Earn-out Agreement

Exhibit 10.2
































EARN-OUT AGREEMENT



by and among



STEVEN MADDEN, LTD.



and





The Members





of





COMPO ENHANCEMENTS, LLC





Dated as of May 16, 2007


















EARN-OUT AGREEMENT



This EARN-OUT AGREEMENT (this "Agreement"), dated as of May 16, 2007 and effective as of the Closing Date (as defined below), if one occurs, is by and among Steven Madden, Ltd., a Delaware corporation ( ?Madden") and the individuals and/or entities set forth on the signature pages hereto (each a " Seller" and collectively, "Sellers").



RECITALS



WHEREAS, concurrently herewith, Sellers and Madden are entering into that certain Membership Interest Purchase Agreement, dated as of the date hereof (as amended from time to time in accordance with its terms, the "Membership Interest Purchase Agreement"), pursuant to which Madden shall purchase all of the issued and outstanding ownership interests of the Compo Enhancements, LLC from Sellers; and



WHEREAS, pursuant to Section 2.2(a) of the Membership Interest Purchase Agreement, Sellers shall be entitled to receive certain earn-out purchase price payments, subject to the terms and conditions of this Agreement;



NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows:



1. Definitions . As used in this Agreement, the following terms shall have the meanings indicated:



"Act" shall mean the Securities Act of 1933, as amended.



"Affiliate" with respect to any Person shall mean any other Person which, directly or indirectly, is in control of, is controlled by or is under common control with such specified Person. For the purposes of this definition, " control," when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. In the case of any Person who is an individual, such Person's Affiliates shall include such Person's spouse, siblings, parents, children, grandchildren, and trusts for the benefit of any of the foregoing.



"Agreement" shall have the meaning set forth in the preamble.



"Applicable Contingent Purchase Price Payment Date" shall have the meaning set forth in Section 4(a) hereof.



"Business Day" means any day that is not a Saturday or Sunday or a legal holiday on which banks are authorized or required by law to be closed in New York, New York.



"CIC Acquirer" shall have the meaning set forth in Section 5.



"CIC Trigger Event" shall have the meaning set forth in Section 5.














"Closing Date" shall have the meaning set forth in the Membership Interest Purchase Agreement.



"Contingent Purchase Price Payment" shall mean each of the Tranche 1 Contingent Purchase Price Payment and the Tranche 2 Contingent Purchase Price Payment.



"Contingent Purchase Price Statement" shall have the meaning set forth in Section 3(a) hereof.



"Diluted EPS" shall have the meaning ascribed to it under GAAP.



"Diluted EPS Goals" shall mean each of the Tranche 1 Diluted EPS Goal and the Tranche 2 Diluted EPS Goal.



"Dispute Notice" shall have the meaning set forth in Section 3(b) hereof.



"Earn-Out Year(s)" shall mean each of fiscal year 2008, fiscal year 2009, fiscal year 2010, fiscal year 2011 and fiscal year 2012, which shall end on December 31, 2008, 2009, 2010, 2011 and 2012, respectively.



"EBIT" shall mean with respect to Madden or the Madden Unit (as appropriate), such entity's earnings before interest and taxes as determined in accordance with GAAP.



"EBIT Goal" shall mean each of the Tranche 1 EBIT Goal and the Tranche 2 EBIT Goal.



"Employment Agreement" shall mean the employment agreement, dated as of the date hereof, between Madden and Jeff Silverman, executed and delivered simultaneously with the execution and delivery of the Membership Interest Purchase Agreement.



"Final Contingent Purchase Price Statement" shall have the meaning set forth in Section 3(c) hereof.



"Financial Statements" means for any fiscal year, the publicly filed financial statements of Madden for such fiscal year, which shall be prepared in accordance with GAAP.



"GAAP" shall mean United States generally accepted accounting principles consistently applied.



"Independent Accounting Firm" shall have the meaning set forth in Section 3(b) hereof.



"Person" shall mean an individual, partnership, venture, unincorporated association, organization, syndicate, corporation, limited liability company, or other entity, trust, trustee, executor, administrator or other legal or personal representative or any government or any agency or political subdivision thereof.



"Madden" shall have the meaning set forth in the preamble.









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"Madden Common Stock" shall mean shares of the common stock of Madden, par value $0.0001 per share.



"Madden Unit" shall have the meaning set forth in Section 5(a).



"Membership Interest Purchase Agreement" shall have the meaning set forth in the recitals.



"Registration Statement" shall have the meaning set forth in Section 4(b) hereof.



"Revised Contingent Purchase Price Statement" shall have the meaning set forth in Section 3(b) hereof.



"Restricted Stock" shall have the meaning set forth in Section 4(b) hereof.



"SEC" shall mean the United States Securities and Exchange Commission.



"Seller" and "Sellers" shall have the meanings set forth in the preamble.



"Sellers Representative" shall mean Jeff Silverman, or any other Sellers(s) designated as Sellers Representative(s) pursuant to the terms of the Membership Interest Purchase Agreement.



"Tranche 1 Contingent Purchase Price Payment" shall have the meaning set forth in Section 2(a) hereof.



"Tranche 1 Diluted EPS Goal" shall have the meaning set forth in Section 2(a)(ii) hereof.



"Tranche 1 EBIT Goal" shall have the meaning set forth in Section 2(a)(i) hereof.



"Tranche 2 Contingent Purchase Price Payment" shall have the meaning set forth in Section 2(b) hereof.



"Tranche 2 Diluted EPS Goal" shall have the meaning set forth in Section 2(b)(ii) hereof.



"Tranche 2 EBIT Goal" shall have the meaning set forth in Section 2(b)(ii) hereof.



2. Contingent Purchase Price Calculation .



(a) Tranche 1 Contingent Purchase Price Payment . Where Madden achieves (or exceeds), in two consecutive Earn-Out Years, the Tranche 1 EBIT Goal for each such year and the Tranche 1 Diluted EPS Goal for each such year, then the aggregate amount of the contingent purchase price payment payable to Sellers (the "Tranche 1 Contingent Purchase Price Payment") shall be 168,000 shares of Madden Common Stock or the cash equivalent thereof (as









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calculated pursuant to Section 4(a)). For the avoidance of doubt, Sellers shall only be eligible to earn the Tranche 1 Contingent Purchase Price Payment once.





(i) "Tranche 1 EBIT Goal" shall mean for each listed Earn-Out Year, the corresponding EBIT of Madden:



Earn-Out Year Diluted EPS
2008 $94,600,000
2009 $113,500,000
2010 $136,200,000
2011 $163,400,000
2012 $196,100,000



(ii) "Tranche 1 Diluted EPS Goal" shall mean for each listed Earn-Out Year, the corresponding Diluted EPS of Madden:



Earn-Out Year Diluted EPS
2008 $2.52
2009 $3.02
2010 $3.63
2011 $4.35
2012 $5.23



(b) Tranche 2 Contingent Purchase Price Payment . Where Madden achieves (or exceeds), in two consecutive Earn-Out Years, the Tranche 2 EBIT Goal for each such year and the Tranche 2 Diluted EPS Goal for each such year, then the aggregate amount of the contingent purchase price payment payable to Sellers (the "Tranche 2 Contingent Purchase Price Payment") shall be 168,000 shares of Madden Common Stock or the cash equivalent thereof (as calculated pursuant to Section 4(a)). For the avoidance of doubt, Sellers shall only be eligible to earn the Tranche 2 Contingent Purchase Price Payment once.





(i) "Tranche 2 EBIT Goal" shall mean for each listed Earn-Out Year, the corresponding EBIT of Madden:



Earn-Out Year Diluted EPS
2008 $102,400,000
2009 $133,200,000
2010 $173,200,000
2011 $225,100,000
2012 $292,700,000



(ii) "Tranche 2 Diluted EPS Goal" shall mean for each listed Earn-Out Year, the corresponding Diluted EPS of Madden:



Earn-Out Year Diluted EPS
2008 $2.73
2009 $3.55
2010 $4.61










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2011 $6.00
2012 $7.80




(c) In case Madden shall at any time after the date of this Agreement (i) subdivide the outstanding Madden Common Stock, or (ii) combine the outstanding Madden Common Stock into a smaller number of shares, then, in each case, the number of shares of Madden Common Stock payable in connection with any Contingent Purchase Price Payment shall be proportionately adjusted so that Sellers after such time shall be entitled to receive the aggregate number and kind of shares for such consideration which, if the Contingent Purchase Price Payment had been made immediately prior to such time, Sellers would have owned upon such payment and been entitled to receive by virtue of such subdivision, or combination. Such adjustment shall be made successively whenever any event listed above shall occur.



3. Contingent Purchase Price Statement; Dispute .



(a) As promptly as practicable, but in any event within ten (10) Business Days after the public release of Madden's Financial Statements for each Earn-Out Year, Madden shall prepare and deliver to the Seller Representative (i) a statement which explains in reasonable detail the calculations of EBIT of Madden (or the Madden Unit, as appropriate) as well as (if applicable) any Diluted EPS of Madden for such fiscal year and whether Sellers have qualified as of the end of such Earn-Out Year for a Contingent Purchase Price Payment (a " Contingent Purchase Price Statement") and (ii) reasonable supporting documentation sufficiently detailed to enable the Seller Representative to verify the amounts set forth in such Contingent Purchase Price Statement.



(b) The Seller Representative may dispute such Contingent Purchase Price Statement for such fiscal year by s ...