                      PAGE
      2.34            Absence of Certain Changes; Conduct of Business                  20
      2.35            Undisclosed Liabilities                                          21
      2.36            Conduct of the Business                                          21
      2.37            No Other Representations or Warranties                           21

ARTICLE III.  REPRESENTATIONS AND WARRANTIES OF PURCHASER                              22
      3.1             Organization and Standing                                        22
      3.2             Authority                                                        22
      3.3             No Conflicts; Consents                                           22
      3.4             Financial Ability to Perform                                     23
      3.5             Absence of Certain Changes or Events                             23
      3.6             No Other Representations or Warranties                           23

ARTICLE IV.  COVENANTS OF SELLER AND THE SUBSIDIARIES                                  23
      4.1             Access                                                           23
      4.2             Ordinary Conduct                                                 23
      4.3             Assets of ADS Network                                            24
      4.4             Assets of Commercial Services                                    24
      4.5             Assumed Liabilities                                              25
      4.6             Hired Employee Solicitation and Employment                       25
      4.7             Non-Competition by the AFCC Group                                25
      4.8             Consents; Assignability                                          26
      4.9             No Solicitation                                                  26
      4.10            Records Retention                                                26
      4.11            Cease Use of Marks                                               27
      4.12            Confidentiality                                                  27
      4.13            Cooperation Regarding Financial Statements                       27
      4.14            Financial Statements and Reports                                 28
      4.15            Tax Elections                                                    28
      4.16            Supplements to Schedules                                         28

ARTICLE V.  EMPLOYEES AND EMPLOYEE MATTERS                                             29
      5.1             Employment                                                       29
      5.2             Hired Employee Benefits                                          29
      5.3             Employment and Employee Benefits                                 29
      5.4             No Employment Agreements                                         30
      5.5             Employee Benefit Plans Coverage                                  30
      5.6             Employee Service Credit                                          30
      5.7             Pre-Existing Condition Exclusions                                31
      5.8             Medical and Dental                                               31
      5.9             Accrued Vacation Days                                            32
      5.10            401(k) Plans                                                     32
      5.11            Employee Withholding and Reporting                               33
      5.12            Withdrawal from Plans                                            33
      5.13            Employment -  No Third Party Rights                              33
      5.14            Seller Assistance                                                33

                                       ii

                                                                                      PAGE
      5.15            WARN Act                                                         33
      5.16            FleetShare Employees                                             33

ARTICLE VI.  COVENANTS OF PURCHASER                                                    34
      6.1             Regulatory Conditions                                            34
      6.2             Certain Understandings                                           34
      6.3             Commonly-Available Third Party Software Programs                 34
      6.4             Confidentiality                                                  35

ARTICLE VII.  MUTUAL COVENANTS                                                         35
      7.1             Consummation of the Transactions                                 35
      7.2             Publicity                                                        35
      7.3             Antitrust Notification                                           36
      7.4             Confidentiality  Prior to Closing                                36
      7.5             Employee, Customer, Vendor and Supplier Notification             36
      7.6             Further Assurances                                               36
      7.7             Cure for Breach Between Purchaser and Seller of
                      Certain Representations, Warranties and Covenants                36
      7.8             Revenues and Expenses                                            38
      7.9             Post-Closing Reimbursement for Year 2000 Costs                   38

ARTICLE VIII.  CONDITIONS TO CLOSING                                                   40
      8.1             Each Party's Obligations                                         40
      8.2             Seller's and the Subsidiaries'Obligations                        40
      8.3             Purchaser's Obligations                                          41
      8.4             Frustration of Closing Conditions                                43

ARTICLE IX.  TAX MATTERS                                                               43
      9.1             Tax Matters                                                      43

ARTICLE X.  TERMINATION                                                                43
      10.1            Termination Events                                               43
      10.2            Information and Confidentiality                                  43
      10.3            Remedies for Termination                                         44
      10.4            Abandonment                                                      44

ARTICLE XI.  INDEMNIFICATION                                                           44
      11.1            Survival of Representations and Warranties                       44
      11.2            Indemnification by Seller                                        44
      11.3            Indemnification by Purchaser                                     45
      11.4            Conditions of Indemnification Relating to Third Party Claims     45
      11.5            Conditions of Indemnification Relating to Claims that are not
                      Third Party Claims                                               46
      11.6            Limitations on Indemnification                                   47


                                      iii

                                                                                      PAGE
ARTICLE XII.  DISPUTE RESOLUTION                                                       48
      12.1            Negotiation                                                      48
      12.2            Mediation                                                        48
      12.3            Provisional Remedies                                             48

ARTICLE XIII.  MISCELLANEOUS                                                           48
      13.1            No Third-Party Beneficiaries                                     48
      13.2            Amendment or Waiver                                              49
      13.3            Headings                                                         49
      13.4            Counterparts                                                     49
      13.5            Assignment                                                       49
      13.6            Notices                                                          49
      13.7            Entire Agreement                                                 50
      13.8            Severability                                                     50
      13.9            Schedules                                                        50
      13.10           Governing Law                                                    50
      13.11           Expenses                                                         50
      13.12           Remedies for Breach                                              51


Table of Schedules and Exhibits                                                         v
Table of Definitions                                                                  vii

Schedule 2.2               Conflicts, Consents
Schedule 2.4               Warrants, Options, etc.
Schedule 2.6(a)            Riverwoods Lease Documents
Schedule 2.7               Litigation
Schedule 2.8(b)            State Where Tax Returns Required
Schedule 2.8(c)            Extension of Tax Statutes of Limitations and Tax Sharing Agreements
Schedule 2.8(d)            Exceptions to Required Tax Returns
Schedule 2.8(e)            Joint Ventures, Partnerships and Other Arrangements
Schedule 2.10              Employee Incentive, Bonus Obligations
Schedule 2.11              License Exceptions
Schedule 2.13(a)           List of Contracts Related to Business
Schedule 2.13(b)           Parties Terminating Agreements
Schedule 2.13(c)           Agreements Not Valid
Schedule 2.16              Equipment Liens and Taxes
Schedule 2.18              Outstanding Guaranties Issued by Subsidiaries
Schedule 2.19              Powers of Attorney Issued by Subsidiaries
Schedule 2.20(a)           Software Products
Schedule 2.20(d)           Encumbrances on Intellectual Property Assets
Schedule 2.20(e)           Patents
Schedule 2.20(f)           Marks
Schedule 2.20(g)           Copyrights
Schedule 2.20(i)           Software Products Sold or Licensed to Third Parties
Schedule 2.20(k)           Internet Assets
Schedule 2.21              Product /Services Warranties to Third Parties
Schedule 2.22              Officers and Directors of Subsidiaries
Schedule 2.28(b)           Pro Forma Income Statements of the Business
Schedule 2.30              FleetShare Accounts Receivable
Schedule 2.31              Material Customers
Schedule 2.32              Related Persons
Schedule 2.34              Conduct of Business
Schedule 2.35              Undisclosed Liabilities
Schedule 2.36              Excluded Assets
Schedule 3.3               Conflicts or Consents Needed
Schedule 4.2               Ordinary Conduct Exceptions
Schedule 4.2(c)            Contracts not to be Terminated, Etc.
Schedule 4.3               Assets Transferred to ADS Network
Schedule 4.4               Commercial Services Assets
Schedule 4.5(a)            ADS Network Assumed Obligations
Schedule 4.5(b)            Commercial Services Assumed Obligations
Schedule 5.1               Employees
Schedule 5.2               Severance Pay Formula and Definition of Termination for Cause
Schedule 5.14              Payroll Data
Schedule 5.16              FleetShare Employees


                                       v

Exhibit A                  Form of Interim Services Agreement
Exhibit B                  Form of Gray Lease
Exhibit C                  Form of Riverwoods Sublease
Exhibit D                  Form of Services Agreement
Exhibit E                  Form of Assumption Agreement
Exhibit F                  Form of Tax Cooperation and Indemnification Agreement
Exhibit G                  Form of Master Agreement for Systems Operations Services

                                                                                                            SECTION
Accounts.......................................................................................................2.30
Active Employees................................................................................................5.1
ADS Network................................................................................................Preamble
ADS Network Assumed Obligations.................................................................................4.5
AFCC............................................................................................................1.5
AFCC Group......................................................................................................4.6
AFCC Letter Agreement..........................................................................................13.7
Affiliate.......................................................................................................3.3
Agreement..................................................................................................Preamble
Assumed Liabilities.............................................................................................4.5
Assumption Agreement....................................................................................1.5(g); 4.5
Audit........................................................................................................2.8(a)
Balance Sheet...............................................................................................2.28(a)
Benefit Plans...................................................................................................2.9
Business...................................................................................................Recitals
Business Records...............................................................................................4.10
Claims.........................................................................................................11.2
Closing.........................................................................................................1.4
Closing Balance Sheet........................................................................................1.3(a)
Closing Date....................................................................................................1.4
COBRA........................................................................................................5.8(c)
Code.........................................................................................................2.8(a)
Commercial Services........................................................................................Preamble
Commercial Services Retained Obligations........................................................................4.5
Confidentiality Agreement...................................................................................4.12(c)
Contracts...................................................................................................2.13(a)
Controlled Group ...............................................................................................2.9
Critical Asset..................................................................................................7.7
Critical Remediation............................................................................................7.9
Copyrights..................................................................................................2.20(b)
Date Handling..................................................................................................2.26
Disputed Matters................................................................................................7.9
DOJ.............................................................................................................7.3
Employees.......................................................................................................5.1
Encumbrances....................................................................................................1.1
ERISA...........................................................................................................2.9
FleetShare Accounts Receivable.................................................................................2.30
FleetShare Business........................................................................................Recitals
FleetShare Employees...........................................................................................5.16
FleetShare Services Termination Date...........................................................................5.16
FMLA............................................................................................................5.1
Former Employee.................................................................................................5.1


                                        vii

FTC.............................................................................................................7.3
GAAP.........................................................................................................1.3(a)
Governmental Entity.............................................................................................2.2
Gray Lease...........................................................................................1.5(g); 2.6(b)
Group........................................................................................................2.8(a)
Hired Employees ................................................................................................5.1
HSR Act.........................................................................................................1.4
IBM Contract.................................................................................................1.5(g)
Inactive Employees..............................................................................................5.1
Indemnified Party...........................................................................................11.4(a)
Indemnifying Party..........................................................................................11.4(a)
Intellectual Property Assets................................................................................2.20(b)
Independent Consultant..........................................................................................7.9
Interim Balance Sheet.......................................................................................2.28(a)
Interim Services Agreement...................................................................................1.5(g)
Internet Assets.............................................................................................2.20(k)
Inventory......................................................................................................2.29
IRS..........................................................................................................2.8(a)
Legal Requirements..............................................................................................2.4
Liabilities....................................................................................................11.2
Marks.......................................................................................................2.20(b)
Master Agreement ............................................................................................1.5(g)
Material Adverse Effect.........................................................................................2.2
Material Customer..............................................................................................2.31
Material Interest..............................................................................................2.32
Network Services Business..................................................................................Recitals
Patents.....................................................................................................2.20(b)
Permit..........................................................................................................2.2
Person..........................................................................................................2.5
Plan...........................................................................................................2.26
Post-Closing Remediation........................................................................................7.9
Post-Closing Testing............................................................................................7.9
Post Closing Testing Costs......................................................................................7.9
Prior Service...................................................................................................5.6
Project Costs...................................................................................................7.9
Proprietary Software Products...............................................................................2.20(i)
Purchase Price..................................................................................................1.2
Purchaser..................................................................................................Preamble
Purchaser's Basket..........................................................................................11.6(c)
Purchaser's 401(k) Plan.........................................................................................5.6
Related Person.................................................................................................2.32
Representatives................................................................................................4.12
Riverwoods Lease.....................................................................................1.5(g); 2.6(a)
Riverwoods Sublease..................................................................................1.5(g); 2.6(a)
Seller.....................................................................................................Preamble
Seller's Basket.............................................................................................11.6(b)

                                       viii

Seller's DCA.................................................................................................5.8(d)
Seller's FSA.................................................................................................5.8(d)
Seller's 401(k) Plans..........................................................................................5.10
Services Agreement...........................................................................................1.5(g)
Shares.....................................................................................................Recitals
Software Products...........................................................................................2.20(a)
SPS Retained Liabilities........................................................................................4.5
Subsidiary or Subsidiaries.................................................................................Recitals
Tax or Taxes.................................................................................................2.8(a)
Tax Return...................................................................................................2.8(a)
Third Party Claims.............................................................................................11.4
Trade Secrets...............................................................................................2.20(b)
Transaction Documents...........................................................................................6.2
Treasury Regulations.........................................................................................2.8(a)
WARN Act.......................................................................................................5.15

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement, dated as of June 8, 1999 (this "Agreement"), is by and among SPS Payment Systems, Inc., a Delaware corporation ("Seller"), Alliance Data Systems Corporation, a Delaware corporation ("Purchaser"), SPS Commercial Services, Inc., a Delaware corporation ("Commercial Services"), and ADS Network Services, Inc., a Delaware corporation ("ADS Network").

RECITALS

A. Seller, through its Network Services Division, is engaged in the business of conducting the electronic processing of point-of-sale transactions including POS device management, authorization, data capture, reporting and routing for settlement of credit and debit transactions and selling and providing servicing support for various POS equipment (collectively, the "Network Services Business"). Seller, through its Commercial Services subsidiary, is engaged in the business of operating a fleetcard service including new account processing, customer service, collections, accounts receivable, receivables financing, statement production, remittance, and fleet management reporting (collectively, the "FleetShare Business"). Prior to the Closing, Seller will have transferred all of the assets it uses primarily to conduct the Network Services Business and certain of the liabilities of the Network Services Business and the FleetShare Business (collectively, the "Business") to ADS Network and Commercial Services (collectively, the "Subsidiaries"). At Closing, the Subsidiaries will own and operate the Business.

B. Seller owns all of the issued and outstanding shares of capital stock of the Subsidiaries (collectively, the "Shares").

C. Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, the Shares upon the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I.

PURCHASE AND SALE OF SHARES

1.1 PURCHASE AND SALE OF SHARES . Upon the terms and subject to the conditions contained herein, on the Closing Date (as hereinafter defined), Seller will sell, convey, transfer, assign and deliver to Purchaser the Shares free and clear of all security interests, liens, adverse claims, charges and encumbrances (collectively, the "Encumbrances"), and Purchaser will purchase the Shares from Seller.

1.2 PAYMENT OF PURCHASE PRICE . On the Closing Date Purchaser shall deliver to Seller by electronic wire transfer to a bank account designated in writing by Seller at least two business days

prior to the Closing Date, in immediately available funds, the sum of $170,000,000, subject to adjustment as specified in Section 1.3 below (as adjusted, the "Purchase Price").

1.3 POST-CLOSING PURCHASE PRICE ADJUSTMENT .

(a) PREPARATION OF CLOSING BALANCE SHEET. As soon as practicable following the Closing Date, but in no event later than 30 days after the Closing, Seller shall deliver to Purchaser a balance sheet of the Business as of the Closing Date (the "Closing Balance Sheet") prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied without giving effect to the transfer of assets to the Subsidiaries or the sale of Stock contemplated by this Agreement. The Closing Balance Sheet or explanatory notes shall identify as separate items the following: (i) the value of the Inventory (as hereinafter defined) and (ii) the value of the FleetShare Accounts Receivable (as hereinafter defined) and all allowances for doubtful accounts relating thereto. The Closing Balance Sheet shall be accompanied by a certificate signed by an officer of Seller certifying (i) that as of December 31, 1998, $3,919,487 was the amount of the FleetShare Accounts Receivable net of all reserves, (ii) the reserves for the FleetShare Accounts Receivable as of that date represented 1.047% of the FleetShare Accounts Receivable, (iii) that as of December 31, 1998, $844,648 was the amount of the Inventory of the Business, and (iv) that the Closing Balance Sheet and the certification of the FleetShare Accounts Receivable and the Inventory described in (i) and (iii) of this sentence: (x) were prepared in accordance with GAAP consistently applied, subject to normal recurring year end adjustments (which will not individually or in the aggregate have a Material Adverse Effect (as hereinafter defined)) and the absence of notes and (y) fairly reflects the assets and liabilities of the Business as of December 31, 1998 or the Closing Date, respectively. In the event that Purchaser shall disagree with amounts specified on the Closing Balance Sheet for the FleetShare Accounts Receivable, reserves related thereto or the Inventory, Purchaser shall notify Seller of the matters with which it disagrees within 15 days of Purchaser's receipt of the Closing Balance Sheet and the parties shall use their best efforts to promptly resolve any differences. If the parties are unable to resolve any disagreements that they may have within 30 days following Purchaser's giving of notice of its disagreement to Seller, then Seller and Purchaser shall use the dispute resolution mechanism established in Article XII.

(b) POST-CLOSING ADJUSTMENTS TO THE PURCHASE PRICE. The amounts shown for the FleetShare Accounts Receivable less related reserves and the Inventory of the Business on the Closing Balance Sheet shall be compared to the comparable items as set forth below. If the amount shown for FleetShare Accounts Receivable on the Closing Balance Sheet less allowance for doubtful accounts (calculated by multiplying the amount shown for FleetShare Accounts Receivable (gross of reserves) on the Closing Balance Sheet by 1.047%) is larger than $3,919,487, Purchaser shall pay the excess to Seller. If the reverse is true, Seller shall pay the difference to Purchaser. If the amount shown for Inventory on the Closing Balance Sheet is larger than $844,648, Purchaser shall pay the excess to Seller. If the reverse is true, Seller shall pay the difference to Purchaser. In the event Seller shall owe Purchaser for one line item and Purchaser shall owe Seller for the other, the payments may be offset and the party owing the balance shall pay such amount to the other. All undisputed amounts shall be made by check or wire transfer within 10 days of the delivery of the Closing Statement. All disputed amounts will be paid by check or wire transfer within 10 days of the parties' ultimate agreement upon the amounts of FleetShare Accounts Receivable and Inventory as shown on the Closing Balance Sheet.

1.4 CLOSING . Upon the terms and subject to the conditions hereof, the closing of the transactions contemplated hereby (the "Closing") shall take place at Dallas, Texas on July 1, 1999, or three (3) business days after expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), whichever is later, or such other place and/or time as Seller and Purchaser may agree (the "Closing Date").

1.5 AFCC'S, SELLER'S AND THE SUBSIDIARIES' DELIVERIES TO PURCHASER . At Closing, Associates First Capital Corporation, a Delaware corporation ("AFCC"), Seller and the Subsidiaries shall deliver to Purchaser the instruments and items set forth below:

(a) Stock certificates representing the Shares, registered in the name of Seller, duly endorsed in blank or accompanied by duly executed stock powers;

(b) A certificate of Seller and each Subsidiary's Secretary or an Assistant Secretary certifying resolutions adopted by the Board of Directors of Seller and each Subsidiary authorizing and approving the execution, delivery and performance of this Agreement and the other documents to be delivered by Seller and such Subsidiary in connection with this Agreement and, in the case of Seller, the transfer of the Shares to Purchaser pursuant to this Agreement;

(c) The written resignations of the directors of the Subsidiaries, effective upon Closing;

(d) The stock books, stock ledgers, minute books, and corporate seals of the Subsidiaries;

(e) All Certificates of AFCC's, Seller's and the Subsidiary's officers required under or in connection with this Agreement;

(f) Any updates of Schedules pursuant to Section 4.16, which shall be dated as of a date not more than two days prior to the Closing Date and certified by Seller's and each Subsidiary's Secretary or an Assistant Secretary;

(g) Duly executed Interim Services Agreement, Gray Lease, Riverwoods Sublease, Services Agreement, Assumption Agreement, Tax Cooperation and Indemnification Agreement and Master Agreement for Systems Operations Services (the "Master Agreement") relating to the IBM Contract (as defined in the Master Agreement), which documents shall be in the forms attached hereto as Exhibits A, B, C, D, E, F, and G respectively; and

(h) All other documents, certificates, instruments, agreements and writings required to be delivered by AFCC, Seller or either Subsidiary on or before the Closing Date pursuant to this Agreement.

1.6 PURCHASER'S DELIVERIES TO SELLER . At Closing, Purchaser shall deliver to Seller, or cause the delivery to Seller of, the following instruments and items:

(a) The Purchase Price;

(b) A certificate of Purchaser's Secretary or an Assistant Secretary certifying resolutions of the Board of Directors of Purchaser authorizing and approving the execution, delivery, and performance of this Agreement;

(c) All certificates of Purchaser's officers required under or in connection with this Agreement;

(d) Duly executed Interim Services Agreement, Gray Lease, Riverwoods Sublease, Services Agreement, Tax Cooperation and Indemnification Agreement and Master Agreement in the forms attached hereto as Exhibits A, B, C, D, F and G respectively; and

(e) All other documents, certificates, instruments, agreements and writings required to be delivered by the Purchaser on or before the Closing Date pursuant to this Agreement.

ARTICLE II
ARTICLE REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Purchaser as follows:

2.1 AUTHORITY . Seller and each Subsidiary have the corporate power and authority to execute this Agreement and all documents, instruments and agreements required to be executed by Seller or either Subsidiary pursuant hereto and to consummate the transactions contemplated hereby or thereby. Prior to Closing, the execution and delivery of this Agreement and all documents, instruments and agreements required to be executed by Seller or either Subsidiary pursuant hereto or thereto, and the performance by Seller or either Subsidiary of its obligations hereunder or thereunder, have been duly authorized by the respective Board of Directors of Seller and the Subsidiaries and no further corporate action is necessary on the part of Seller or either Subsidiary. This Agreement and all documents, instruments and agreements required to be executed by Seller or either Subsidiary pursuant hereto have been duly executed and delivered by Seller and the Subsidiaries and constitute valid and legally binding obligations of Seller and the Subsidiaries, enforceable against them in accordance with their respective terms subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium (whether general or specific) and similar laws relating to creditors' rights generally, and general principles of equity regardless of whether such enforcement is sought in a proceeding in equity or at law.

2.2 NO CONFLICTS; CONSENTS . Except as set forth on Schedule 2.2, neither the execution and delivery of this Agreement by Seller or either Subsidiary, nor the execution and delivery of any other documents, instruments and agreements required to be executed and delivered by Seller or either Subsidiary pursuant hereto, nor the consummation of the transactions contemplated hereby or thereby will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of first refusal, right of termination, cancellation or acceleration or similar right relating to any obligation or to loss of a benefit under any provision of (a) the respective certificates of incorporation or by-laws of Seller or either Subsidiary, (b) any note, bond, mortgage, indenture, deed of trust, license, lease, contract, commitment, agreement or

arrangement to which Seller or either Subsidiary is a party or by which any of them or any of their respective properties or assets is bound or (c) any judgment, order or decree, or statute, law, ordinance, rule or regulation, applicable to Seller or either Subsidiary or any of their respective properties or assets, in the case of (b) and (c) above, except for any such conflict, violation, default or right which would not reasonably be expected to have a material adverse effect on the business, assets, financial condition, or results of operations of the Subsidiaries taken as a whole (a "Material Adverse Effect"). No consent, approval, license, permit, order or authorization of, or registration, declaration or filing (each, a "Permit") with, any Federal, state, local or foreign government or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, or other regulatory or self-regulatory body or association (each, a "Governmental Entity") is required to be obtained or made by Seller or the Subsidiaries in connection with the consummation of the transactions contemplated hereby other than (x) compliance with and filings under the HSR Act, (y) as set forth on Schedule 2.2, and (z) with respect to the Network Services Business, those the failure of which to make or obtain would not have a Material Adverse Effect.

2.3 ORGANIZATION AND STANDING . Each of Seller and the Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Seller and each of the Subsidiaries has all requisite corporate power and authority to carry on its respective business as presently conducted and to own, lease and operate its respective properties and assets as currently owned, leased and operated, and each is duly qualified to do business and is in good standing in each jurisdiction in which the properties owned, leased or operated by it, or where the nature of the business conducted by it, make such qualification necessary, except where the failure to so qualify or be in good standing would not have a Material Adverse Effect.

2.4 CAPITAL STOCK OF THE SUBSIDIARIES . The authorized capital stock of ADS Network consists of 1,000 shares of common stock, par value $.01 per share, of which 1,000 shares are duly authorized and validly issued and outstanding, fully paid and nonassessable and are owned by Seller free and clear of any Encumbrances. The authorized capital stock of Commercial Services consists of 1,000 shares of capital stock, par value $.01 per share, of which 1,000 shares are duly authorized and validly issued and outstanding, fully paid and nonassessable and are owned by Seller free and clear of any Encumbrances. Except for the Shares, there are no shares of capital stock or other equity securities of either Subsidiary outstanding. None of the Shares have been issued in violation of any orders, constitutions, laws, ordinances, principles of common law, regulations, rules, statutes and treaties (collectively, "Legal Requirements"), or in violation of, or are subject to, any purchase option, call, right of first refusal or preemptive, subscription or similar right. Except as set forth on Schedule 2.4, there are no outstanding warrants, options, rights, agreements, convertible or exchangeable securities or other commitments (other than this Agreement) (a) pursuant to which Seller or either Subsidiary, is or may become obligated to issue, sell, purchase, return or redeem any shares of capital stock or other securities of such Subsidiary or (b) that give any Person (as hereinafter defined) the right to receive any benefits or rights similar to any rights enjoyed by or accruing to the holders of shares of capital stock of such Subsidiary. Upon delivery to Purchaser at the Closing of certificates representing the Shares, duly endorsed by Seller for transfer to Purchaser, and upon Seller's receipt of the Purchase Price, Purchaser will acquire title to the Shares, free and clear of any Encumbrances. No legend (other than a restricted securities legend) or other reference to any purported Encumbrance appears upon any certificate representing equity securities of either Subsidiary.

2.5 SUBSIDIARIES' EQUITY INTERESTS . The Subsidiaries do not own, directly or indirectly, any capital stock of or other equity interests in any corporation, partnership, limited liability partnership, limited liability company, joint venture, association, trust, unincorporated organization or any other entity (collectively, together with any individual, "Person").

2.6 BUSINESS PREMISES .

(a) Seller is a party to a lease (the "Riverwoods Lease")
covering the premises at 2500 Lake Cook Road, Riverwoods, Illinois 60015, which is used, in part, in connection with the Business. Schedule 2.6(a) contains a complete and accurate list of the Riverwoods Lease, all amendments thereto, and all other material documents relating to the Riverwoods Lease, true copies of which documents have been previously made available to Purchaser. Except as set forth in Schedule 2.6(a), (i) the Riverwoods Lease is in full force and effect, constitutes the legal, valid and binding obligation of, and is enforceable against, Seller and, to the knowledge of Seller, each other Person that is a party thereto, in accordance with its terms, (ii) Seller has not received any written notice from the lessor under the Riverwoods Lease of the termination thereof, and (iii) there is no default (including any failure by Seller to make timely payments to the lessor in accordance with the terms of the Riverwoods Lease) or event which, with notice or lapse of time, or both, would constitute a default on the part of Seller (nor, to the knowledge of Seller, on the part of any other party thereto). Seller will have entered into a written sublease with ADS Network in the form attached hereto as Exhibit C (the "Riverwoods Sublease") covering the portion of the Riverwoods, Illinois premises used in connection with the Business, effective as of the Closing Date. At Closing, the Riverwoods Sublease will be in full force and effect. Seller will have transferred to ADS Network at Closing, good and valid title to the leasehold estate in the premises demised under the Riverwoods Sublease free and clear of any Encumbrance. The Riverwoods Sublease will cover substantially all the properties that Seller and the Subsidiaries currently use to operate the Business (other than the Gray Lease, defined below, and off-site storage facilities). The Riverwoods, Illinois premises is not, to the knowledge of Seller subject to: any requisition, closing or demolition order; any notice of enforcement orders, abatement notices or declarations given by a Governmental Entity that has not been complied with; any order or agreement with a planning authority regulating use or development thereof which would have a material adverse effect on the Business currently conducted on that property; or any material dispute with any Person relating to the property or its use. The Riverwoods Lease complies, and the Riverwoods Sublease will comply, with all material and applicable Governmental Entity Legal Requirements.

(b) Seller owns the premises located at 104 Sunset Drive, Gray, Tennessee 37615, which is used in connection with the Business, and Seller has the right and power to lease all or part of such premises. Seller will have entered into a lease with ADS Network in the form attached hereto as Exhibit B (the "Gray Lease") covering the Gray, Tennessee premises used in connection with the Business, effective as of the Closing Date. At Closing, the Gray Lease will be in full force and effect. Seller will have transferred to ADS Network at Closing, good and valid title to the leasehold estate in the premises demised under the Gray Lease free and clear of any Encumbrance. The Gray Lease will cover substantially all the properties that Seller and the Subsidiaries currently use to operate the Business (other than the Riverwoods Sublease, defined above, and off-site storage facilities). The Gray, Tennessee premises is not, to the knowledge of Seller, subject to: any requisition, closing or demolition order; any notice of enforcement orders, abatement notices or declarations given by a

Governmental Entity that has not been complied with; any order or agreement with a planning authority regulating use or development thereof which would have a material adverse effect on the Business currently conducted in that property; or any material dispute with any Person relating to the property or its use. The Gray Lease will comply with all material and applicable Legal Requirements.

2.7 LITIGATION . Except as disclosed on Schedule 2.7, there is no suit, action or proceeding pending or, to the knowledge of Seller or either Subsidiary, threatened against Seller relating to the Business, or against either Subsidiary. There is no judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Seller or either Subsidiary which has had or is reasonably likely to have a Material Adverse Effect.

2.8 TAXES .

(a) For purposes of this Agreement, (i) "Tax" or "Taxes" shall mean all taxes, charges, fees, levies or other assessments, however denominated, including, without limitation, income, profits, gross receipts, excise, property, sales, withholding, social security, occupation, use, service, license, payroll, franchise, transfer and recording taxes, fees and charges, including estimated taxes, imposed by the United States or any other federal, territorial, state, local or other taxing authority (domestic or foreign), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to any such taxes, charges, fees, levies or other assessments; (ii) "Tax Return" shall mean any return, report or other document or information required to be supplied to a taxing authority in connection with Taxes; (iii) "IRS" shall mean the United States Internal Revenue Service; (iv) "Treasury Regulations" shall mean the Treasury Regulations promulgated under the Code; (v) "Group" shall mean, individually and collectively, (A) the Subsidiaries, (B) Seller,
(C) AFCC, and (D) any individual, trust, corporation, partnership or any other entity as to which either one or both of the Subsidiaries is liable for Taxes incurred by such individual or entity either (x) as a transferee, (y) pursuant to Treasury Regulations Section 1.1502-6, or (z) pursuant to any other provision of federal, territorial, state, local or foreign law or regulation; (vi) "Audit" shall mean any audit or inquiry, assessment of Taxes, reassessment of Taxes, or other examination by any taxing authority or any judicial or administrative proceedings or appeal of such proceedings; and
(vii) "Code" shall mean the Internal Revenue Code of 1986, as amended.

(b) In the last five years, the only jurisdictions where the Subsidiaries have filed (or had filed on their behalf) any income Tax Returns are with the Federal government of the United States and with those States set forth on Schedule 2.8(b).

(c) As of the date hereof and at Closing, except as set forth on Schedule 2.8(c): (i) all Tax Returns required to be filed by or on behalf of the members of the Group with respect to any period ending on or prior to the date hereof or the Closing Date, as the case may be, have been duly filed on a timely basis and such Tax Returns are true, complete and correct in all material respects; (ii) all Taxes shown to be payable on such Tax Returns or on subsequent assessments with respect thereto have been paid in full on a timely basis; (iii) there are no liens for Taxes upon any shares of the stock or assets of the Subsidiaries, except for statutory liens for current Taxes not yet due; (iv) the Subsidiaries have complied in all respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes except where the failure to so comply would not

have a Material Adverse Effect; and have, within the time and the manner prescribed by law, withheld from and paid over to the proper Governmental Entities all amounts required to be so withheld and paid over under applicable laws; (v) there are no Audits or other administrative proceedings or court proceedings pending with regard to any Taxes or Tax Returns of the Subsidiaries, and neither Seller nor the Subsidiaries have received notice of any pending Audits or proceedings, in each case, except those which would not have a Material Adverse Effect; (vi) there are no outstanding written requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes or deficiencies against any of the Subsidiaries; (vii) none of the Subsidiaries is a party to any agreement providing for the allocation or sharing of Taxes; and (viii) no power of attorney has been executed by any of the Subsidiaries with respect to any matter relating to Taxes which is currently in force.

(d) TAX RETURNS FURNISHED. Purchaser has been furnished by Seller or the Subsidiaries true and correct copies, as such may exist, of (i) relevant portions of income tax audit reports, statements of deficiencies, closing or other agreements received by the Subsidiaries or on behalf of the Subsidiaries relating to Taxes, and (ii) all federal, state and local income or franchise Tax Returns for the Subsidiaries for all periods ending after 1993. Except as set forth on Schedule 2.8(d), each Subsidiary has never been a member of an affiliated group filing consolidated returns other than as a group of which AFCC, the Subsidiaries and Seller were the only members. Neither one of the Subsidiaries does business or derives income from any state, local, territorial or foreign taxing jurisdiction other than those for which all Tax Returns for all periods ending after 1993 have been furnished to Purchaser. No claim has ever been made in writing to AFCC, Seller or any Subsidiary by a taxing authority in a jurisdiction where the Subsidiaries do not file Tax Returns that either entity is or may be subject to taxation by that jurisdiction.

(e) TAX ELECTIONS AND SPECIAL TAX STATUS. As of the date hereof and at Closing, except as set forth on Schedule 2.8(e): (i) neither of the Subsidiaries is a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code as in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982; (ii) neither of the Subsidiaries has entered into any compensatory agreements with respect to the performance of services which payment thereunder would result in a nondeductible expense to the Subsidiaries pursuant to Section 280G of the Code; (iii) none of the assets of either of the Subsidiaries is "tax exempt use property" within the meaning of Section 168(h) of the Code; (iv) none of the assets of either of the Subsidiaries is property which is required to be treated as being owned by any other Person pursuant to the so-called "safe harbor lease" provisions of former Section 168(f)(8) of the Code; (v) none of the assets of either of the Subsidiaries directly or indirectly secures any debt, the interest on which is tax-exempt pursuant to Section 103(a) of the Code; (vi) neither Subsidiary has any liability for the Taxes of any Person (other than such Subsidiary) either (A) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), (B) as a transferee or successor, (C) by contract, or (D) otherwise; (vii) Seller is not and will not be a "foreign person" (as that term is defined in Section 1445 of the Code); (viii) neither of the Subsidiaries has a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country;
(ix) except as set forth in Schedule 2.8(e), neither of the Subsidiaries is a party to any joint venture, partnership, or other arrangement or contract which could be treated as a partnership for federal income Tax purposes; and
(x) neither Subsidiary owns shares of stock or

other equity ownership interests in any corporation or other entity taxable as an association for federal income tax purposes.

(f) SECTION 338 ELECTION. AFCC has the authority to make a joint election under Code Section 338(h)(10) and similar state elections with respect to the purchase of the Shares of the Subsidiaries by Purchaser as contemplated by this Agreement.

2.9 BENEFIT PLANS . For purposes of this Agreement, "Benefit Plans" means each bonus, incentive compensation, deferred compensation, pension, profit-sharing, retirement, stock purchase, stock option or other stock-based compensation, severance or termination benefits, supplemental unemployment benefits, salary continuation, salary in lieu of notice, hospitalization or other medical, life or other insurance plan or retiree medical or retiree life insurance plan relating to Seller's and the Subsidiaries' businesses, employees, officers or directors, including any policy, plan, program or agreement that provides for the payment of similar benefits including all plans that are "employee welfare benefit plans" or "employee pension benefit plans" as such terms are defined in Sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") maintained, sponsored or contributed to by Seller, either Subsidiary, any Affiliate (as hereinafter defined) of them or any member of their Controlled Group or under which Seller, either Subsidiary, any Affiliate of them or any member of their Controlled Group has any present or future obligations or liability on behalf of the Employees, Former Employees or their dependents or beneficiaries. For purposes of this Agreement, "Controlled Group" shall mean with respect to Seller and the Subsidiaries, each Person which together with Seller and the Subsidiaries is treated as a single employer under Sections 414(b), (c), (m) and (o) of the Code. The Subsidiaries do not have any employees.

All contributions made or required to be made by the Subsidiaries under any Benefit Plan meet the requirements for deductibility under the Code in all material respects, and all contributions that are required to have been made or to be made by the Subsidiaries prior to the Closing have been made or will be made prior to the Closing.

Neither Subsidiary has sponsored or contributed to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). No event or condition has occurred in connection with which either Subsidiary is or could be subject to any material Liability or any Encumbrance or lien with respect to any Benefit Plan under ERISA, the Code or any other applicable law or under any agreement or arrangement pursuant to or under which either Subsidiary is required to indemnify any Person against such liability.

2.10 EMPLOYEE AND EMPLOYEE RELATIONS .

Except as set forth on Schedule 2.10, neither Subsidiary is a to or subject to, or directly or indirectly liable under, any incentive, bonus or commission plan or similar arrangement or understanding for the benefit of any current or former officer, director or employee of Seller or either Subsidiary or any deferred compensation, severance, retention or employment contract or similar arrangement or understanding with any such officer, director or employee (whether written or oral), that is not terminable at will by Seller or either Subsidiary and that in any event could result in liability of or an obligation against Purchaser or either Subsidiary following the Closing. Except as set forth

on Schedule 2.10 or as otherwise expressly provided in this Agreement, no officer, director or employee of Seller or either Subsidiary shall be entitled to any severance pay or retention pay or bonus from Purchaser or either Subsidiary solely as a result of the consummation of the transactions contemplated hereby.

2.11 COMPLIANCE, LICENSES AND PERMITS . Seller and its Subsidiaries each has complied in all material respects with all Legal Requirements including, without limitation, all consumer protection laws and regulations. Except as set forth on Schedule 2.11, Seller and the Subsidiaries each has all Permits necessary to permit Seller and the Subsidiaries to conduct the Business as now being conducted, other than such Permits which, individually or in the aggregate, with respect to the Network Services Business, if not obtained, would not have a Material Adverse Effect. Except as set forth on Schedule 2.11, each such Permit is in good standing and there is no proceeding pending or, to the Seller's and each Subsidiary's knowledge, threatened, to revoke or limit any of them.

2.12 TAKEOVER STATUTES . No "fair price," "moratorium," "control share acquisition" or other similar anti-takeover statute or regulation enacted under state or federal laws in the United States applicable to Seller or either Subsidiary is applicable to the transaction contemplated hereby (including, without limitation, Section 203 of the General Corporation Law of the State of Delaware).

2.13 CONTRACTS IN FULL FORCE AND EFFECT .

(a) Schedule 2.13(a) sets forth a complete and accurate list of each contract or agreement relating to the Business as to which the Subsidiaries will be bound by or subject to at Closing as a result of Sections 4.3, 4.4, and 4.5:

(i) pursuant to which Seller or either Subsidiary has been engaged by any other Person to provide any products or services in connection with the Business;

(ii) pursuant to which Seller or either Subsidiary purchases or otherwise acquires any products or services from any other Person in connection with the Business with an annualized anticipated expense of more than $25,000;

(iii) pursuant to which Seller or either Subsidiary leases any of the assets used by Seller or either Subsidiary to operate the Business;

(iv) that contains covenants or other provisions limiting the freedom of Seller to compete with the Business, or limiting the freedom of either Subsidiary to compete in any line of business or with any Person or in any area;

(v) pursuant to which Seller or either Subsidiary licenses (either as a licensor or licensee), obtains or possesses any rights with respect to, or that otherwise relates to, Intellectual Property Assets (as defined below);

(vi) evidencing or relating to any Encumbrance on any asset used by Seller or either Subsidiary to operate the Business;

(vii) evidencing or relating to any employment, consulting, bonus, commission, severance, non-compete or confidentiality agreement or arrangement (or any other agreement with Employees or consultants); or

(viii) that would have a Material Adverse Effect in the event of termination or default of the contract or agreement (the contracts and agreements listed in (i) - (viii) collectively, the "Contracts").

At Closing, the Subsidiaries will hold all of Seller's rights, title and interests under the Contracts.

(b) Seller and the Subsidiaries will make available to Purchaser a complete and accurate copy of each Contract as presently in effect, and, except as listed Schedule 2.13(b), neither Seller nor either Subsidiary has received any written notice from any party to any such Contract of the termination or threatened termination thereof.

(c) Except as expressly set forth in Schedule 2.13(c), all Contracts are valid and binding, and are in full force and effect and are enforceable against Seller or the Subsidiaries in accordance with their terms and, to the knowledge of Seller and either Subsidiary, are enforceable against the other parties thereto, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws of general applicability affecting creditors' rights and by general equitable principles. Neither Seller nor either Subsidiary has received notice of any pending or threatened bankruptcy, insolvency or similar proceeding with respect to any party to such agreements except as disclosed on Schedule 2.13(c). Except as set forth in Schedule 2.13(c), each of the Contracts may be assigned by Seller to ADS Network or Commercial Services without the consent or approval of any other Person and, upon consummation of the transactions contemplated by this Agreement and by the other documents, instruments and agreements required to be executed and delivered by Seller or either Subsidiary pursuant hereto, will remain in full force and effect and will not create a right of any other Person that is a party thereto to terminate such Contract based upon such transactions.

2.14 BROKERS, FINDERS, ETC. Except for Salomon Smith Barney Inc., Seller is not subject to any valid claim of any broker, investment banker, finder or other intermediary in connection with the transactions contemplated by this Agreement. Neither Subsidiary has or will pay any costs or expenses including, without limitation, investment advisors, brokers, accountant and attorneys' fees, for services rendered as a result of or in connection with the preparation, negotiation, execution or performance of this Agreement. Any such costs and expenses incurred by either Subsidiary shall be paid by Seller.

2.15 INSURANCE . Seller and/or the Subsidiaries are and, until Closing, will be covered by the policies of insurance (including fidelity bonds) that, in respect of amounts, types and risks insured, management reasonably believes to be adequate for the Business (which policies are in full force and effect). Upon request, Seller and the Subsidiaries shall provide to Purchaser copies of such insurance policies.

2.16 TANGIBLE PERSONAL PROPERTY . Except as listed in Schedule 2.16 and except for liens for Taxes not yet due and payable, Seller or either Subsidiary currently owns or leases, and at Closing

the Subsidiaries will own or lease, free and clear of all Encumbrances, all tangible personal property which Seller and the Subsidiaries use primarily to conduct the Business as presently conducted. Such tangible personal property has been and will be maintained in good condition (ordinary wear and tear excepted) as to permit Seller and each Subsidiary to conduct the Business as presently conducted.

2.17 INTENTIONALLY OMITTED .

2.18 GUARANTIES . Except as set forth on Schedule 2.18, no Subsidiary is a guarantor or is otherwise liable for any liability or obligation (including indebtedness) of any other Person.

2.19 POWERS OF ATTORNEY . Schedule 2.19 contains a complete and accurate list of each power of attorney granted to any Person by either Subsidiary or by Seller with regard to the Business.

2.20 INTELLECTUAL PROPERTY .

(a) The term "Software Products" means the currently distributed versions and all earlier and predecessor versions, and versions presently in development, of computer programs developed by Seller or one of the Subsidiaries relating to the Business as listed on Schedule 2.20(a), which term also includes source and object code versions and associated documentation, and all other computer programs (other than miscellaneous commonly-available third-party software) used primarily in connection with the Business.

(b) The term "Intellectual Property Assets" includes:

(i) the name "FleetShare" and all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications therefor owned, used or licensed by Seller or either Subsidiary primarily in connection with the Business excluding any name using "SPS" or any derivation thereof (collectively, "Marks");

(ii) all patents, patent applications, provisional patent applications, continuations, continuations in part, and inventions and discoveries that may be patentable owned or licensed by Seller or either Subsidiary primarily in connection with the Business (collectively, "Patents");

(iii) all copyrights in both published works and unpublished works, including the Software Products, owned by Seller or either Subsidiary primarily in connection with the Business (collectively, "Copyrights");

(iv) the Software Products;

(v) all rights in mask works owned by Seller or either Subsidiary primarily in connection with the Business;

(vi) all know-how, trade secrets, confidential or proprietary INFORMATION, customer lists, technical information, data, process technology, plans, drawings, and

blue prints owned or licensed (whether as licensee or licensor) by Seller or either Subsidiary primarily in connection with Business (collectively, "Trade Secrets"); and

(vii) all Internet domain names and other computer user identifiers and any rights in and to web sites, including rights in and to any text, graphics, audio and video files or other code incorporated in such sites owned by or licensed to Seller or either Subsidiary used primarily in connection with the Business (collectively, "Internet Assets").

(c) Schedule 2.13(a) contains a complete and accurate list of all Contracts relating to the Intellectual Property Assets except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly-available third-party software programs under which Seller or either Subsidiary is the licensee. Except as set forth on Schedule 2.20(c), there are no outstanding and, to Seller's and each Subsidiary's knowledge, no threatened disputes or disagreements with respect to any such Contract. All commonly-available third-party software programs used in connection with the Business are installed on computer equipment that is, or will be at Closing, owned by a Subsidiary, pursuant to valid and existing software licenses to Seller.

(d) One or more of the Subsidiaries is, or will be at Closing, the owner of all right, title, and interest in and to each of the Intellectual Property Assets, free and clear of all Encumbrances other than those identified in Schedule 2.20(d), and either or both of the Subsidiaries has, or will have, the right to use and license others to use all of the Intellectual Property Assets. All former and current employees of Seller and of each Subsidiary involved in the Business who participated in the creation of any Intellectual Property Asset did so in the normal course and scope of his or her employment by Seller or the Subsidiaries, and his or her work product is considered "work made for hire." No independent contractor was used by Seller or either Subsidiary in the creation of any Intellectual Property Asset unless such contractor first executed a written contract with Seller or the Subsidiaries providing that all work created by the contractor was "work made for hire," and that all right, title, and interest in and to such work would be assigned without reservation to Seller or the Subsidiaries, as the case may be. No employee of Seller or either Subsidiary involved in the Business has entered into any Contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his or her work to anyone other than Seller or the Subsidiaries.

(e) Schedule 2.20(e) contains a complete and accurate list and summary description of all patent registrations and patent applications. All of the issued Patents are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date. No patent registration or application has been or is now involved in any interference, infringement, reissue, reexamination, or opposition proceeding. To Seller's knowledge, there is no potentially interfering or infringing patent or patent application of any third party. To Seller's knowledge, no Patent is infringed or has been challenged or threatened as to its validity or enforceability in any way. Seller does not have knowledge of any act constituting inequitable conduct in the procurement or maintenance of any Patent. The Software Products can be manufactured, distributed and used without infringement of any patent or other proprietary right of any Person. Neither Seller nor either

Subsidiary has committed any act with respect to any Patent which may constitute patent misuse or may otherwise render a patent registration unenforceable.

(f) Schedule 2.20(f) contains a complete and accurate list and summary description of all Marks that have been registered or for which application for registration has been made. All Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees, Taxes, or actions falling due within ninety days after the Closing Date. No Mark that has been registered or applied for has been or is now involved in or threatened with any opposition, invalidation, or cancellation proceeding and, to Seller's knowledge, no such action is threatened with the respect to any of the Marks. To Seller's knowledge, there is no potentially interfering or infringing registered or common law trademark, service mark, trademark application, or service mark application of any third party. To Seller's knowledge, no Mark is infringed or has been challenged or threatened in any way. The Marks can be used in the Business and to identify the Subsidiaries' goods and services without infringing any trademark, service mark or trade name right of any Person, and without violating any anti-dilution law.

(g) Schedule 2.20(g) contains a complete and accurate list and summary description of the Copyright registrations. No Copyright is infringed or, to Seller's and each Subsidiary's knowledge, has been challenged or threatened in any way. The creation of the Software Products did not involve the copying, reproduction or adaptation of any pre-existing work in which Seller or one of the Subsidiaries was not the copyright owner except to the extent authorized by the copyright owner. The Software Products can be copied, and copies of the Software Products can be manufactured, distributed and used by Seller and the Subsidiaries and their customers and licensees without infringing any copyright of any Person and without violating any contractual restriction by which Seller or either Subsidiary is bound.

(h) With respect to each Trade Secret, the documentation, as such exists, relating to such Trade Secret is current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual. Seller and each Subsidiary have used commercially reasonable efforts to document the Trade Secrets, and have taken all commercially reasonable precautions to protect the secrecy, confidentiality, and value of the Trade Secrets. Seller and one or more of the Subsidiaries has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets, and at Closing one or more of the Subsidiaries will have good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. To Seller's knowledge, the Trade Secrets have not been used, divulged, or appropriated either for the benefit of any Person (other than one or more of the Subsidiaries) or to the detriment of either Subsidiary. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.

(i) Seller and the Subsidiaries have provided or will provide to Purchaser true and accurate copies of the source code versions of all Software Products developed or owned by Seller or either of the Subsidiaries (collectively, "Proprietary Software Products"), including, with respect to each Proprietary Software Product, documentation of previous versions of such product and materials and information evidencing when, by whom and how each version of such product was

created, including drafts, flow charts, written documents, manuals and other materials produced during the creation of such Proprietary Software Product that is sufficient to utilize such Proprietary Software Product. Except as identified in Schedule 2.20(i), no copies of any of the Proprietary Software Products have been sold or licensed to any Person. No Person, other than Seller or a Subsidiary, is in possession of a source code version of any of the Proprietary Software Products, and at Closing no Person, other than a Subsidiary, will be in possession of a source code version of any of the Proprietary Software Products. All copies of all the Proprietary Software Products distributed have been distributed in object code format subject to written licenses which restrict the use of the Proprietary Software Products and forbid copying, decompiling, revision or reverse engineering of the Proprietary Software Products. All licensees of Software Products are in full compliance with all the terms of their licenses. All copies of the Proprietary Software Products licensed or sold to third parties substantially conform to all published specifications therefor and all technical and other written materials provided by Seller or either Subsidiary to a licensee or purchaser in connection with the respective Proprietary Software Product. Except as identified in Schedule 2.20(i), the Proprietary Software Products contain no material operating defects and, to Seller's knowledge, the other Software Products contain no material operating defects.

(j) At Closing, the Subsidiaries will have adequate programming and operations to meet existing commitments of the Business relating to the Software Products.

(k) Schedule 2.20(k) contains a complete and accurate list of the Internet Assets. Seller does not know of any dispute with any trademark or service mark claimant or registrant concerning use of any domain name listed on Schedule 2.20(k), nor has any Internet domain name registering administration organization, including Network Solutions, Inc., delivered any notice to Seller or either of the Subsidiaries demanding that it change or discontinue use of any domain name listed on Schedule 2.20(k). Seller and the Subsidiaries have licenses allowing the reproduction and display on all Internet sites listed on Schedule 2.20(k) of the graphical material (including maps, trademarks, service marks, drawings photographs and scans), audio, video and textual material appearing on such Internet sites. Seller and the Subsidiaries are not aware of any graphics, words or phrases used on any Internet sites listed on Schedule 2.20(k), including in meta-tags and meta-descriptions or other indexing features of such Internet sites, or any hyperlinks including on any such Internet sites, which would infringe or dilute the mark of another, which would defame or disparage any Person or which would violate the rights or privacy or publicity of another.

2.21 WARRANTIES AND WARRANTY CLAIMS . Schedule 2.21 lists and accurately summarizes all product and service warranties made by or on behalf of Seller or either Subsidiary in connection with the Business. Schedule 2.21 lists and accurately summarizes all warranty claims received by Seller or either Subsidiary relating to the Business for the two year period ending December 31, 1998, and the three-month period ending March 31, 1999. Neither Seller nor either Subsidiary has knowledge of any basis for any product or service warranty, product liability or similar claims against Seller or either Subsidiary relating to the Business.

2.22 OFFICERS AND DIRECTORS . Schedule 2.22 contains a complete and accurate list of the officers and directors of each Subsidiary.

2.23 BOOKS AND RECORDS . The books of account, minute books, stock record books, and other records of Seller and each Subsidiary relating to the Business, all of which have been made available to Purchaser, are complete and correct and have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal controls. Such minute books of each Subsidiary contain accurate and complete records of all formal meetings held of, and corporate action taken by, the stockholders, the Boards of Directors, and committees of the Boards of Directors of the relevant Subsidiary. No meeting of any such stockholders, Board of Directors, or committee has been held at which any corporate action was taken for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of the books and records referred to in this Section 2.23 will be in the possession of the relevant Subsidiary.

2.24 CERTAIN PAYMENTS . Neither Seller nor either Subsidiary or any director, officer, agent, or employee of Seller or either Subsidiary, or any other Person associated with or acting for or on behalf of Seller or either Subsidiary, has, in connection with the Business, directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of either Subsidiary, or (iv) in violation of any Legal Requirement, or (b) established or maintained any fund or asset relating to the Business that has not been recorded in the books and records of Seller or the relevant Subsidiary.

2.25 BANK ACCOUNTS . The only bank or securities account maintained by or on behalf of either Subsidiary or the Business is Commercial Services' account number 5544718 at 1st Chicago. The only Persons authorized to sign on behalf of Commercial Services with respect to such bank account are D. Michael Gatewood, Kent M. Williams, Christopher T. Porter, Michael C. Smith, John F. Hughes and Roy A. Guthrie.

2.26 YEAR 2000 . As used in this Agreement, the term "Date Handling" means the consistent and accurate: (i) handling of date data before, during or after January 1, 2000; (ii) processing, providing, receiving, calculating, comparing and sequencing of date data before, during or after January 1, 2000; and (iii) responding to two-digit year date data in a manner that resolves any ambiguity as to the 20th and 21st centuries.

(a) PLAN. Seller and the Subsidiaries have developed a detailed, comprehensive plan and time line for addressing on a timely basis their ability for proper Date Handling relating to the Business (the "Plan"). Schedule 2.26 is a complete and accurate copy of the Plan. The Plan has been approved by Seller's senior management. Seller reasonably believes that: (i) the Plan addresses all aspects of potential improper Date Handling associated with the Business; (ii) the Plan is capable of being completely implemented, in a timely manner, in accordance with its time line; (iii) currently, Seller has, and, immediately prior to the Closing, the Subsidiaries will have, an adequate number of employees with the necessary expertise and experience to continue to implement the Plan, on a timely basis, in accordance with its time line; and (iv) the Plan includes contingency plans in the event of failure of any system, application or equipment (whether theirs or a third party's) due to improper Date Handling, which contingency plans Seller reasonably believes are feasible and allow (after

implementation of contingency plans) the uninterrupted and unimpaired operation of the Business in the event of any such failure.

(b) IMPLEMENTATION OF THE PLAN. Seller and the Subsidiaries have implemented, and will through Closing continue to implement, the Plan in accordance with the Plan's requirements and time line. At Closing, Seller reasonably believes Seller and the Subsidiaries will have progressed in all material respects in the implementation of the Plan to the corresponding milestone required by the Plan's time line for the Closing Date. On or prior to Closing Seller will notify Purchaser of the status of the Plan including any remaining remediation and testing of any improper Date Handling with regard to the remaining portion of the Business's systems, applications and equipment. In implementing the Plan, Seller is making due inquiry and will through Closing continue to make due inquiry of all of the suppliers, vendors and third-party trading partners of the Business regarding the status of such other Persons' efforts to address improper Date Handling. Seller and the Subsidiaries are in the process of coordinating, and will through Closing continue to coordinate, with such other Persons in such Person's efforts to remediate any improper Date Handling by the systems, applications and equipment of such other Persons which may affect the Business. Seller and the Subsidiaries have, or by Closing will have, notified each of the customers of the Business of: (i) the necessity for each customer to participate in testing for proper Date Handling the interface and connections between the respective systems, applications and equipment of Seller and the Subsidiaries relating to the Business, on one hand, and the customer, on the other hand;
(ii) the necessity for each customer to require its third-party service providers relating to the Business to likewise participate in such testing;
(iii) the time line for such testing; and (iv) the consequences of results from such testing indicating that a customer's or any of its third-party service provider's systems, applications or equipment does not accommodate proper Date Handling. On or prior to the Closing Seller will notify Purchaser of the status of its dealings with its customers, including a more detailed report with respect to any Business customer whose 1998 revenue with respect to the Business was $1 million or greater.

(c) Seller reasonably believes that if the Plan is completely implemented in accordance with the Plan's time line, all of the systems, applications and equipment owned or operated by Seller or Commercial Services for the Business and affected by any improper Date Handling will be identified and remedied before any such system, application or equipment will cause any interruption or impairment of the operations of the Business.

2.27 SERVICE LEVELS . The Business is, and will at Closing be, capable of performing at levels of service that meet in all material respects all contractual service level requirements relating to the Business, or, to the extent there are no such requirements, at a level of service that meets in all material respects the levels of service performed by the Business since November 1, 1998.

2.28 FINANCIAL STATEMENTS .

(a) Seller has delivered to Purchaser: (i) its unaudited consolidated balance sheet as at December 31, 1998 (the "Balance Sheet") and the related unaudited consolidated statement of income for the year then ended; and (ii) its unaudited consolidated balance sheet as at March 31, 1999 (the "Interim Balance Sheet") and the related unaudited consolidated statement of income for the three months then ended, including in each case the notes thereto. Such financial statements and

notes fairly present the financial condition and the results of operations of Seller as at the respective dates of and for the periods referred to in such financial statements, all in accordance with GAAP, subject, in the case of the interim financial statements, to normal recurring year-end adjustments (which will not, individually or in the aggregate, have a Material Adverse Effect) and the absence of notes. The financial statements referred to in this Section 2.28(a) reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements. Except for the entities included in the consolidated financial statements, GAAP does not require the financial statements of any other Person to be included in the financial statements of Seller.

(b) Attached as Schedule 2.28(b) are: (i) pro forma statements of income of the Business for each of the fiscal years ending December 31, 1994 through 1998; and (ii) a pro forma statement of income for the Business for the three months ending March 31, 1999. Such pro forma financial statements fairly present in all material respects the results of operations of the Business, as at the respective dates of and for the periods referred to in such pro forma financial statements, all in accordance with GAAP, subject, in the case of the interim pro forma financial statements, to normal recurring year-end adjustments (which will not, individually or in the aggregate, have a Material Adverse Effect) and the absence of notes. The pro forma financial statements referred to in this Section 2.28(b) reflect the consistent application of such accounting principles throughout the periods involved. The assumptions used in the preparation of the pro forma financial statements of the Business are reasonable and appropriate to give pro forma effect in all material respects to the transactions or circumstances described therein. No financial statements of any Person, other than of Seller and the Subsidiaries, are required by GAAP to be included in the pro forma financial statements of the Business.

2.29 INVENTORY . All inventories of products held for sale or lease or under customer orders for purchase or lease by Seller or either Subsidiary relating to the Business (collectively the "Inventory") consists in all material respects of a quality usable and salable in the ordinary course of business. All Inventory has been and will be recorded at cost. At Closing there will be, in all material respects consistent with historical demand, sufficient Inventory on hand to enable the Subsidiaries to continue to conduct the Business as it is being conducted at the time this Agreement is executed, and to supply in all material respects, their customers with the products and services they have ordered.

2.30 ACCOUNTS RECEIVABLE . Schedule 2.30 (which, upon the agreement of the parties, may be delivered in commonly readable electronic format) contains a complete and accurate list of all accounts receivable of Seller and each Subsidiary relating to the FleetShare Business (collectively, the "FleetShare Accounts Receivable") as of April 30, 1999 and as of a date that is no more than two days prior to the Closing Date, as the case may be, which list sets forth the aging of such FleetShare Accounts Receivable. With respect to all commercial credit card accounts (the "Accounts") and related FleetShare Accounts Receivable: (a) such Accounts Receivable represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business; (b) there is no contest, claim or, to the knowledge of Seller or either Subsidiary, right of set-off, under any contract with any obligor of a FleetShare Account Receivable relating to the amount or validity of such FleetShare Account Receivable; (c) all underwriting and origination of Accounts were performed in accordance with the then applicable written policies and procedures of Commercial Services;
(d) each of the FleetShare Accounts Receivable and Accounts and the interest rates, fees

and charges in connection therewith comply, and have at all times in all material respects complied with, all Legal Requirements; (e) each Account, FleetShare Account Receivable and the related cardholder agreement is the legal, valid and binding obligation of the cardholder-obligor and any guarantor named therein and each is enforceable and legally collectible in accordance with its terms under all applicable Legal Requirements, and, to Seller's and Commercial Services' knowledge, is subject to no defense, offset or counterclaim, subject to applicable bankruptcy, reorganization, insolvency, moratorium (whether general or specific) and similar laws relating to creditor rights generally, and general principles of equity regardless of whether such enforcement is sought in a proceeding in equity or at law; (f) each FleetShare Account Receivable is free and clear of any and all Encumbrances incurred or existing by, through or on behalf of, or in favor of any Person; and (g) each cardholder agreement constitutes the agreement of Commercial Services and the cardholder, and Commercial Services has made no amendment, modification or supplement to any cardholder agreement which is not reflected in writing in such agreement.

2.31 CUSTOMERS AND SUPPLIERS . Except to the extent set forth in Schedule 2.31, there has not been any adverse change in the business relationship of Seller or either Subsidiary with any customer listed on Schedule 2.31 (a "Material Customer") or with any supplier and no Material Customer or supplier has notified Seller or either Subsidiary in writing or otherwise that they have canceled or otherwise terminated or threatened in writing or otherwise to cancel or otherwise terminate, their relationship with Seller or either Subsidiary nor, to Seller's and each Subsidiary's knowledge, has there been any material dispute with any Material Customer or supplier.

2.32 RELATIONSHIPS WITH RELATED PERSONS . For purposes of this Agreement, the term "Related Person" as used with regard to an entity means
(a) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such specified Person; (b) any Person that holds a direct or indirect beneficial ownership of voting securities or other voting interests representing at least 10% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 10% of the outstanding equity securities or equity interests ("Material Interest") in such specified Person; (c) each Person that serves as a director, officer, partner, executor, or trustee of such specified Person (or in a similar capacity); (d) any Person in which such specified Person holds a Material Interest; and (e) any Person with respect to which such specified Person serves as a general partner or a trustee (or in a similar capacity). As of the Closing Date, neither Seller nor any Related Person of Seller or of either Subsidiary has, or will have, any interest in any property (whether real, personal, or mixed and whether tangible or intangible), used primarily in the operation of the Business, except for the various arrangements between Seller and the Subsidiaries expressly contemplated by this Agreement. Except for such arrangements, neither Seller nor any Related Person of Seller or of either Subsidiary is, or has owned (of record or as a beneficial owner) an equity interest or any other financial or profit interest in, an entity that has had business dealings or a material financial interest in any transaction with either Subsidiary other than business dealings or transactions conducted in the ordinary course of business with either Subsidiary at substantially prevailing market prices and on substantially prevailing market terms. Except as expressly contemplated by the provisions of this Agreement or as set forth in Schedule 2.32, neither Seller nor any Related Person of Seller or of either Subsidiary is a party to any contract with, or has any claim or right against, either Subsidiary.

2.33 DISCLOSURE . No representation or warranty of Seller or either Subsidiary contained in this Agreement and no statement contained in any certificate or schedule furnished or to be furnished by or on behalf of Seller or either Subsidiary to Purchaser or any of its representatives hereto contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary in light of the circumstances under which it was or will be made, in order to make the statements herein or therein not misleading or necessary in order to fully and finally provide the information required to be provided in any such document, certificate or schedule. There is no fact known to Seller or either Subsidiary that has specific application to Seller or either Subsidiary (other than general economic or industry conditions) and that materially adversely affects or, as far as Seller and each Subsidiary can reasonably foresee, materially threatens, the assets, business, prospects, financial condition, or results of operations of the Business or either Subsidiary that has not been set forth in this Agreement or the related schedules.

2.34 ABSENCE OF CERTAIN CHANGES; CONDUCT OF BUSINESS . Except as contemplated by the parties in connection with the creation of ADS Network and the transfer of the Business from Seller to the Subsidiaries pursuant to the provisions of this Agreement, or as set forth in Schedule 2.34, since December 31, 1998:

(a) Seller and each Subsidiary have conducted the Business only in the ordinary course, consistent with past practice, and there has not occurred or arisen any event, individually or in the aggregate, having, or which, insofar as reasonably can be foreseen, in the future is likely to have, a Material Adverse Effect on the business, operations, properties, prospects, assets, or condition of either Subsidiary or the Business;

(b) there has been no change in either Subsidiary's authorized or issued shares; no grant of any option or right to purchase shares of either Subsidiary; no issuance of any security convertible into such shares; no grant of any registration rights; no purchase, redemption, retirement, or other acquisition by either Subsidiary of any shares; and no declaration or payment of any dividend or other distribution or payment in respect of shares;

(c) there has been no amendment to any of the original certificates of incorporation or bylaws or similar documents of either Subsidiary;

(d) except in the ordinary course of business, there has been no payment or increase by Seller or either Subsidiary relating to the Business of any bonuses, salaries, or other compensation to any shareholder, director, officer, or employee or entry into any employment, severance, or similar contract with any director, officer, or employee involved in the Business;

(e) there has been no damage to or destruction or loss of any asset or property of Seller or either Subsidiary relating to the Business, whether or not covered by insurance, materially and adversely affecting the properties, assets, business, financial condition, or prospects of the relevant Subsidiary or the Business;

(f) there has been no entry into, termination of, or receipt of notification of termination of any joint venture, credit, or similar agreement involving Seller or either Subsidiary relating to the Business;

(g) there has been no termination or breach of, or receipt of notice of termination of any vendor contract or any Material Customer contract, by or to Seller or either Subsidiary relating to the Business;

(h) there has been no sale (other than sales of inventory in the ordinary course of business), lease, or other disposition of any material asset or property of Seller or any Subsidiary relating to the Business, or Encumbrance on any material asset or property of Seller or either Subsidiary relating to the Business, including the sale, license, or other disposition of any of the Intellectual Property Assets;

(i) there has been no cancellation or waiver of any claims or rights with a value to Seller or either Subsidiary with regard to the Business in excess of $100,000;

(j) there has been no material change in the accounting methods used by Seller or either Subsidiary with regard to the Business;

(k) there has been no acquisition by merger or consolidation with, or purchase of a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire any assets that are material, individually or in the aggregate, to the Subsidiaries or the Business; and

(l) there has been no agreement, whether oral or written, by Seller or either Subsidiary with regard to the Business to do any of the foregoing.

2.35 UNDISCLOSED LIABILITIES . Except as set forth in Schedule 2.35, there are no Liabilities with respect to:

(a) Seller, except (i) as and to the extent set forth on the Interim Balance Sheet, (ii) as incurred in connection with the transactions contemplated, or as provided, by this Agreement or (iii) as incurred since the date of the Interim Balance Sheet to the extent such Liabilities, when aggregated, do not decrease the net worth of Seller to less than $170,000,000; or

(b) the Business or either Subsidiary, except (i) as incurred in connection with the transactions contemplated, or as provided, by this Agreement or (ii) as incurred in the ordinary course of business and consistent with past practice and not in violation of Section 2.34.

2.36 CONDUCT OF THE BUSINESS . Schedule 2.36 lists all of the assets, whether tangible or intangible, and all other rights, title and interests that are used by Seller or the Subsidiaries to conduct the Business as conducted by Seller and the Subsidiaries immediately prior to the Closing that will not be possessed by the Subsidiaries after the Closing.

2.37 NO OTHER REPRESENTATIONS OR WARRANTIES . Except for the representations and warranties contained in this Article II, neither Seller nor any other person makes any other express or implied representation or warranty on behalf of Seller.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller as follows:

3.1 ORGANIZATION AND STANDING. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.

3.2 AUTHORITY. Purchaser has all requisite corporate power and authority to execute this Agreement and all documents, instruments and agreements required to be executed by Purchaser pursuant hereto and to consummate the transactions contemplated hereby. The execution and delivery of the Agreement and all documents, instruments and agreements required to be executed by Purchaser hereto, and the performance by Purchaser of its obligations hereunder have been duly authorized by all necessary action on the part of Purchaser (including requisite stockholder approval, if necessary). This Agreement has been duly executed and delivered by Purchaser and, assuming the due execution and delivery hereof by Seller and the Subsidiaries, constitutes a valid and legally binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium (whether general or specific) and similar laws relating to creditors' rights generally, and general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law)).

3.3 NO CONFLICTS; CONSENTS. Except as set forth on Schedule 3.3, neither the execution and delivery of this Agreement by Purchaser, nor the consummation of the transactions contemplated hereby will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under any provision of (a) the certificate of incorporation or by-laws of Purchaser,
(b) any note, bond, mortgage, indenture, deed of trust, license, lease, contract, commitment, agreement or arrangement to which Purchaser is a party or by which it or any of its properties or assets is bound or (c) any judgment, order or decree, or statute, law, ordinance, rule or regulation, applicable to Purchaser or any of its properties or assets, in the case of
(b) and (c) except for any such conflict, violation, default or right which would not reasonably be expected to have a material adverse effect on the business, assets, financial condition, or results of operations of Purchaser and its Affiliates taken as a whole. No Permit of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made by Purchaser or in connection with the consummation of the transactions contemplated hereby other than (x) compliance with and filings under the HSR Act, (y) as set forth on Schedule 3.3 hereto and (z) those the failure of which to make or obtain would not materially affect the ability of Purchaser to consummate the transactions contemplated hereby. As used herein, the term "Affiliate" shall mean, as to any specified Person, any other Person that directly or indirectly through one or more intermediaries, controls or is controlled by, or under common control with such specified Person. For the purpose of this definition, "control," when used with respect to any specified Person, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing.

3.4 FINANCIAL ABILITY TO PERFORM. At Closing Purchaser will have sufficient funds available (through existing credit arrangements or otherwise) to purchase all the Shares and to pay all of its fees and expenses related to the transactions contemplated by this Agreement.

3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. There has not occurred or arisen any event or events which is reasonably likely to prevent or delay in any material respect the consummation of any of the transactions contemplated by this Agreement.

3.6 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and warranties contained in this Article III, neither Purchaser nor any other Person makes any other express or implied representation or warranty on behalf of Purchaser.

ARTICLE IV

COVENANTS OF SELLER AND THE SUBSIDIARIES

Seller and each Subsidiary covenants and agrees with Purchaser as follows:

4.1 ACCESS. Prior to the Closing, at Purchaser's expense, Seller and the Subsidiaries: (a) shall give Purchaser and its officers, employees, representatives, counsel and accountants reasonable access, during normal business hours and upon reasonable notice, to the assets, personnel, properties, financial statements, contracts, books, records, working papers and other relevant information pertaining to the Subsidiaries or the Business; (b) shall furnish to Purchaser and its officers, employees, representatives, counsel and accountants such financial and operating data and other information with respect to the Subsidiaries or the Business as Purchaser shall from time to time reasonably request; and (c) shall provide reasonable accommodations during normal business hours at each of its locations for up to three employees of Purchaser at a time, and shall allow such employees of Purchaser reasonable access to facilities and personnel of Seller or the Subsidiaries for purposes of monitoring the operation of the Business; provided, however, that such access shall be in a manner that does not unreasonably interfere with the normal operation of the Business.

4.2 ORDINARY CONDUCT. Except as set forth on Schedule 4.2 or otherwise permitted by the terms of this Agreement, from the date hereof to the Closing, Seller and the Subsidiaries shall (i) cause the Business to be conducted in the ordinary course in substantially the same manner as presently conducted and shall make all reasonable efforts consistent with past practices to preserve their relationships with customers and others with whom Seller or either Subsidiary deals, and (ii) maintain in effect all insurance relating to the Business as to which the Seller or either Subsidiary is a beneficiary, including any directors and officers insurance. Except as set forth on Schedule 4.2 or otherwise permitted by the terms of this Agreement, from the date hereof until the Closing, neither Seller (with respect to the Business) nor either Subsidiary shall do any of the following without the written consent of Purchaser (which consent will not be unreasonably withheld):

(a) enter into or amend any agreement, contract or other arrangement (or series of related agreements, contracts or other arrangements) by which the Subsidiaries or any of their properties or assets are bound which (i) as to any service contract with a customer, does not provide for a mark-up of at least one cent over the applicable incremental cost per transaction, (ii) has

annualized anticipated expenses to the Subsidiaries in excess of $100,000,
(iii) is not terminable by Seller or the Subsidiaries, as the case may be, by notice of not more than 60 days for an aggregate cost of less than $100,000, or (iv) is otherwise not in the ordinary course of business and consistent with past practices of the Business;

(b) sell any of the Shares or any other shares of capital stock of either Subsidiary;

(c) terminate, breach, modify or amend any Contract listed on Schedule 4.2(c) to the extent such would have an adverse effect on the Business;

(d) mortgage or otherwise subject to any Encumbrance any assets or interests of the Business, other than in the ordinary course of business and consistent with past practice provided such Encumbrance will be released on or prior to Closing;

(e) enter into any Contract that contains any provision that, solely as a result of the consummation of the transactions contemplated by this Agreement, would (assuming that the other party's consent or approval is not obtained, to the extent required) result in any penalty, additional payments or forfeiture that would be payable or sufferable by a Subsidiary at or after the Closing Date;

(f) solicit or induce any Employee not to become a Hired Employee;

(g) hold in the Subsidiaries any assets or liabilities other than those related to the Business or operate any business in the Subsidiaries other than the Business;

(h) take any action that would, or could reasonably be expected to, result in (i) any of the representations and warranties of Seller or either Subsidiary set forth in this Agreement that are qualified as to materially becoming untrue, (ii) any of such representations and warranties of Seller or either Subsidiary that are not so qualified becoming untrue in any material respect, or (iii) any of the conditions set forth in Article VIII not being satisfied; or

(i) agree, whether in writing or otherwise, to do any of the foregoing.

4.3 ASSETS OF ADS NETWORK. On the Closing Date, Seller shall transfer to ADS Network all of Seller's rights, title and interest in each of assets listed in Schedule 4.3; provided, however, Purchaser may direct Seller to transfer all or part of the assets listed in Schedule 4.3 to Commercial Services, and Seller shall comply with such directions unless Seller has previously transferred the relevant assets to ADS Network or the transfer of the assets as directed will have a material adverse effect on Seller.

4.4 ASSETS OF COMMERCIAL SERVICES. On or before the Closing Date, each of the assets listed in Schedule 4.4 will be among the assets of Commercial Services, and Seller shall have no further right, title or interest in such assets; provided, however, if any such assets are not owned by Commercial Services at the time this Agreement is executed, Purchaser may direct Seller to transfer all or part of such assets to ADS Network, unless Seller has previously transferred the relevant assets

to Commercial Services or the transfer of the assets as directed will have a material adverse effect on Seller.

4.5 ASSUMED LIABILITIES. On or before the Closing Date, ADS Network shall assume the obligations of Seller relating to the Network Services Business to the extent, and only to the extent, (a) listed on Schedule 4.5(a) (collectively, the "ADS Network Assumed Obligations") or (b) provided in the Tax Cooperation and Indemnification Agreement. On or before the Closing Date, pursuant to an assumption agreement substantially in the form attached hereto as Exhibit E (the "Assumption Agreement"), Commercial Services shall assign to Seller and Seller shall assume all obligations and liabilities, known or unknown, of Commercial Services other than the obligations of Commercial Services listed on Schedule 4.5(b) (the obligations retained by Commercial Services, the "Commercial Services Retained Obligations"; and the ADS Network Assumed Obligations and the Commercial Services Retained Obligations collectively, the "Assumed Liabilities"). Neither Seller nor either Subsidiary shall cause or permit either Subsidiary to assume or incur any obligation or liability other than the ADS Network Assumed Obligations and the Commercial Services Retained Obligations. On or before the Closing Date, Seller shall retain or assume all obligations and liabilities associated with the Business other than the Assumed Liabilities (collectively, the "SPS Retained Liabilities").

4.6 HIRED EMPLOYEE SOLICITATION AND EMPLOYMENT. For a period of two
(2) years from and after the Closing Date, neither Seller, AFCC nor any of their Affiliates (the "AFCC Group") will without Purchaser's prior written consent solicit or employ the Employees other than Hired Employees (as hereinafter defined) whose employment with the Subsidiaries or Purchaser is thereafter terminated by Purchaser or the Subsidiaries or as to which Purchaser or the Subsidiaries shall consent in writing.

4.7 NON-COMPETITION BY THE AFCC GROUP. For a period of five years following the Closing Date, the AFCC Group shall refrain from engaging in any business which competes with the Network Services Business. With respect to the FleetShare Business, for a period of five years following the Closing Date, the AFCC Group shall not intentionally target or directly solicit any customer of the FleetShare Business as of the Closing Date to offer or provide a private label fleetcard. Notwithstanding the foregoing, the AFCC Group shall be entitled to acquire as part of a strategic business acquisition (but not to develop on its own) a business that competes with the Network Services Business so long as such acquired business is not primarily engaged in the business of electronic processing of point-of-sale transactions (e.g., such acquired business derives less than fifty percent of its total revenues and less than fifty percent of its net income from such business). In the event the AFCC Group determines to divest itself of any such acquired business that is engaged in the business of electronic processing of point-of-sale transaction, a member of the AFCC Group shall give notice in writing to Purchaser of its intention to sell such business. Purchaser and its Affiliates shall have a right of first refusal for a period of 60 days thereafter to purchase such business from the AFCC Group on such terms and conditions as shall be agreed upon between the parties.

4.8 CONSENTS; ASSIGNABILITY.

(a) Seller shall use commercially reasonable efforts to obtain consents to the assignment of, or change of control under, the Contracts listed on Schedule 2.2. Purchaser shall use all commercially reasonable efforts to assist Seller in that endeavor.

(b) If a Material Customer raises a colorable objection to the assignment of its Contract, by operation of law or otherwise, based on the form or structure of the transfers of the Business contemplated by this Agreement, and Seller receives notice of such objection within ninety (90) days from the date this Agreement is executed: (i) if the Material Customer Contract is terminated, Seller agrees to reimburse Purchaser for any losses in revenues to be suffered by Purchaser according to the following formula:
thirty percent (30%) of the Material Customer's 1998 revenue will be multiplied by 11, or (ii) if revenues on a per transaction basis under a Material Customer's Contract are reduced, Seller shall reimburse Purchaser for any losses in revenues to be suffered by Purchaser as follows: the amount of the per unit reduction shall be multiplied times the Material Customer's transaction volume for the calendar month prior to the reduction, and such amount shall be multiplied times the number of months remaining in the term of the Material Customer's Contract. Any such amount shall be payable to Purchaser by Seller within 10 days of Seller's receipt of notice of any such objection.

4.9 NO SOLICITATION. From the date hereof through the Closing Date, no member of the AFCC Group and none of their officers, directors, stockholders, members, partners, employees and agents not to, directly or indirectly, solicit or negotiate with, or provide any non-public information relating to the Business or the Subsidiaries or afford access to the properties, books and records of Seller or the Subsidiaries to any third party that may be considering an acquisition of the Business or the Subsidiaries or a substantial portion thereof, or otherwise cooperate in any way with or assist or participate in, or facilitate or encourage any attempt by any Person to do or seek any of the foregoing. The AFCC Group will immediately cease and cause to be terminated any existing activities, discussions or negotiations by or on behalf of the AFCC Group with any parties conducted heretofore with respect to any of the foregoing. The AFCC Group shall each immediately notify Purchaser (a) after receipt by any member of the AFCC Group of any offer or indication that any Person is considering making an offer for any such acquisition, which notice shall include the terms and conditions of such offer or indication, and (b) upon receipt by any member of the AFCC Group of any request for non-public information relating to Business or the Subsidiaries or for access to the properties, books or records of Seller or the Subsidiaries with respect to the Business or the Subsidiaries from any Person that may be considering any such acquisition.

4.10 RECORDS RETENTION. The AFCC Group (a) shall preserve and keep the books, records, files and accounting records of Seller and the Subsidiaries relating to the Business that are not transferred to or in the possession of the Subsidiaries at the date of Closing (the "Business Records") for periods prior to the Closing Date for a period of the longer of the retention period under applicable Legal Requirements or the retention period provided under the document retention policy of AFCC or Seller, as the case may be and (b) shall make such books, records, files and accounting records available to Purchaser and its Affiliates, and shall permit Purchaser and its Affiliates to make copies thereof, upon request by Purchaser, which request will not unreasonably be denied. Seller shall undertake reasonable measures to preserve in good order the Business Records retained by it.

4.11 CEASE USE OF MARKS. From and after the Closing Date, Seller shall refrain, and shall cause its Affiliates to refrain, from using the Marks, the Internet Assets and all other Intellectual Property Assets.

4.12 CONFIDENTIALITY.

(a) The AFCC Group covenants and agrees that all confidential information regarding Purchaser or any of its Affiliates provided to AFCC, Seller or the Subsidiaries or any of their directors, officers, employees, consultants, agents, advisors, Affiliates or representatives (collectively "Representatives") by Purchaser, its agents or representatives, whether furnished before or after the date of this Agreement, shall be kept confidential by the AFCC Group and its Representatives. Except with the prior written consent of Purchaser, neither the AFCC Group nor its Representatives will disclose any such information. The AFCC Group and its Representatives shall not use this confidential information for any purpose other than to evaluate Purchaser as a prospective party to the transactions contemplated under this Agreement. Upon written request by Purchaser, the AFCC Group and its Representatives, will promptly deliver to Purchaser all documents and other matters furnished by Purchaser containing confidential information, together with all copies thereof in the possession of the AFCC Group or any of its Representatives.

(b) The AFCC Group covenants and agrees that following the Closing, all Trade Secrets will be the property of the Subsidiaries unless otherwise required by law. From and after the Closing Date, the AFCC Group: (i) shall use their reasonable best efforts and exercise utmost diligence to protect and safeguard all of such Trade Secrets; (ii) shall not, directly or indirectly, use, sell, license, publish, disclose or otherwise transfer or make available to others any of such Trade Secrets; (iii) without the prior written consent of Purchaser, shall not, directly or indirectly, disclose any of such Trade Secrets; and (iv) it shall not, directly or indirectly, use for its own benefit or for the benefit of another, any of such Trade Secrets. It is expressly understood, however, that the obligations in the preceding sentence shall not apply to any information that was or becomes available to the public on a non-confidential basis or was or becomes available to the public on a non-confidential basis from a third party who is not bound to Seller, either Subsidiary or Purchaser to keep such information confidential. In addition, AFCC and Seller covenant and agree that after Closing, without the prior written consent of Purchaser or unless as a result of a Legal Requirement, the AFCC Group will not disclose the economic terms of this Agreement.

(c) The parties acknowledge and agree that, at Closing, that certain Confidentiality Agreement dated January 20, 1999 between Purchaser and AFCC (the "Confidentiality Agreement") shall terminate and be of no further force or effect.

4.13 COOPERATION REGARDING FINANCIAL STATEMENTS. In connection with any filings to be made by Purchaser or its Affiliates under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, with respect to or as a result of the transactions contemplated by this Agreement, AFCC and Seller agree that the AFCC Group shall (i) use commercially reasonable efforts to provide to Purchaser and its Affiliates the financial and other information and documents pertaining to the Business (as such may be in the possession or control of the AFCC Group) that Purchaser and its Affiliates will be required by applicable SEC rules and regulations to be included in its filings, (ii) use commercially reasonable efforts to cause the accountants for the AFCC Group to deliver such consents and reports in and provide access to files and work papers in connection therewith (as such may be subject to the AFCC Group's control) as Purchaser and its Affiliates may reasonably request and (iii) generally use commercially reasonable efforts to cooperate with Purchaser and its Affiliates in connection therewith. Purchaser acknowledges that prior to

October 1998 Seller was not owned by AFCC or its Affiliates. As a result, to the extent that the AFCC Group currently does not possess or does not have access to any information and documents requested by Purchaser or its Affiliates under this Section 4.13, the AFCC Group will use commercially reasonable efforts to assist Purchaser in Purchaser's efforts to cause the prior owners of Seller to comply with the terms of this Section 4.13. Nothing in this Section 4.13 is intended to require the AFCC Group to create at the expense of the AFCC Group documents and/or records which do not exist as of the Closing. To the extent the AFCC Group does not possess, but has the right of access to any information or documentation requested by Purchaser or its Affiliates under this Section 4.13, the AFCC Group will, at Purchaser's expense, obtain such information and documents on behalf of Purchaser.

4.14 FINANCIAL STATEMENTS AND REPORTS. As promptly as practicable after each month or fiscal quarter ending between the date hereof and the Closing Date, but in no event later than 15 days after the end of each month or and 30 days after the end of each quarter, as the case may be, Seller and the Subsidiaries shall deliver to Purchaser true and correct copies of the unaudited pro forma statements of operations of the Business as of and for the month or the quarter, as the case may be, then ended, prepared in accordance with GAAP and which shall present fairly, in all material respects, the results of operations of the Business for and during the period then ended, subject to normal and recurring year-end audit and quarter-end adjustments.

As promptly as practicable, Seller and the Subsidiaries will deliver to Purchaser true and complete copies of such other material financial statements, reports or analyses as may be prepared or received by Seller or either Subsidiary between the date hereof and the Closing Date as relates to the Business.

4.15 TAX ELECTIONS. No new elections with respect to Taxes, or any changes in current elections with respect to Taxes, affecting the Subsidiaries after the Closing shall be made without the prior consent of Purchaser.

4.16 SUPPLEMENTS TO SCHEDULES. Prior to Closing, Seller and the Subsidiaries shall provide to Purchaser, as of a date that is within two days prior to the Closing Date, updated Schedules. If any such supplement or amendment shall include any matter which would result in a failure to satisfy the condition set forth in Section 8.3(a) and is unacceptable to Purchaser, Purchaser may deem the condition set forth in Section 8.3(a) not to be satisfied.

ARTICLE V

EMPLOYEES AND EMPLOYEE MATTERS

5.1 EMPLOYMENT. Effective as of the Closing, Purchaser or the Subsidiaries (a) shall offer to employ each employee of the Business listed on Schedule 5.1 as updated upon request and finally at Closing (collectively, the "Employees") who is actively at work on the Closing (collectively, the "Active Employees"), and (b) shall offer to employ any Employee who is not actively at work on the Closing Date due to approved leave of absence, short-term illness or injury (including those Employees who are absent due to illness or injury for a period of less than 10 days), military leave or layoff with recall rights or reemployment rights under the Family and Medical Leave Act (the

"FMLA") or any other applicable law (collectively, the "Inactive Employees") upon the conclusion of their leave or layoff. In addition, any Employee who is not actively at work on the Closing Date due to a short-term absence (including due to vacation, holiday, jury duty or bereavement leave) in accordance with applicable policies of Seller shall be deemed to be an Active Employee provided such Employee returns to active employment in accordance with such policies. Active Employees who immediately following the Closing become employed by Purchaser or either Subsidiary and Inactive Employees, to the extent that they later become employed by Purchaser or either Subsidiary prior to January 1, 2000, shall be referred to collectively as "Hired Employees." Seller makes no representation as to whether any Employee will accept employment with Purchaser or the Subsidiaries after Closing. For purposes hereof, an Employee who has terminated employment for any reason prior to, as of, or in connection with, the Closing (including by reason of resignation, retirement, short-term or long-term disability, workers' compensation, personal leaves of absence (other than leaves of absence under FMLA) as of the Closing) shall be referred to as a "Former Employee."

5.2 HIRED EMPLOYEE BENEFITS. Except as expressly set forth in this
Section 5.2, nothing in this Agreement shall prohibit or limit Purchaser's or either Subsidiary's right on or after the Closing Date, at any time and from time to time, to modify, amend or terminate any salary and wages payable or benefit provided to any Hired Employee, or to terminate the employment of any Hired Employee at any time for any reason. The employment of the Hired Employees shall be subject to all of the Purchaser's practices and policies, including its policy of employment-at-will. Notwithstanding the above, (a) as of the Closing Date Purchaser or a Subsidiary shall employ the Hired Employees at the same base salary and base wages in effect as of Closing Date as known by Purchaser, and (b) until October 15, 1999, Purchaser or the Subsidiaries shall provide for the payment of severance pay (and not benefits) to any Hired Employee whose employment is terminated by Purchaser or a Subsidiary (other than for cause or total and permanent disability) in amounts determined in accordance with Seller's severance policies. For this purpose, Schedule 5.2 sets forth the formula for determining the amount of severance pay due upon termination by Purchaser and defines what constitutes termination for cause.

5.3 EMPLOYMENT AND EMPLOYEE BENEFITS.

(a) Seller and its Affiliates (other than the Subsidiaries) shall be liable for all employment claims, benefit claims and obligations in respect of Hired Employees, Former Employees, and their respective eligible dependents and beneficiaries, that arise prior to or on the Closing Date. Purchaser shall be liable for employment claims, benefit claims and obligations in respect of only Hired Employees and their respective dependents and beneficiaries that arise after the Closing Date; provided further that Purchaser shall not be liable for any such employment claims, benefit claims or obligations that arise or are payable with respect to Inactive Employees prior to the date such Inactive Employees become employed by Purchaser, or any such employment claims, benefit claims or obligations with respect to any Inactive Employees who do not become employed by Purchaser in accordance with this Section 5.3, all of which employment claims, benefit claims and obligations shall remain with Seller.

(b) AFCC and Seller, on a joint and several basis, shall be liable for and indemnify and hold Purchaser, the Subsidiaries and their Affiliates harmless from and against all claims, losses,

liabilities, damages, deficiencies, judgments, assessments, fines, settlements, costs or expenses, including without limitation, attorneys' fees by Purchaser, either of the Subsidiaries and/or their Affiliates, arising out of, resulting from, or relating to: (i) the employee benefits and the employee benefit plans (as the term is defined in Section 3(3) of ERISA) which have been or are maintained, sponsored or contributed to by AFCC, Seller, either of the Subsidiaries (with respect to periods prior to Closing only), or any member of their Controlled Group; (ii) post-employment benefits, including but not limited to retiree medical, retiree life and retiree accidental death and disability benefits for current and former Employees of Seller, either Subsidiary (with respect to periods prior to Closing only), and each member of Seller's Controlled Group; (iii) any requirement to provide any Employee of Seller or either of the Subsidiaries, any spouse or dependent of any such Employee, and each member of Seller's Controlled Group on or prior to the Closing Date with continuation coverage under the requirements of Sections 601-609 of ERISA, or Section 4980B of the Code with respect to any "qualifying event" as defined in Section 4980B(f)(3) of the Code; and (iv) any other liabilities retained or assumed by Seller under the terms of this Article V relating to employees or employee benefits. The conditions to indemnification contained in Sections 11.4 and 11.5 shall apply to any claim for indemnification under this Section 5.3(b).

5.4 NO EMPLOYMENT AGREEMENTS. Seller represents there are no written or oral employment agreements with any of the Employees that will survive Closing.

5.5 EMPLOYEE BENEFIT PLANS COVERAGE. Except as otherwise provided herein, on and after the Closing Date (or on such other date as may be determined under the terms of the Interim Services Agreement), Purchaser shall provide the Hired Employees with the employee benefits and paid time-off plans generally provided to other employees of Purchaser, subject to the terms and conditions of Purchaser's plans.

5.6 EMPLOYEE SERVICE CREDIT. Purchaser and the Subsidiaries shall cause Purchaser's employee benefit plans and any fringe benefit plans in existence on the Closing Date, including vacation programs and policies, to the extent such plans may cover Hired Employees on or after the Closing Date, to recognize for all purposes (except as noted below for the ADS 401(k) and Retirement Savings Plan ("Purchaser's 401(k) Plan")) the service of each Hired Employee with Seller and the Subsidiaries and the service of each Hired Employee with all other prior employers prior to the Closing Date, but only to the extent such service shall have previously been credited by Seller or its Affiliates to such Hired Employee under any employee benefit or fringe benefit plans of Seller or its Affiliates (such periods of time, collectively, "Prior Service"). Such Prior Service credit shall be calculated by using the original hire date of such Hired Employee as credited by Seller or its Affiliates as known by Purchaser. Notwithstanding anything herein to the contrary, Hired Employees will receive Prior Service credit under Purchaser's 401(k) Plan solely for purposes of eligibility for participation. The Closing Date will be used as the original hire date to determine service credit under Purchaser's 401(k) Plan for purposes of vesting of benefits and service related contributions.

5.7 PRE-EXISTING CONDITION EXCLUSIONS. If a Hired Employee or eligible dependent shall have satisfied the pre-existing condition exclusion period under Seller's or its Affiliates' welfare benefit plans, Purchaser shall waive application of any additional waiting period or preexisting condition exclusion under Purchaser's comparable plans; provided, however, Seller acknowledges that certain benefits provided under Purchaser's long-term disability plan may be

reduced in the event the Hired Employee fails to satisfy Purchaser's long-term disability plan's pre-existing condition exclusion eligibility requirement.

5.8 MEDICAL AND DENTAL.

(a) MEDICAL AND DENTAL PLANS GENERALLY. Seller and its Affiliates (other than the Subsidiaries) shall be responsible in accordance with their applicable welfare benefit plans for all medical and dental claims for expenses incurred on or prior to the Closing Date by Hired Employees and their dependents subject to Section 5.8. Purchaser shall be responsible in accordance with its applicable welfare plans (or under the terms of the Interim Services Agreement) for all medical and dental claims made by Hired Employees and their dependents for expenses incurred after the Closing Date. A medical or dental claim otherwise covered under Seller's or Purchaser's applicable welfare benefit plan (or under the terms of the Interim Services Agreement) shall be deemed incurred when the services giving rise to the claim are rendered (regardless of when such claim is billed by the service provider or submitted by the Hired Employee).

(b) DEDUCTIBLES. All charges and expenses of such Hired Employees and their eligible dependents which were applied to the deductible and out-of-pocket maximums under Seller's or its Affiliates' welfare benefit plans during the plan year of Seller in which the Closing Date falls shall be credited toward any deductible and out-of-pocket maximum applicable in the plan year of Purchaser in which the Closing Date falls; provided, however, that the foregoing shall be applicable to any Hired Employee and eligible dependents only to the extent such Hired Employee provides an explanation of benefits satisfactory to the administrator of such plan reflecting amounts paid or accrued prior to the Closing Date.

(c) COBRA. Seller shall be responsible for satisfying obligations under Section 601 ET. SEQ. of ERISA and the rules and regulations promulgated thereunder and Section 4980B of the Code ("COBRA"), and to provide COBRA continuation coverage to or with respect to any Employee or Former Employee of Seller or the Subsidiaries, or to any COBRA "qualified beneficiary" of any such Employee or Former Employee, with respect to any COBRA "qualifying event" occurring on or prior to the Closing Date, including any COBRA "qualifying event" resulting from the Closing. Purchaser or, with respect to the period after the Closing, the Subsidiaries shall be responsible for satisfying all requirements of COBRA with respect to any Hired Employee or COBRA "qualified beneficiary" of a Hired Employee for any COBRA "qualifying event" which occurs after the Closing Date.

(d) CAFETERIA PLAN. Effective as of the Closing Date (but with any transfer of funds and/or accounts to occur on such other date as may be determined under the terms of the Interim Services Agreement), Purchaser and the Subsidiaries shall allow Hired Employees to participate in Purchaser's so called "cafeteria" plans by (i) continuing to apply for the then current fiscal year all elections (including benefit elections and salary reduction elections) made by Hired Employees under Seller's or its Affiliates' flexible spending account plan ("Seller's FSA") and Seller's or its Affiliates' dependent care assistance plan ("Seller's DCA") for the then current fiscal year, and (ii) giving credit for all unused amounts credited for the then current fiscal year for each Hired Employee as of the Closing Date under Seller's FSA and Seller's DCA; provided, however, that Purchaser's obligation to allow Hired Employees to participate is contingent upon (i) receipt from Seller, Seller's FSA or

Seller's DCA, in cash, of amounts equal to the unused credit amounts in each Hired Employee's accounts in Seller's FSA and Seller's DCA, without any netting of credit and debit amounts in different individual Seller FSA and Seller DCA accounts, and (ii) with respect to any Hired Employee, such Hired Employee has provided a new salary reduction election to Purchaser and such election does not revoke or adversely change his or her salary reduction election. Seller or its Affiliates shall retain all assets and liabilities of Seller's DCA and Seller's FSA accounts for the Hired Employees for all claims for benefits incurred on or before the Closing Date.

5.9 ACCRUED VACATION DAYS. Purchaser and the Subsidiaries shall, through the end of the calendar year that includes the Closing Date, honor all unused vacation days accrued by Hired Employees as of the Closing Date under the respective programs and policies of Seller and its Subsidiaries which were applicable to Hired Employees immediately prior to the Closing Date. Effective as of January 1 of the year after becoming a Hired Employee, each Hired Employee will be subject to the terms and conditions of Purchaser's vacation programs and policies.

5.10 401(k) PLANS. Each Hired Employee eligible to participate in any 401(k) plan for the benefit of the employees of Seller or the Subsidiaries as of the Closing (collectively, "Seller's 401(k) Plans") shall become eligible to participate in the Purchaser's 401(k) Plan upon fulfillment of the minimum age and service conditions of Purchaser's 401(k) Plans. Each Hired Employee shall receive credit for all Prior Service with Seller only for purposes of eligibility (but not for vesting or service related contributions) under Purchaser's 401(k) Plan. Effective as of the Closing Date, (a) each Hired Employee shall cease active participation in Seller's 401(k) Plans, (b) to the extent required by the terms of Seller's
401(k) Plans, Seller shall make any contributions to Seller's 401(k) Plans due in respect of Hired Employees relating to periods on or prior to the Closing Date in accordance with the terms of Seller's 401(k) Plans, and (c) Seller shall cause all Hired Employees who are participants in such plan to become 100 percent vested in their account balances under Seller's 401(k) Plans as of the Closing Date. Neither Purchaser nor the Subsidiaries will assume, or receive transfers of, benefits or liabilities accrued with respect to Hired Employees under Seller's 401(k) Plans. To the extent not inconsistent with the qualification requirements of the Code, Seller agrees that the account balances of all Hired Employees under Seller's 401(k) Plans shall be distributed or available for rollover as soon as administratively feasible after the Closing Date. "Eligible rollover distributions," as defined in Section 402(c)(4) of the Code, of Hired Employees who decide to roll over such distributions into Purchaser's 401(k) Plan will be accepted by Purchaser's 401(k) Plan provided Purchaser is satisfied Seller's 401(k) Plans are tax-qualified plan under the Code.

5.11 EMPLOYEE WITHHOLDING AND REPORTING. Purchaser and Seller agree that they will follow the "standard procedure" set forth in Section 4 of Rev. Proc. 96-60 promulgated by the Internal Revenue Service with respect to reporting of wages and other compensation. Purchaser agrees to furnish Seller's Forms W-2 to Hired Employees to the extent such Forms W-2 are timely forwarded by Seller to Purchaser so that any Legal Requirement for such distribution is satisfied.

5.12 WITHDRAWAL FROM PLANS . Prior to the Closing Date, Seller shall cause the Subsidiaries to withdraw from any employee benefit plans as defined in Section 3(3) of ERISA or arrangements maintained by Seller or any of its Affiliates in which any of the Subsidiaries is a participating employer as of the Closing Date, in the manner, if any, that such plan or arrangement specifies for withdrawal

of a participating employer. Seller shall be liable for any liability, cost or expense which arise as a result of Seller or the Subsidiaries' withdrawal from such plans.

5.13 EMPLOYMENT - NO THIRD PARTY RIGHTS. Nothing in this Agreement, express or implied, shall confer upon any employee of Seller, Purchaser, the Subsidiaries, or any of their Affiliates or any legal representatives thereof or any collective bargaining agent any rights or remedies, including any right to employment, or continued employment for any specific period. Nothing in this Agreement, express or implied, shall be deemed to confer upon any Person (or any beneficiary) any rights under or with respect to any plan, program, or arrangement described in or contemplated by this Agreement, and each Person (or any beneficiary) shall be entitled to look only to the express terms of any such plan, program, or agreement. Nothing in this Agreement, express or implied, shall create a third-party beneficiary relationship or otherwise confer any benefit, entitlement, or right upon any Person other than the parties to this Agreement and their respective corporate Affiliates.

5.14 SELLER ASSISTANCE. As soon as practicable after execution of this Agreement, Seller shall provide Purchaser with a download file from Seller's payroll records of the data listed on Schedule 5.14.

5.15 WARN ACT. Seller shall be responsible for providing notices for any "plant closing" or "mass layoff," as defined in the Worker Adjustment and Retraining Notification Act (the "WARN Act"), 29 U.S.C. Section 2101 ET SEQ., up to and including the Closing Date. After the Closing Date, Purchaser or the Subsidiaries shall be responsible for providing notice for any "plant closing" or "mass layoff" to Hired Employees in accordance with the WARN Act.

5.16 FLEETSHARE EMPLOYEES. Schedule 5.16 lists each employee of the FleetShare Business as of the date of this Agreement (the "FleetShare Employees"). Such Schedule shall be updated as of the date of Closing and as of the date of the termination of the services rendered by Seller under the terms of the Interim Services Agreement relating to the FleetShare Receivables (such date, the "FleetShare Services Termination Date"). Pending the FleetShare Services Termination Date, Seller shall use its best efforts to retain, shall not grant any compensation increase to, and shall not enter into any contract or arrangement for the benefit of any FleetShare Employee other than in the ordinary course of business consistent with Seller's past practices. Effective as of FleetShare Services Termination Date, Purchaser or the Subsidiaries shall offer to employ each FleetShare Employee who is actively at work on the FleetShare Services Termination Date on the terms specified in this Article V. For purposes of applying the provisions of this Agreement to the FleetShare Employees, (a) the FleetShare Employees shall be deemed to be Employees, (b) FleetShare Employees who become employed by Purchaser or either Subsidiary shall become Hired Employees, (c) any former employees of the FleetShare Business shall be deemed to be Former Employees and (d) all references to provisions becoming effective as of the Closing shall become effective with respect to any FleetShare Employee as of the FleetShare Services Termination Date. As soon as practicable after the Subsidiaries have given notice to Seller of the termination of the Services under the Interim Services Agreement that relate to the FleetShare Business, Seller shall provide Purchaser with a download file from Seller's payroll records of the data listed on Schedule 5.14 with respect to all FleetShare Employees.

ARTICLE VI

COVENANTS OF PURCHASER

Purchaser covenants and agrees with Seller as follows:

6.1 REGULATORY CONDITIONS. To the extent required by any regulatory authority as a condition to approval of the purchase and sale of the Shares or the other transactions contemplated hereby, Purchaser shall take such reasonable action as may be required in order to comply with any such requirement.

6.2 CERTAIN UNDERSTANDINGS. Purchaser acknowledges that, except as expressly set forth in this Agreement or in any other document or certificate to be delivered by Seller or either Subsidiary or any other party in connection herewith (collectively, the "Transaction Documents"), (a) neither Seller nor any other Person has made any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding the Subsidiaries, including but not limited to projections, estimates, budgets, forecasts and other information relating to the Subsidiaries, (b) neither Seller nor any other Person will be subject to any liability to Purchaser or any other Person resulting from the distribution to Purchaser, or the use of, any such information, and (c) SELLER EXPRESSLY DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY AND WARRANTIES OF SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE TANGIBLE ASSETS OF THE BUSINESS. Purchaser acknowledges that, should the Closing occur, Purchaser will acquire the Subsidiaries' businesses without any representation or warranty of any kind, express or implied, except for such representations and warranties as are expressly set forth in this Agreement or in any Transaction Document.

6.3 COMMONLY-AVAILABLE THIRD PARTY SOFTWARE PROGRAMS. After Closing, to the extent commonly-available third party Software Programs are installed on computer equipment owned by either of the Subsidiaries which, by the terms of the license related thereto, cannot be transferred to the Subsidiaries, or only may be transferred with additional payments, Purchaser will either license such software programs at Purchaser's expense or delete such software programs from such computer equipment.

6.4 CONFIDENTIALITY. After the Closing, Purchaser covenants and agrees that all confidential information regarding Seller or any of its Affiliates (other than the Subsidiaries) provided to Purchaser or any of its Representatives by Seller or its Representatives, whether furnished before or after the date of this Agreement, which does not relate to the Business shall be kept confidential by Purchaser and its Representatives. Except with the prior written consent of Seller, neither Purchaser nor its Representatives will disclose any such information. It is expressly understood, however, that the obligations in the preceding sentence shall not apply to any information that was or becomes available to the public on a non-confidential basis or was or becomes available to the public on a non-confidential basis from a third party who is not bound to Seller to keep such information confidential. Upon written request by Seller, Purchaser and its Representatives will promptly deliver to Seller all documents and other matters furnished by Seller containing confidential information which does not relate to the Business together with all copies thereof in the possession of Purchaser or its Representatives.

ARTICLE VII

MUTUAL COVENANTS

7.1 CONSUMMATION OF THE TRANSACTIONS. Subject to the terms and conditions of this Agreement, each party hereto shall use its best efforts consistent with applicable Legal Requirements to cause the Closing to occur. AFCC, Seller and the Subsidiaries and each of their respective directors, officers and representatives shall file and agree to cooperate with Purchaser in filing, and Purchaser and its directors, officers and representatives shall, file and agree to cooperate with AFCC, Seller and the Subsidiaries in filing, any necessary applications, reports or other documents with, giving any notices to, and seeking any consents from, any court, administrative agency or commission or other Governmental Entities and all third parties as may be required by AFCC, Seller or either Subsidiary, on the one hand, and Purchaser, on the other hand, in connection with the consummation of the transactions contemplated by this Agreement and the performance by the Subsidiaries of the Business after such consummation, and in seeking necessary consultation with and prompt favorable action by any such Governmental Entity or third party.

7.2 PUBLICITY. The parties hereto agree that, notwithstanding the terms of the Confidentiality Agreement, from the date of the execution and delivery of this Agreement through the Closing, no public release or announcement concerning the transactions contemplated hereby shall be issued by any party hereto without the prior consent of (a) Purchaser in the case of a release or an announcement by AFCC, Seller, the Subsidiaries or any of their Affiliates, or (b) Seller in the case of a release or an announcement by Purchaser (in each case which consent shall not be unreasonably withheld), except as such release or announcement may be required by law or the rules or regulations of any United States or foreign securities exchange, in which case the party required to make the release or announcement shall allow the other party reasonable time to comment on such release or announcement in advance of such issuance. After the date hereof and prior to Closing, the parties hereto shall not make any comments or statements with respect to the transactions contemplated hereby to any third party (including, without limitation, members of the news media, securities analysts and employees of AFCC, Seller, the Subsidiaries, or any of their Affiliates, or Purchaser or any of its subsidiaries) without the prior consent of Purchaser, on the one hand, or Seller, on the other hand, as the case may be; provided, however, that the provisions of this Section 7.2 shall not apply to communications by Seller or Purchaser to any Governmental Entity in connection with obtaining any consents or approvals required for the consummation of the transactions contemplated hereby or to any other communications pursuant to Section 7.5.

7.3 ANTITRUST NOTIFICATION. AFCC and Seller shall on the one hand, and Purchaser, on the other, shall, as promptly as practicable, file with the United States Federal Trade Commission (the "FTC") and the United States Department of Justice (the "DOJ") the notification and report form, if any, required for the transactions contemplated hereby and any supplemental information requested in connection therewith pursuant to the HSR Act. Any such notification and report form and supplemental information shall be in substantial compliance with the requirements of the HSR Act. AFCC, Seller and the Subsidiaries shall furnish to Purchaser, and Purchaser shall furnish to Seller, such necessary information and reasonable assistance as may be requested in connection with the preparation of any filing or submission which is necessary under the HSR Act. Each of AFCC and Seller shall keep Purchaser reasonably informed, and Purchaser shall keep Seller reasonably informed,

of the status of any communications with, and any inquiries or requests for additional information from, the FTC and the DOJ and shall comply promptly with any such inquiry or request.

7.4 CONFIDENTIALITY PRIOR TO CLOSING. Prior to Closing, the Confidential Agreement shall continue to apply, except to the extent that any of the provisions of the Confidentiality Agreement are inconsistent with this Agreement in which case the terms of this Agreement shall govern and supersede such provisions. In addition, the parties hereto agree not to disclose (without the consent of the other parties under the terms of Section 7.2) the nature and terms of this Agreement to a third party, unless such disclosure is required by law.

7.5 EMPLOYEE, CUSTOMER, VENDOR AND SUPPLIER NOTIFICATION. From the date hereof through the Closing Date, Seller and the Subsidiaries shall cooperate with Purchaser to jointly notify employees, customers, vendors and suppliers of the Business regarding the pending transactions contemplated under this Agreement in a mutually agreed upon manner, and Seller and the Subsidiaries shall use commercially reasonable efforts to cooperate in Purchaser's efforts to employ the Employees and to negotiate retention agreements with key employees.

7.6 FURTHER ASSURANCES. From time to time, as and when reasonably requested by another party hereto, a party hereto shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further acts or other actions as such other party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement.

7.7 CURE FOR BREACH BETWEEN PURCHASER AND SELLER OF CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS.

(a) If any party discovers that, pursuant to Sections 4.3, 4.4 or 4.5, additional assets of the Business should have been transferred to either Subsidiary or additional liabilities should have been assumed by either Subsidiary or by Seller, as the case may be, the party discovering such omission promptly shall notify the other affected parties. A party purportedly in breach of such covenants by its failure to transfer any such asset or assume any such liability relating to such breach shall have an opportunity, in the absence of a Third Party Claim relating to such breach, to cure such omission as provided in this Section 7.7.

(b) With regard to any asset which was not transferred to either Subsidiary pursuant to Sections 4.3 or 4.4, the absence of which results in any interruption or impairment to the Business that results or could reasonably be expected to result in a Material Adverse Effect (a "Critical Asset"), Seller shall as promptly as possible, and in no event more than five days after receipt of the written notice provided for herein, transfer the Critical Asset to the appropriate Subsidiary. If Seller is unable or unwilling to transfer the Critical Asset to the appropriate Subsidiary within such period, Seller shall, at its own cost and expense, use its utmost best efforts to provide or otherwise arrange for the provision of appropriate replacement assets or services in order to completely remediate the interruption or other impairment resulting from the absence of the Critical Asset.

(c) With regard to any asset which was not transferred to either Subsidiary pursuant to Sections 4.3 or 4.4, and which is not a Critical Asset, Seller shall as promptly as possible,

and in no event more than 30 days after receipt of the written notice provided for herein, transfer such asset to the appropriate Subsidiary. If Seller is unable or unwilling to transfer such asset to the appropriate Subsidiary within such period, Seller shall, at its own cost and expense, use its best efforts to provide or otherwise arrange for the provision of appropriate replacement assets or services to remediate the interruption or other impairment resulting from the absence of the asset.

(d) If any party discovers that an asset or right, title and interest that should have been listed on Schedule 2.36, was not so listed, the party discovering such omission promptly shall notify the other affected parties. Seller shall, at its own cost and expense, use commercially reasonable efforts to provide or otherwise arrange for the provision of appropriate replacement assets or services to remediate the interruption or other impairment resulting from the absence of the asset or right, title and interest. Purchaser shall take all commercial reasonable efforts to mitigate any damage or loss resulting from such omission.

(e) With regard to any obligation or liability which was not assumed by either Subsidiary or by Seller, as the case may be, pursuant to Section 4.5, the party notified of such omission shall as promptly as possible, and in no event more than five days after receipt of the written notice provided for herein, cause the obligation or liability to be assumed in accordance with Section 4.5. The party assuming such obligation or liability shall, at its own cost and expense, use its best efforts to satisfy or assume such obligation or liability directly without the other party being obligated to satisfy such obligation or liability.

(f) Seller shall promptly upon demand reimburse the affected Subsidiary for all reasonable costs and expenses incurred by such Subsidiary in connection with any efforts to remediate the interruption or other impairment resulting from the absence of any asset from Schedule 4.3, Schedule 4.4 or Schedule 2.36 or from the failure to assume any SPS Retained Liability, and Seller shall indemnify for, and hold the affected Subsidiary harmless from, any Claims arising out of such circumstances.

(g) If any purported failure to transfer any asset or to assume liability pursuant to Sections 4.3, 4.4 or 4.5 is timely cured in the manner provided in this Section 7.7, in the absence of a third party Claim, there shall be deemed to have been no breach of the covenants contained in Section 4.3, 4.4 or 4.5 or of the representations and warranties affected by such covenants (consisting of those representations and warranties contained in Sections 2.16, 2.20, and 2.36 that represent that the assets transferred are all the assets used primarily to conduct the Business or, in the case of
Section 2.36, all the assets relating to the Business not being transferred) and that, as between Seller and Purchaser, in the absence of a third party Claim, there shall be no additional remedy for such purported breach. If Third Party Claim shall arise out any matter described in this Section 7.7, the parties acknowledge that Purchaser and the Subsidiaries shall have indemnification rights for any such breach in accordance with Article XI.

7.8 REVENUES AND EXPENSES. The parties intend and agree that (a) all revenue of the Business prior to Closing shall belong to Seller, (b) all revenue of the Business on or after the Closing shall belong to the Subsidiaries, (c) all expenses of the Business that occurred prior to the Closing (other than Taxes) shall be the liability of and shall be timely paid by Seller, including all expenses of the Subsidiaries that occurred prior to the Closing, (d) all expenses of the Business that

occurred on or after the Closing (other than Taxes) shall be the liability of and shall be timely paid by the Subsidiaries unless any such expense shall not constitute an Assumed Liability and (e) Seller shall be liable for and shall timely pay all SPS Retained Liabilities. The allocation of Taxes between Seller and Purchaser shall be governed by the provisions of the Tax Cooperation and Indemnification Agreement. In the event either party shall receive revenues of the other, such revenues shall promptly be paid to the other party. In the event one party shall receive invoices for expenses or demands relating to obligations of the other party, such party shall promptly forward such invoices or demands to the other party.

7.9 POST-CLOSING REIMBURSEMENT FOR YEAR 2000 COSTS. The parties desire to expedite implementation of the Plan and to set forth certain agreements regarding allocation of certain costs and liabilities between them about Year 2000 Date Handling.

(a) Prior to Closing, Seller covenants to continue to implement the Plan in accordance with the Plan's requirements and time line. After Closing, as part of implementation of the Plan, Seller acknowledges Purchaser intends to conduct additional testing of the systems, applications and equipment of the Business and its interfaces with the customers, vendors and third party trading partners of the Business (the "Post-Closing Testing"). Seller agrees to reimburse Purchaser or the Subsidiaries for all Post-Closing Testing Costs to the extent conducted by Purchaser on or before December 31, 1999 up to $200,000; provided, however, that such reimbursement obligation shall be reduced by any unexpended amount as of the Closing Date of the $550,000 currently budgeted under the Plan for 1999. For purposes of this Agreement, "Post-Closing Testing Costs" shall mean all commercially reasonable project costs incurred by Purchaser or the Subsidiaries to conduct the Post-Closing Testing including, but not limited to, all independent consultant and employee time and related expenses and all Y2K Project Support under the Interim Services Agreement. In the event the Closing is delayed beyond July 1, 1999, Seller agrees to consult with Purchaser to identify and use reasonable commercial efforts to carry out the testing that Purchaser intended to implement as the Post-Closing Testing.

(b) If the Post-Closing Testing reveals that any additional remediation, re-testing and implementation of remediation plans is necessary for proper Date Handling with respect to the Proprietary Software Programs of Business (the "Post-Closing Remediation"), Purchaser shall be entitled to undertake such Post-Closing Remediation and Seller shall to reimburse Purchaser and the Subsidiaries for all Project Costs relating to such Post-Closing Remediation incurred on or before December 31, 1999. For purposes of this Agreement, "Project Costs" shall mean all commercially reasonable project costs to renovate and remediate the Proprietary Software Products of the Business for proper Date Handling, including all of those relating to the renovation, repair, replacement, re-testing and implementation costs, such as independent consultant and employee time and related expenses and all Y2K Project Support costs incurred under the Interim Services Agreement.

(c) Purchaser shall report to Seller promptly (i) when, in aggregate, any Post-Closing Remediation Costs exceed $100,000 and/or (ii) when the Post-Closing Testing has been completed. Such reports shall provide in reasonable detail the matters requiring Post-Closing Remediation, the results of the testing and Purchaser's reasonable expectation, based on current information, of additional Post-Closing Remediation Costs.

(d) Purchaser shall notify Seller promptly in the event Purchaser reasonably expects any Post-Closing Remediation project to exceed $50,000 or when a project which was not expected to exceed such amount is revised to be reasonably expected to exceed such amount (a "Critical Remediation"). Within 48 hours of such notice Seller agrees to meet with Purchaser for the purpose of discussing the problem identified, the anticipated means of remediating such problem and an estimate of the Project Costs. Within 24 hours after such meeting, Seller shall notify Purchaser whether Seller consents to the project relating to such Critical Remediation, which consent Seller agrees may not be unreasonably withheld. In the event Seller is unwilling or unable to meet such schedule, Seller waives any rights to object to the Critical Remediation. Purchaser shall be entitled to pursue any Critical Remediation notwithstanding the fact that Seller withholds its consent. However, any disputed matters relating to the Critical Remediation shall be resolved in accordance with Section 7.9(f).

(e) Each month Purchaser shall provide Seller with a written invoice, specifying in detail the Post-Closing Testing Costs and Project Costs during the preceding month and the total cost therefor. Within 30 days following the date of receipt of each invoice, Seller shall pay to Purchaser any undisputed invoiced amounts.

(f) Any specific remediation efforts and costs approved in advance by Seller, including those under Section 7.9(d), or those matters as to which Seller has waived its rights, may not be disputed. If Seller disputes any other matters, which disputes shall be limited to the commercial reasonableness of any Post-Closing Remediation, the scope of any Post-Closing Remediation or the amount of any Post-Closing Testing Costs or Project Costs (the matters in dispute, the "Disputed Matters"), Seller shall deliver to Purchaser, within 10 days from the date Seller receives notice of the matter which constitutes the Disputed Matter, a written statement identifying the Disputed Matters and providing a detailed explanation of its objections. If the parties cannot resolve all disputes under this Section 7.9 in a mutually satisfactory manner on or before January 15, 2000, the disputes shall be finally adjudicated by an independent consultant whose business involved Date Handling and who is mutually acceptable to the parties (the "Independent Consultant"). The Independent Consultant will review the Disputed Matters for commercial reasonableness, and shall make such other investigations as the Independent Consultant may deem necessary in order to ascertain the whether such matters were commercially reasonable. Pending the Independent Consultant's final determination, Seller shall pay the amounts not in dispute to Purchaser, subject to any adjustment as required to give effect to the Independent Consultant's final determination. Seller shall pay to Purchaser any amounts determined by the Independent Consultant to be owed with respect to the Disputed Matters. If the Disputed Matters are determined to be substantially correct, Seller shall pay Purchaser all costs incurred in engaging the Independent Consultant. If the Project Costs are not substantially correct, Purchaser shall pay to Seller all costs incurred in engaging the Independent Consultant. For purposes of this Agreement, "substantially correct" shall mean that the amount of the costs invoiced by Purchaser relating to the Disputed Matters varied no more than five percent from the Independent Consultant's final determination of such costs.

(g) The parties do not intend that the remedies granted to Purchaser and the Subsidiaries in this Section 7.9 to preclude any other remedies that Purchaser or the Subsidiaries may have with respect to improper Date Handling according to the representations and warranties contained in

Section 2.26, but Purchaser and the Subsidiaries agree that Seller shall not be liable twice for the same damages suffered by Purchaser or the Subsidiaries.

ARTICLE VIII

CONDITIONS TO CLOSING

8.1 EACH PARTY'S OBLIGATIONS. The respective obligations of each party hereto to effect the transactions contemplated hereby is subject to the satisfaction or waiver as of the Closing of the following conditions:

(a) No statute, rule, regulation, executive order, decree, temporary restraining order, preliminary or permanent injunction or other order shall have been enacted, entered, promulgated, enforced or issued by any Governmental Entity and no other legal restraint or prohibition preventing consummation of any of the transactions contemplated by this Agreement shall be in effect;

(b) The waiting period under the HSR Act, if applicable to the transactions contemplated hereunder, shall have expired or been terminated; and

(c) In all material respects, the parties hereto shall have filed all applications, reports or other documents, given all notices, met all requirements, received all consents and approvals, satisfied any and all conditions of approval and all applicable waiting periods shall have expired in connection with the consummation of the transactions contemplated hereby.

(d) IBM CONTRACT. Seller shall have extended the term of the IBM Contract (as defined in the Interim Services Agreement) to June 30, 2000 and shall have obtained IBM's consent for the parties to enter into the Master Agreement, and all other conditions precedent to such extension of such term and to the entering into the Master Agreement shall have been satisfied.

8.2 SELLER'S AND THE SUBSIDIARIES' OBLIGATIONS. The obligations of Seller and the Subsidiaries to effect the transactions contemplated hereby is subject to the satisfaction (or waiver by Seller) as of the Closing of the following additional conditions:

(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES, COMPLIANCE WITH COVENANTS. The representations and warranties of Purchaser made in this Agreement qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, as of the date hereof and as of the time of the Closing as though made as of such time, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date). Purchaser shall have duly performed, complied with and satisfied in all material respects all covenants, agreements and conditions required by this Agreement to be performed, complied with or satisfied by it by the time of the Closing. Purchaser shall have delivered to Seller a certificate dated the Closing Date and signed by an officer of Purchaser confirming the foregoing.

(b) ABSENCE OF LITIGATION, INJUNCTION. There shall not be threatened, instituted or pending any suit, action, investigation, inquiry or other proceeding by or before any court or Governmental Entity requesting an order, judgment or decree (except those in which Seller is a plaintiff directly or derivatively) which, in the reasonable judgment of Seller, would, if issued, be reasonably likely to restrain or prohibit the consummation of the transactions contemplated hereby or require rescission of this Agreement or such transactions or result in material damages to Seller, and there shall not be in effect any injunction, writ, preliminary restraining order or any order of any nature issued by a court or Governmental Entity of competent jurisdiction directing that the transactions contemplated hereby not be consummated as so provided or any statute, rule or regulation enacted or promulgated that makes consummation of the transactions contemplated hereby illegal.

(c) SPECIFIED ITEMS. Purchaser shall have delivered the items to be delivered to Seller pursuant to Section 1.6.

8.3 PURCHASER'S OBLIGATIONS. The obligations of Purchaser to effect the transactions contemplated hereby is subject to the satisfaction (or waiver by Purchaser) as of the Closing of the following additional conditions:

(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES, COMPLIANCE WITH COVENANTS. The representations and warranties of Seller and the Subsidiaries made in this Agreement qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, as of the date hereof and as of the time of the Closing as though made as of such time, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date), and except that the representations and warranties contained in Section 2.36 shall be true and correct in all respects or Seller shall have undertaken in writing to cure any known breaches that are the subject matter of Section 7.7 in accordance with Section 7.7. Except to the extent such covenants relate to the period after Closing, the covenants of the AFCC Group made in this Agreement qualified as to materiality shall have been duly performed, complied with and satisfied, and those not so qualified shall have been duly performed, complied with and satisfied in all material respects, as of the time of the Closing, except that the covenants contained in Sections 4.3, 4.4, and 4.5 shall have been duly performed, complied with and be satisfied in all respects or Seller shall have undertaken in writing to cure any known breaches that are the subject matter of Section 7.7 in accordance with
Section 7.7. The AFCC Group shall have duly performed, complied with and satisfied in all material respects all other agreements and conditions required by this Agreement to be performed, complied with or satisfied by the AFCC Group by the time of the Closing. The AFCC Group shall have delivered to Purchaser a certificate dated the Closing Date and signed by an officer of AFCC, Seller and the Subsidiaries confirming the foregoing.

(b) ABSENCE OF LITIGATION, INJUNCTIONS. There shall not be threatened, instituted or pending any suit, action, investigation, inquiry or other proceeding by or before any court or governmental or other regulatory or administrative agency or commission requesting an order, judgment or decree (except those in which Purchaser is a plaintiff directly or derivatively) which, in the reasonable judgment of Purchaser would, if issued, be reasonably likely to restrain or prohibit the

consummation of the transactions contemplated hereby or require rescission of this Agreement or such transactions or result in material damages to Purchaser, if the transactions contemplated hereby are consummated, and there shall not be in effect any injunction, writ, preliminary restraining order or any order of any nature issued by a court or governmental agency of competent jurisdiction directing that the transactions contemplated hereby not be consummated as so provided or any statute, rule or regulation enacted or promulgated that makes consummation of the transactions contemplated hereby illegal.

(c) TERMINATION OF INTRACOMPANY AGREEMENTS. Each Subsidiary shall have terminated each contract, agreement or understanding between any of them, on one hand, and any member of the AFCC Group (other than the Subsidiaries), on the other hand, relating to either Subsidiary or the Business; provided, however, that nothing in this Section 8.3(c) is intended to affect the Transaction Documents.

(d) INTERCOMPANY DEBTS. At or immediately prior to the Closing, each Subsidiary shall have discharged in full any and all amounts due from such Subsidiary to any member of the AFCC Group and each member of the AFCC Group (other than the Subsidiaries) shall have discharged in full any and all amounts due to each Subsidiary, in each case that are outstanding at the Closing Date.

(e) SPECIFIED ITEMS. AFCC, Seller and the Subsidiaries shall have delivered the items to be delivered to Purchaser pursuant to Section 1.5.

(f) CONSENT TO SUBLEASE. Seller shall have taken all actions necessary to receive the consent of NOVUS Credit Services, Inc. as the landlord under the Riverwoods Lease to the Sublease.

8.4 FRUSTRATION OF CLOSING CONDITIONS. No party to this Agreement may rely on the failure of any condition set forth in this Article VIII if such failure was caused by such party's failure to act in good faith or to use its best efforts to cause the Closing to occur.

ARTICLE IX.

TAX MATTERS

9.1 TAX MATTERS. Certain tax matters which are the subject matter of the Tax Cooperation and Indemnification Agreement shall be governed by the Tax Cooperation and Indemnification Agreement to be executed by the parties thereto.

ARTICLE X.

TERMINATION

10.1 TERMINATION EVENTS. Anything contained herein to the contrary notwithstanding, this Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing Date:

(a) by mutual written consent of the Seller and Purchaser;

(b) by either Seller or Purchaser if the Closing does not occur on or prior to October 15, 1999; provided, however, that the right to terminate this Agreement pursuant to this Section 10.1(b) shall not be available to any party hereto, if it has failed to perform any of its obligations under this Agreement, which failure has resulted in a failure of any of the conditions of Article VIII; or

(c) by either Seller or Purchaser if any Governmental Entity shall have issued a judgment, order or decree or taken any other action permanently enjoining, restraining or otherwise prohibiting any of the transactions contemplated by this Agreement, and such judgment, order or decree or other action shall have become final and nonappealable.

10.2 INFORMATION AND CONFIDENTIALITY. In the event of any termination pursuant to this Article X, written notice thereof setting forth the reasons therefor shall promptly be given to the other parties and the transactions contemplated by this Agreement shall be terminated, without further action by any party. If the transactions contemplated by this Agreement are terminated as provided herein: (a) Purchaser shall return all documents and other materials received from Seller and the Subsidiaries relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to Seller; and (b) all confidential information received by Purchaser with respect to the business of Seller and the Subsidiaries shall be treated in accordance with the Confidentiality Agreement, which shall remain in full force and effect notwithstanding the termination of this Agreement.

10.3 REMEDIES FOR TERMINATION. In the event that this Agreement is terminated due to the intentional breach of a representation, warranty, covenant or condition by the breaching party, then the non-breaching party shall be entitled to pursue, exercise and enforce any and all remedies, rights, powers and privileges available at law or in equity including the recovery of its actual expenses incurred in the negotiation and execution of this Agreement.

10.4 ABANDONMENT. If this Agreement is terminated and the transactions contemplated hereby are abandoned as described in this Article X, this Agreement shall become void and of no further force or effect, except for the provisions of (a) Section 7.4 relating to confidentiality, (b)
Section 7.2 relating to publicity, (c) this Article X and (d) Section 13.11 relating to certain expenses. In addition, upon termination of this Agreement, Network Services shall promptly change its name to a name that does not include the initials "ADS." Nothing in this Article X shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this

Agreement or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement.

ARTICLE XI

INDEMNIFICATION

11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties in this Agreement and in any Schedule or certificate delivered hereto shall survive the Closing for purposes of the other party asserting claims for breaches of such representations and warranties for eighteen months after Closing (except for (a) those representations and warranties contained in Sections 2.1, 2.4, 2.8, 2.9 and 3.2, which shall survive the Closing for any applicable statute of limitations periods and any extensions thereof, (b) the representations and warranties contained in Section 2.36, which shall survive the Closing through June 30, 2000, and (c) the representations and warranties contained in
Section 2.26, which shall survive the Closing through December 31, 1999). The right of a party to indemnification, payment of damages or other remedy based on a breach of the representations or warranties contained herein will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) by such party at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of, or compliance with, any such representation or warranty. The waiver of any condition based on the accuracy of any representation or warranty will not affect the right to indemnification, payment of damages or other remedy based on such representations or warranties.

11.2 INDEMNIFICATION BY SELLER. Upon the terms and subject to the conditions of this Article XI, Seller shall indemnify Purchaser, the Subsidiaries, their Affiliates and each of their respective officers, directors, employees and agents against and hold them harmless from any losses, liabilities, claims, damages or expenses (including costs of investigation and defense and reasonable legal fees and expenses) whether or not involving a third-party claim (collectively, "Claims") suffered or incurred by any such indemnified Person arising from, relating to or otherwise in respect of (a) any and all obligations and liabilities, secured or unsecured, whether absolute, accrued, contingent or otherwise, whether known or unknown and whether or not due ("Liabilities") of Seller or the Subsidiaries other than the Assumed Liabilities; (b) any breach of, or inaccuracy in, any representation or warranty of Seller or Subsidiaries in this Agreement (without giving effect to any supplement to the Schedules to this Agreement) or any certificate, instrument or other document delivered pursuant hereto or in connection herewith; (c) any breach of any covenant of Seller or, with respect to the period prior to the Closing, the Subsidiaries, contained in this Agreement; (d) any exercise or attempt to exercise any right of refusal or similar right with respect to the sale of the Subsidiaries, the Business or any portion thereof, including but not limited to any such right described on Schedule 2.2; or (e) any claim of a breach of a software license agreement as a result of the hiring of the FleetShare Employees by the Subsidiaries.

11.3 INDEMNIFICATION BY PURCHASER. Upon the terms and subject to the conditions of this Article XI, Purchaser shall indemnify Seller and each of its officers, directors, employees and agents against and hold them harmless from any Claims suffered or incurred by any such indemnified party arising from, relating to or otherwise in respect of (a) the operations of the Subsidiaries to the extent such Claims relate to an occurrence on or after the Closing Date (except to the extent such Claims

are not Assumed Liabilities); and (b) any breach of, or inaccuracy in, any representation or warranty of Purchaser contained in this Agreement (without giving effect to any supplement to the Schedules to this Agreement) or any certificate, instrument or other document delivered pursuant hereto or in connection herewith.

11.4 CONDITIONS OF INDEMNIFICATION RELATING TO THIRD PARTY CLAIMS. Subject to the provisions of this Article XI, the obligations and liabilities of Seller, in the case of Section 11.2(a), (b), (d) and (e) and the Purchaser, in the case of Section 11.3(b), with respect to Claims made by or against third parties ("Third Party Claims"), shall be subject to the following terms and conditions:

(a) The Person to whom such Third Party Claim relates (the "Indemnified Party") will give the party from which indemnity is sought hereunder (the "Indemnifying Party") prompt notice of such Third Party Claim, which notice in any event shall be given to the Indemnifying Party within 10 days of the Indemnified Party first becoming aware of the facts and circumstances that form the basis of such Third Party Claim; provided that the omission so to promptly notify the Indemnifying Party with respect to a Third Party Claim brought against or sought to be collected from such Indemnified Party will not relieve the Indemnifying Party from any liability which it may have to such Indemnified Party under Section 11.2 or 11.3 except to the extent that such failure has materially prejudiced such Indemnifying Party with respect to the defense of such Third Party Claim. The Indemnifying Party shall have the right to control the defense of any such Third Party Claim. Except as otherwise provided herein, the Indemnified Party shall have the right to participate in (but not control) the defense of any Third Party Claim and to retain its own counsel in connection therewith, but the fees and expenses of any such counsel for the Indemnified Party shall be borne by the Indemnified Party.

(b) If the Indemnifying Party, within a reasonable time after notice of any such Third Party Claim, fails to assume the defense thereof, the Indemnified Party shall (upon a subsequent 10 days' notice to the Indemnifying Party) have the right to undertake the defense or, with the consent of the Indemnifying Party, to undertake a compromise or settlement of such Third Party Claim on behalf of and for the account and risk of the Indemnifying Party, subject to the right of the Indemnifying Party to assume the defense of such Third Party Claim at any time prior to the settlement, compromise or final determination thereof. The Indemnifying Party shall not be liable for any compromise or settlement of a Third Party Claim effected without its written consent. During any period when the Indemnifying Party is contesting any such Third Party Claim in good faith, the Indemnified Party shall not pay, compromise or settle such Third Party Claim without the Indemnifying Party's consent; provided that the Indemnified Party may nonetheless pay, compromise or settle such Third Party Claim without such consent during such period, in which event it shall, automatically and without any further action on its part, waive any right (whether or not pursuant to this Agreement) to indemnity in respect of all losses, liabilities, damages or expenses relating to such Third Party Claim. If the Indemnifying Party shall defend any such Third Party Claim until such Third Party Claim shall be adjudicated by order, decree, ruling or other action, then the Indemnifying Party shall have the right, in the exercise of its exclusive discretion, to determine whether or not to appeal such adjudication.

(c) Anything in this Section 11.4 to the contrary notwithstanding, the Indemnifying Party shall not, without the written consent of the Indemnified Party (which consent shall not be

withheld unreasonably or delayed), settle or compromise any Third Party Claim or consent to the entry of any judgment which imposes any future obligation on the Indemnified Party or which does not include as an unconditional term thereof the giving by the claimant and or plaintiff to the Indemnified Party a release from all liabilities in respect of such Third Party Claim; provided that, whether or not such a release is required to be obtained, the Indemnifying Party shall remain liable to such Indemnified Party in accordance with Section 11.2 or 11.3 in the event that a Third Party Claim is subsequently brought against or sought to be collected from such Indemnified Party.

(d) The Indemnified Party shall, and shall cause its Affiliates to, provide the Indemnifying Party with such assistance (without charge) as may reasonably be requested by the Indemnifying Party in connection with any indemnification or defense provided for herein, including, without limitation, providing the Indemnifying Party with such information, documents and records and reasonable access to the services of and consultations with such personnel of the Indemnified Party or its Affiliates as the Indemnifying Party shall deem necessary (provided that such access shall not unreasonably interfere with the performance of the duties performed by or responsibilities of such personnel).

(e) The indemnification required by Section 11.2 or 11.3, as the case may be, shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills with reasonable documentation are received or Claims are actually incurred.

11.5 CONDITIONS OF INDEMNIFICATION RELATING TO CLAIMS THAT ARE NOT THIRD PARTY CLAIMS. In the event any Indemnified Party should have a claim against any Indemnifying Party under Section 11.2 or 11.3 that does not involve a Third Party Claim being asserted against or sought to be collected from such Indemnified Party, to the extent not otherwise cured pursuant to
Section 7.7, the Indemnified Party shall deliver notice of such claim with reasonable promptness to the Indemnifying Party within the applicable time period specified in Section 11.1. The failure by any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability which it may have to such Indemnified Party under Section 11.2 or 11.3 except to the extent that the Indemnifying Party demonstrates that it has been materially prejudiced by such failure. If the Indemnifying Party disputes its liability with respect to such claim, the Indemnifying Party and the Indemnified Party agree to proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations, such dispute will be resolved in accordance with Article XII.

11.6 LIMITATIONS ON INDEMNIFICATION. Any Claim brought under Section 11.2(b) or Section 11.3(b) is subject in each case to the following limitations and restrictions:

(a) Claims may not be asserted any time after 11:59 p.m. on the date on which a claim for a breach of the related representation and warranty terminates as established in Section 11.1. A claim for indemnification for which notice was given pursuant to Section 11.1 prior to the end of such period shall survive until such claim is fully and finally determined.

(b) Claims made pursuant to Section 11.2(b) will be paid only to the extent they exceed $2,000,000 (the "Seller's Basket"); provided, however, that (i) once Seller's Basket has been exceeded, all amounts back to the first dollar of claims shall be recoverable (ii) and the aggregate amount recoverable pursuant to Section 11.2(b) shall in no event exceed $50,000,000.

Notwithstanding anything to the contrary in this Article XI, the limitations and restrictions in this Section 11.6(b) shall not apply to any breach of the representations and warranties contained in Sections 2.8 and 2.9 of this Agreement.

(c) Claims made pursuant to Section 11.3(b) will be paid only to the extent they exceed $2,000,000 (the "Purchaser's Basket"); provided, however, that (i) once Purchaser's Basket has been exceeded, all the amounts back to the first dollar of claims shall be recoverable and (ii) the aggregate amount recoverable pursuant to Section 11.3(b) shall in no event exceed $50,000,000.

(d) The limitations contained in Sections 11.6(b) and 11.6(c) shall not apply to any breach of a representation or warranty to the extent the Person making such warranty had knowledge of such breach at any time prior to the date on which such representation and warranty is made.

(e) Each Claim shall be reduced by the amount of any insurance proceeds actually received in connection with such Claim. Each party covenants to exercise its reasonable commercial efforts to collect insurance proceeds under applicable insurance policies that are then in force if and to the extent that such Claim relates to an event covered by such insurance policies.

(f) The representations and warranties of Seller and the Subsidiaries specifically enumerated in Section 11.2(b) for purposes of determining whether a breach thereof has occurred that may entitle Purchaser or any other Person to recover for any Claim under Section 11.2(b) shall not be deemed qualified by any references to materiality (or variations thereof) contained therein and any breaches thereof shall be determined without regard to whether such breach constitutes a Material Adverse Effect.

(g) Following the Closing, the remedies provided in this Article XI shall be the sole recourse of all parties hereto for all Claims relating to breaches of representations and warranties, other than as may be provided for elsewhere in this Agreement and other than for the willful misconduct of Purchaser or Seller related to or arising, directly or indirectly, out of this Agreement or the transactions contemplated hereby.

(h) Notwithstanding anything herein to the contrary, if a matter which constitutes a breach of any representation or warranty by Seller or (before Closing) either Subsidiary also meets the definition of a SPS Retained Liability, then any limitations or restrictions imposed by this
Section 11.6 shall not be applicable to a claim against Seller for any such SPS Retained Liability.

(i) All Claims described in Section 5.3 shall be governed by the provisions of Article V and not by the provisions of this Article XI except to the extent Article XI is expressly referenced. All Claims covered by the Tax Cooperation and Indemnification Agreement shall be governed by the provisions of such Tax Cooperation and Indemnification Agreement, and not by the provisions of this Article XI.

ARTICLE XII
DISPUTE RESOLUTION

12.1 NEGOTIATION. In the event of any dispute, claim, question, or disagreement arising from or relating to this Agreement or the breach thereof, the parties hereto shall use their reasonable best efforts to settle the dispute, claim, question, or disagreement. To this effect, a party who is involved in the dispute shall provide written notice to the other parties hereto, specifying in reasonable detail the factual background of the dispute and the basis for the party's claim. Thereafter, the parties shall consult and negotiate with each other in good faith and, recognizing their mutual interests, attempt to reach a just and equitable solution satisfactory to the parties. If the parties do not reach such solution within a period of sixty
(60) days, then the dispute will be handled according to Section 12.2 below.

12.2 MEDIATION. If any dispute, claim, question or disagreement arising from or relating to this Agreement or the breach thereof cannot be settled according to Section 12.1 above, the parties agree to endeavor first to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its Commercial Mediation Rules before resorting to any other remedy.

12.3 PROVISIONAL REMEDIES. Notwithstanding anything to the contrary in this Article XII, either party may seek from a court any interim or provisional relief that is necessary to protect the rights or property of that party.

ARTICLE XIII

MISCELLANEOUS

13.1 NO THIRD-PARTY BENEFICIARIES. Except as otherwise provided in Article XI which is for the benefit of, and enforceable by, the Indemnified Parties, this Agreement is for the sole benefit of the parties hereto and their permitted assigns, and nothing herein expressed or implied shall give or be construed to give to any Person, other than the parties hereto and such assigns, any legal or equitable rights hereunder.

13.2 AMENDMENT OR WAIVER. No amendment, modification or waiver in respect of this Agreement shall be effective unless it shall be in writing and signed by the parties hereto.

13.3 HEADINGS. The headings contained in this Agreement, or in any exhibit or schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

13.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties.

13.5 ASSIGNMENT. This Agreement and the rights and obligations hereunder shall not be assignable or transferable by any party hereto (including by operation of law in connection with a merger, or sale of substantially all the assets, or any dissolution, of any party hereto) without the prior written consent of the other parties hereto; PROVIDED, HOWEVER, that Purchaser may assign its rights hereunder, in whole or in part, to an Affiliate of the Purchaser without the prior written consent of any party hereto; PROVIDED FURTHER, however, that no assignment shall limit or affect the assignor's obligations hereunder. Any attempted assignment in violation of this Section 13.5 shall be void.

13.6 NOTICES. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent by telecopy or sent, postage prepaid, by registered, certified or express mail or overnight courier service and shall be deemed given when so delivered by hand, or telecopied, or if mailed, three days after mailing (one business day in the case of express mail or overnight courier service), as follows:

if to Seller, or the Subsidiaries (before Closing)

SPS Payment Systems, Inc.
2500 Lake Cook Road
Riverwoods, IL 60015
Telecopy No: (847) 405-4952
Attention: General Counsel

with a copy to:

Associates First Capital Corporation
250 E. Carpenter Freeway
Irving, Texas 75065
Telecopy No.: (972) 652-7123
Attention: General Counsel

if to Purchaser, or the Subsidiaries (after Closing)

Alliance Data Systems Corporation
17655 Waterview Parkway
Dallas, Texas 75252
Telecopy No.: (972) 348-4534
Attention: President, Network Services
Division

with copies to:

Alliance Data Systems Corporation
800 Techcenter Drive
Gahanna, Ohio 43230
Telecopy No.: (614) 729-4949
Attention: General Counsel

or such other address as any party may from time to time specify by written notice to the other parties hereto.

13.7 ENTIRE AGREEMENT. This Agreement, including the Schedules and Exhibits hereto, together with the letter agreement from AFCC executed in connection with the execution of this Agreement (the "AFCC Letter") and the Confidentiality Agreement and all other documents or certificates executed by the Parties in connection herewith and therewith contain the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings relating to such subject matter.

13.8 SEVERABILITY. If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any Person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability.

13.9 SCHEDULES. The inclusion of any matter in any schedule to this Agreement shall be deemed to be an inclusion for all purposes of this Agreement, including each representation and warranty to which it may relate, but inclusion therein shall expressly not be deemed to constitute an admission by Seller or Purchaser, or otherwise imply, that any such matter is material or creates a measure for materiality for the purposes of this Agreement.

13.10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without regard to any conflicts of laws principles.

13.11 EXPENSES. Whether or not the transactions contemplated hereby are consummated, and except as otherwise specifically provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby by Seller and the Subsidiaries shall be paid by Seller (and not the Subsidiaries) and all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby by Purchaser shall be paid by Purchaser.

13.12 REMEDIES FOR BREACH. It is possible that remedies at law may be inadequate and, therefore, the parties hereto shall be entitled to equitable relief including injunctive relief, specific performance or other equitable remedies in addition to all of the remedies provided under this Agreement or available to the parties under this Agreement at law or in equity. Subject to the provisions of Article XII, no remedy made available by this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their respective behalf, by their respective officers, thereunto duly authorized, as of the day and year first above written.

SPS PAYMENT SYSTEMS, INC.

By: /S/ R. L. ROBINSON
   ----------------------------
Name: R. L. Robinson
Title:  President

ALLIANCE DATA SYSTEMS CORPORATION

By: /S/ MICHAEL BELTZ
   ----------------------------
Name: Michael Beltz
Title:  Executive Vice President

SPS COMMERCIAL SERVICES, INC.

By: /S/ STEPHEN W. MAXWELL
   ----------------------------
Name:    Stephen W. Maxwell
Title:  President

ADS NETWORK SERVICES, INC.

By: /S/ STEPHEN W. MAXWELL
   ----------------------------
Name: Stephen W. Maxwell
Title:  President

FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
AMONG SPS PAYMENT SYSTEMS, INC., ALLIANCE DATA SYSTEMS
CORPORATION, SPS COMMERCIAL SERVICES, INC.
AND ADS NETWORK SERVICES, INC.

This First Amendment to Stock Purchase Agreement, dated as of July 12, 1999 (this "Amendment"), is by and among SPS Payment Systems, Inc., a Delaware corporation ("Seller"), Alliance Data Systems Corporation, a Delaware corporation ("Purchaser"), SPS Commercial Services, Inc., a Delaware corporation ("Commercial Services"), and ADS Network Services, Inc., a Delaware corporation ("ADS Network").

WHEREAS, on June 8, 1999, the parties to this Amendment entered into a Stock Purchase Agreement (the "Original Agreement");

WHEREAS, the parties have determined to establish 12:01 a.m. July 1, 1999 as the effective time (the "Effective Time") for the transactions contemplated by the Original Agreement for purposes of allocating revenue and expenses among the parties (but not for purposes of otherwise allocating risk and responsibility for any other benefits or Liabilities relating to operation of the Business prior to the Closing, for example, for the right to indemnification against third party claims for operation of the Business), and therefore desire to amend the Original Agreement as set forth below;

NOW THEREFORE, for and in consideration of the mutual covenants contained in this Amendment, the parties agree to the following amendments to the Original Agreement:

1. Defined terms used in this Amendment shall have the meanings set forth for such terms in the Original Agreement, except where the context herein requires otherwise.

2. Section 1.2 of the Original Agreement shall be deleted and the following shall replace Section 1.2 in its entirety: "1.2 PAYMENT OF PURCHASE PRICE Section 1.2 of the Original Agreement shall be deleted and the following shall replace Section 1.2 in its entirety:

1.2 PAYMENT OF PURCHASE PRICE. On July 13, 1999, Purchaser shall deliver to Seller by electronic wire transfer to a bank account designated in writing by Seller at least two business days prior to the Closing Date, in immediately available funds, the sum of $169,000,000, together with interest thereon at an annual rate of 5.8% from July 1, 1999 through July 13, 1999, subject to adjustment as specified in Section 1.3 below (as adjusted, the "Purchase Price"). The parties acknowledge that the Purchase Price specified has been reduced by $1,000,000 to pay an intercompany debt owed by Seller to Commercial Services as required by Section 8.3(d)."

3. Section 1.3(a) of the Original Agreement shall be revised by deleting the phrase "Closing Date" in the first and third sentences and substituting the phrase "Effective Time" so that Section 1.3(a) shall read in its entirety as follows:

"(a) PREPARATION OF CLOSING BALANCE SHEET. As soon as practicable following the Closing Date, but in no event later than 30 days after the Closing, Seller shall deliver to Purchaser a balance sheet of the Business as of the Effective Time (the "Closing Balance Sheet") prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied without giving effect to the transfer of assets to the Subsidiaries or the sale of Stock contemplated by this Agreement. The Closing Balance Sheet or explanatory notes shall identify as separate items the following: (i) the value of the Inventory (as hereinafter defined) and (ii) the value of the FleetShare Accounts Receivable (as hereinafter defined) and all allowances for doubtful accounts relating thereto. The Closing Balance Sheet shall be accompanied by a certificate signed by an officer of Seller certifying (i) that as of December 31, 1998, $3,919,487 was the amount of the FleetShare Accounts Receivable net of all reserves, (ii) the reserves for the FleetShare Accounts Receivable as of that date represented 1.047% of the FleetShare Accounts Receivable, (iii) that as of December 31, 1998, $844,648 was the amount of the Inventory of the Business, and (iv) that the Closing Balance Sheet and the certification of the FleetShare Accounts Receivable and the Inventory described in
(i) and (iii) of this sentence: (x) were prepared in accordance with GAAP consistently applied, subject to normal recurring year end adjustments (which will not individually or in the aggregate have a Material Adverse Effect (as hereinafter defined)) and the absence of notes and (y) fairly reflects the assets and liabilities of the Business as of December 31, 1998 or the Effective Time, respectively. In the event that Purchaser shall disagree with amounts specified on the Closing Balance Sheet for the FleetShare Accounts Receivable, reserves related thereto or the Inventory, Purchaser shall notify Seller of the matters with which it disagrees within 15 days of Purchaser's receipt of the Closing Balance Sheet and the parties shall use their best efforts to promptly resolve any differences. If the parties are unable to resolve any disagreements that they may have within 30 days following Purchaser's giving of notice of its disagreement to Seller, then Seller and Purchaser shall use the dispute resolution mechanism established in Article XII."

4. Section 1.4 of the Original Agreement shall be deleted and the following shall replace Section in its entirety:

"1.4 CLOSING. Upon the terms and subject to the conditions hereof, the closing of the transactions contemplated hereby (the "Closing") shall take place at Dallas, Texas on July 12, 1999, unless the parties receive a second request under the terms of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), in which case the Closing shall be at such other place and/or time as Seller and Purchaser may agree (the "Closing Date")."

5. The first sentence of Section 2.30 of the Original Agreement shall be revised by deleting the phrase "Closing Date" and substituting the phrase "Effective Time" so that Section 2.30 shall read in its entirety as follows:

"Schedule 2.30 (which, upon the agreement of the parties, may be delivered in commonly readable electronic format) contains a complete and accurate list of all accounts receivable of Seller and each Subsidiary relating to the FleetShare Business (collectively, the "FleetShare Accounts Receivable") as of April 30, 1999 and as of the Effective Time, the later of which shall be delivered as of a date that is no more than two days prior to

the Closing Date, which list sets forth the aging of such FleetShare Accounts Receivable."

6. Sections 4.3 through 4.5 of the Original Agreement shall be deleted and the following shall replace such Sections in their entirety:

"4.3 ASSETS OF ADS NETWORK. On the Closing Date, but effective as of the Effective Time, Seller shall transfer to ADS Network all of Seller's rights, title and interest in each of assets listed in Schedule 4.3; provided, however, Purchaser may direct Seller to transfer all or part of the assets listed in Schedule 4.3 to Commercial Services, and Seller shall comply with such directions unless Seller has previously transferred the relevant assets to ADS Network or the transfer of the assets as directed will have a material adverse effect on Seller.

"4.4 ASSETS OF COMMERCIAL SERVICES. On or before the Closing Date, but effective as of the Effective Time, each of the assets listed in Schedule 4.4 will be among the assets of Commercial Services, and after the Closing Date, but effective as of the Effective Time, Seller shall have no further right, title or interest in such assets; provided, however, if any such assets are not owned by Commercial Services at the time this Agreement is executed, Purchaser may direct Seller to transfer all or part of such assets to ADS Network, unless Seller has previously transferred the relevant assets to Commercial Services or the transfer of the assets as directed will have a material adverse effect on Seller.

"4.5 ASSUMED LIABILITIES. On or before the Closing Date, but effective as of the Effective Time, ADS Network shall assume the obligations of Seller relating to the Network Services Business to the extent, and only to the extent, (a) listed on Schedule 4.5(a) (collectively, the "ADS Network Assumed Obligations") or (b) provided in the Tax Cooperation and Indemnification Agreement. On or before the Closing Date, but effective as of the Effective Time, pursuant to an assumption agreement substantially in the form attached hereto as Exhibit E (the "Assumption Agreement"), Commercial Services shall assign to Seller and Seller shall assume all obligations and liabilities, known or unknown, of Commercial Services other than the obligations of Commercial Services listed on Schedule 4.5(b) (the obligations retained by Commercial Services, the "Commercial Services Retained Obligations"; and the ADS Network Assumed Obligations and the Commercial Services Retained Obligations collectively, the "Assumed Liabilities"). Neither Seller nor either Subsidiary shall cause or permit either Subsidiary to assume or incur any obligation or liability other than the ADS Network Assumed Obligations and the Commercial Services Retained Obligations. On or before the Closing Date, but effective as of the Effective Time, Seller shall retain or assume all obligations and liabilities associated with the Business other than the Assumed Liabilities (collectively, the "SPS Retained Liabilities")."

7. Section 7.8 of the Original Agreement shall be deleted and the following shall replace Section 7.8 in its entirety:

"7.8 REVENUES AND EXPENSES. The parties intend and agree that effective after the Closing (a) all revenue of the Business prior to the Effective Time shall belong to Seller, (b) all revenue of the Business on or after the Closing Date shall belong to the Subsidiaries, (c)

all revenues of the Business that are the result of Interim Operations, as hereinafter defined, reduced by any Interim Period Tax Burden, as hereinafter defined, and increased by any Interim Period Tax Benefit, as hereinafter defined, will be deemed to belong to and shall be paid over to the Subsidiaries, (d) all expenses of the Business that occurred prior to the Effective Time (other than Taxes, which shall be allocated based upon the Closing Date and governed by the Tax Cooperation and Indemnification Agreement) shall be the liability of and shall be timely paid by Seller, including all expenses of the Subsidiaries that occurred prior to the Effective Time, (e) all expenses of the Business that occurred on or after the Effective Time (other than Taxes, which shall be allocated based upon the Closing Date and governed by the Tax Cooperation and Indemnification Agreement), shall be the liability of and shall be timely paid by the Subsidiaries unless any such expense shall not constitute an Assumed Liability, provided that the Subsidiaries shall not be responsible for and shall not pay costs and expenses incurred during the Interim Period, as hereinafter defined, outside of the ordinary course of the conduct of the Business, including without limitation any costs and expenses related to the transactions contemplated by this Agreement, and (f) Seller shall be liable for and shall timely pay all SPS Retained Liabilities. For the limited purpose of determining the Interim Period Tax Burden and any Interim Period Tax Benefit, the taxable income or loss of the Business for the Interim Period that are the result of Interim Operations ("Interim Period Results") and the Taxes for the Interim Period that are the result of Interim Operations shall be determined by application of the principles set forth in
Section 2.2(c) of the Tax Cooperation and Indemnification Agreement, as reasonably interpreted and applied by the parties; provided that any income taxes included in calculating the Interim Period Tax Burden and any Interim Period Tax Benefit shall be determined by multiplying the Interim Period Results by the highest marginal corporate income Tax rate in effect for such Interim Period. Except for the limited purpose of determining the Interim Period Tax Burden and any Interim Period Tax Benefit, the allocation of Taxes between Seller and Purchaser shall be governed by the provisions of the Tax Cooperation and Indemnification Agreement. For purposes of this Section 7.8, "Interim Operations" means the ordinary and necessary operations of the Business during the Interim Period and shall not include any transactions or occurrences outside of the ordinary course of the conduct of the Business; "Interim Period" means the period commencing with the Effective Time and ending on the Closing Date; "Interim Period Tax Burden" means any Taxes allocated to the Interim Period pursuant to this Section 7.8; and "Interim Period Tax Benefit" means any reduction in Taxes realized by Seller or any of its Affiliates as a result of net losses incurred from Interim Operations. For purposes of allocating revenues and expenses for the Interim Period, the parties intend that (a) any expenses for such period that are described as services to be provided by Seller to the Subsidiaries after the Closing under the terms of the Interim Services Agreement shall be calculated using the pricing for such services under the Interim Services Agreement; for example, notwithstanding that the Riverwoods Lease, the Sublease and the Interim Services Agreement are entered into effective as of the Closing Date, expenses for use of the premises under the Riverwoods Lease and the Sublease shall be for the account of the Subsidiaries from the Effective Time and such expenses shall be calculated using the amounts set forth for such services in the Interim Services Agreement, and (b) notwithstanding that the Subsidiaries are, under the terms of Article V, not hiring the Active Employees and are not responsible for certain benefits with respect to Hired Employees until the Closing Date, employee and employee benefit expenses, such as payroll and other costs of employee benefits, of Seller from the Effective Time for Employees who become Hired Employees shall be for the account of the Subsidiaries. In the event either party shall receive revenues of the other, such revenues shall promptly be paid to the other party. In the event one party shall receive invoices for expenses or

demands relating to obligations of the other party, such party shall promptly forward such invoices or demands to the other party."

8. The third sentence of Section 7.9(a) of the Original Agreement shall be revised by deleting the phrase "Closing Date" and substituting the phrase "Effective Time" so that the third sentence of Section 7.9(a) reads in its entirety as follows:

"Seller agrees to reimburse Purchaser or the Subsidiaries for all Post-Closing Testing Costs to the extent conducted by Purchaser on or before December 31, 1999 up to $200,000; provided, however, that such reimbursement obligation shall be reduced by any unexpended amount as of the Effective Time of the $550,000 currently budgeted under the Plan for 1999."

9. Section 8.1(d) of the Original Agreement shall be deleted and the following shall replace Section 8.1(d) in its entirety:

"(f) IBM CONTRACT. Seller shall have extended the term of the IBM Contract (as defined in the Interim Services Agreement) to June 30, 2000, and all other conditions precedent to such extension of such term and to the entering into of the Master Agreement shall have been satisfied."

10. Section 8.3(d) of the Original Agreement shall be deleted and the following shall replace Section 8.3(d) in its entirety:

"(d) INTERCOMPANY DEBTS. At or immediately prior to the Closing, but effective prior to the Effective Time, each Subsidiary shall have discharged in full any and all amounts due from such Subsidiary to any member of the AFCC Group and each member of the AFCC Group (other than the Subsidiaries) shall have discharged in full any and all amounts due to each Subsidiary, in each case that are outstanding at the Closing Date. The parties acknowledge that the $1,000,000 intercompany debt owed by Seller to Commercial Services has been satisfied by the reduction of the Purchase Price referred to in
Section 1.2 as amended hereby."

11. Section 11.2 of the Original Agreement shall be amended by deleting the word "or" in front of subpart "(e)" and inserting the following phrase at the end of the sentence "or (f) any failure to obtain the consent of IBM to the terms of the Master Agreement."

12. Exhibit E shall be amended to make the Assumption Agreement effective as of the Effective Time as shown on the attached revised Exhibit E.

13. In all other respects, the Original Agreement shall remain in full force and effect.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on their respective behalf, by their respective officers, thereunto duly authorized, as of the day and year first above written.

SPS PAYMENT SYSTEMS, INC.

By: /S/ Richard L. Robinson
   ------------------------
Name: Richard L. Robinson
Title: President

ALLIANCE DATA SYSTEMS CORPORATION

By: /S/ Michael Beltz
   ------------------
Name: Michael Beltz
Title: Executive Vice President

SPS COMMERCIAL SERVICES, INC.

By: /S/ Steve Maxwell
   ------------------
Name: Steve Maxwell
Title: President

ADS NETWORK SERVICES, INC.

By: /S/ Steve Maxwell
   ------------------
Name: Steve Maxwell
Title:  President

ASSUMPTION AGREEMENT

This Assumption Agreement (the "Agreement") is entered into as of July 12, 1999, by and between SPS Payment Systems, Inc., a Delaware corporation ("SPS"), and SPS Commercial Services Inc., a Delaware corporation and a wholly-owned subsidiary of SPS ("Commercial Services").

WHEREAS, SPS and Commercial Services are parties to that certain Stock Purchase Agreement, dated June 8, 1999, by and among SPS, Commercial Services, ADS Network Services, Inc. and Alliance Data Systems Corporation (the "Stock Purchase Agreement");

WHEREAS, the Stock Purchase Agreement requires that Commercial Services and SPS execute and deliver this Agreement at the Closing of the Stock Purchase Agreement;

NOW, THEREFORE, in consideration of the mutual representations, warranties, and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be legally bound hereby, agree as follows:

1. DEFINITIONS. Capitalized terms not otherwise defined in this Agreement will have the respective definitions set forth in the Stock Purchase Agreement.

2. ASSIGNMENT. Commercial Services hereby assigns to SPS effective as of 12:01 a.m. July 1, 1999 (the "Effective Time") all of Commercial Services' right, title and interest in and to all obligations and liabilities of Commercial Services, except for those listed in the attached Exhibit A (such assigned obligations and liabilities, the "SPS Assumed Liabilities").

3. ACCEPTANCE OF ASSIGNMENT BY SPS; PERFORMANCE. SPS hereby accepts the assignment from Commercial Services of the SPS Assumed Liabilities. Effective as of the Effective Time, SPS hereby agrees to perform and discharge all such obligations and liabilities, when and as the same become due.

4. AMENDMENT . No amendment, modification or waiver in respect to this Agreement shall be effective unless it shall be in writing and signed by the parties hereto.

5. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES . This Agreement, including the documents referred to herein, (a) constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings relating to such subject matter, and (b) is not intended to confer upon any Person other than the parties hereto (and their permitted assigns) any rights or remedies.

6. ASSIGNMENT . Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties without the prior written consent of the other party hereto; provided, however, that Commercial Services may assign its rights hereunder, in whole or in part, to ADS Alliance Data Systems, Inc. or any of its Affiliates without the prior written consent of SPS. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns.

7. GOVERNING LAW . This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to any conflicts of law principles.

8. IN WITNESS WHEREOF, SPS and Commercial Services have caused this Agreement to be duly executed by their respective officers, thereunto duly authorized, as of the date first written above.

SPS PAYMENT SYSTEMS, INC.

Title:

SPS COMMERCIAL SERVICES, INC.

Title:

EXHIBIT A

to the Assignment and Assumption Agreement between SPS and Commercial Services

EXCEPTION TO THE SPS ASSUMED LIABILITIES

The SPS Assumed Liabilities consist of all obligations and liabilities of SPS Commercial Services, Inc., EXCEPT the following:

(a) the obligations and liabilities of SPS Commercial Services, Inc. for the period after July 12, 1999 (the "Closing Date") to perform under the following contracts:

Alliance Energy Corp. FleetShare Agreement
A. T. Williams FleetShare Agreement East Coast Oil Corp. FleetShare Agreement Farm Stores, Inc. FleetShare Agreement Fas Mart Convenience Stores, Inc. FleetShare Agreement Gate Petroleum Company FleetShare Agreement Junior Food Stores, Inc. FleetShare Agreement Lil Champ Food Stores, Inc. FleetShare Agreement Murphy Oil USA, Inc. FleetShare Agreement Summit Oil FleetShare Agreement Volta Oil Co. FleetShare Agreement Phillips 66 Company FleetShare Agreement Thornton Oil Corporation FleetShare Agreement

; provided, however, that the FleetShare Receivables and revenues and expenses relating to such contracts shall be for the account of SPS Commercial Services, Inc. as of 12:01
a.m. July 1, 1999.

(b) all other liabilities and obligations for the period after the Closing Date with respect to the operation of the FleetShare