Earnout Agreement

EXHIBIT 10.2

EARNOUT AGREEMENT

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

RECITALS

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

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

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

STATEMENT OF AGREEMENT

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

ARTICLE I. DEFINITIONS

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

" Agreement" has the meaning set forth in the first paragraph.

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

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

" Closing Date" has the meaning set forth in the first paragraph.

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

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

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

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

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

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

" Purchase Agreement" will have the meaning set forth in the Recitals.

" Representatives" means, such entity's directors, employees, officers, agents, accountants, attorneys and shareholders.

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

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

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

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

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

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

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

ARTICLE II. EARNOUT PAYMENTS

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

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

Section 2.3 Calculation of 2001 EBITDA.

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

(b) Review of the 2001 Financial Statements and the 2001 Calculation Statement . As soon as practicable, but not later than 25 calendar days after receipt of the 2001 Financial Statements and the 2001 Calculation Statement, Seller will inform Buyer in writing of any objection it has to the 2001 Financial Statements or the 2001 Calculation Statement, which objection, if any, will set forth in reasonable detail Seller's objections and the basis for those objections (an " Objection Notice"). If Seller so objects and the Parties do not resolve such objections on a mutually agreeable basis within 120 calendar days after the end of the 2001 Period, then the disagreement will be resolved as soon as practicable thereafter, but not later than 150 calendar days after the end of the 2001 Period, by an accounting firm of national reputation, which accounti ...