Prepared by MerrillDirect





EXHIBIT 10.2


EARNOUT AGREEMENT


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


RECITALS


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


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


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


STATEMENT OF AGREEMENT


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


ARTICLE I.

DEFINITIONS


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


ARTICLE II.

EARNOUT PAYMENTS


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


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


             Section 2.3       Calculation of 2001 EBITDA.


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


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


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


             Section 2.4       Calculation of Earnout Payments.


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


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


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


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


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


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


 


ARTICLE III.

OPERATION OF THE

BUSINESS; OTHER AGREEMENTS


             Section 3.1       Operation of the Business.


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


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



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



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






 



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



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



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



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


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



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



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



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



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


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


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


ARTICLE IV.

MISCELLANEOUS


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


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


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


             



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




 



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




 






 



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




 



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




 



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




 



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




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


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


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


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


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


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


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


[SIGNATURE PAGE FOLLOWS]





 


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


	BUYER:	ADS
  MB CORPORATION
	 	 
	 	By:



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



	 	Name:
	 	Title: