Document:

exv10w1

 

EXHIBIT 10.1

Confidential – For Internal Use Only

Do Not Distribute Outside of Alliance Data Systems

ALLIANCE DATA SYSTEMS CORPORATION

2005 Incentive Compensation Plan

(As Amended and Restated Effective January 1, 2005)

 

 

 

 

 

 

 

 

Effective January 1 – December 31, 2005

 

 

Confidential – For Internal Use Only

Do Not Distribute Outside of Alliance Data Systems

Table of Contents

	 	 	 	 	 
	Plan Philosophy
	 	 	3	 
	 
	 	 	 	 
	Effective Date
	 	 	3	 
	 
	 	 	 	 
	Eligibility
	 	 	3	 
	 
	 	 	 	 
	Base Compensation Used in Calculating IC
Payout
	 	 	4	 
	 
	 	 	 	 
	Determining IC
Targets
	 	 	4	 
	 
	 	 	 	 
	IC Components
	 	 	4	 
	 
	 	 	 	 
	Standard Weightings Chart for IC
Components
	 	 	6	 
	 
	 	 	 	 
	Determining Payment
Calculations
	 	 	7	 
	 
	 	 	 	 
	Timing of Payment
	 	 	7	 
	 
	 	 	 	 
	Status Changes That May Affect IC Targets and
Payouts
	 	 	8	 
	 
	 	 	 	 
	Other Terms and
Conditions
	 	 	9	 
	 
	 	 	 	 
	Attachment A - Performance/Payout
Table
	 	 	A-1	 
	 
	 	 	 	 
	Attachment B - Individual Expectations
Performance/Payout Table
	 	 	B-1	 

 

 

	 	 	 	 	 
	Effective January 1 – December 31, 2005

	 	 
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Plan Philosophy

The intent of the Alliance Data Systems Incentive Compensation (“IC”) Plan (“Plan”) is to:

	•  	Provide IC to round out an eligible associate’s total compensation package in order to attract and retain high
performing associates;
	 
	•  	Improve organizational performance by driving financial and individual performance and increasing Associate
Satisfaction;
	 
	•  	Improve the alignment between strategic imperatives and initiatives with the Alliance Scorecard; and
	 
	•  	Provide an opportunity for associates to share in the success they help create.

Participation in this Plan reflects the importance of an associate’s position and the impact that
the associate’s performance can have on the success of the Company.

Effective Date 

The Plan Year is January 1, 2005 through December 31, 2005.

Eligibility

Subject to the provisions of this Plan, Associates are eligible to receive IC under this Plan
if they are:

	•  	Employed by Alliance Data Systems Corporation or any of its subsidiaries (collectively, the “Company”) and are either
(a) a member of the Alliance Senior Leadership Team, as defined by the title Director through Senior Vice President, or
(b) in an Exempt position that is designated by the Senior Director of Corporate Compensation as IC eligible (currently
jobs in pay grades 8-11, 21-23, 32-35, 94 and 95);
	 
	•  	Employed or promoted into an IC eligible position by the Company before October 1, 2005;
	 
	•  	On active status on the date of the award distribution or are eligible under the guidelines for retirement, disability
or leave of absence; and
	 
	•  	Designated by supervisor as having an Incentive Compensation target as a component of their overall pay package.

In the case of part-time associates in one of the specified pay grades listed above, they must be
working a schedule equal to a minimum of 25 hours per week in order to be eligible for this IC
Plan.

Associates are not eligible if they:

	•  	Do not meet the eligibility requirements listed above;
	 
	•  	Are participating in a sales commission or other incentive plan, unless approved by the appropriate Executive Vice
President of a Line of Business (“LOB”) or of a Business Support Group (“BSG”) and confirmed by the LOB/BSG Human
Resources Executive and the Senior Director of Corporate Compensation;
	 
	•  	Are temporary or on-call associates or contractors;

 

 

 

 

	 	 	 
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	•  	Are hired on or after October 1, 2005 or are promoted into an IC eligible pay grade on or after October 1, 2005; or
	 
	•  	Are on a documented performance improvement plan as of the date of award distribution.

Being eligible for the IC Plan does not mean associates automatically participate in the program.
The associate’s manager, with appropriate approvals, must specifically designate that incentive
compensation is a component of the associate’s overall pay package.

Base Compensation Used in Calculating IC Payout

Annualized base pay as of October 1, 2005 will be used as part of the IC calculation. The IC
target percentage(s) will be applied to October 1, 2005 base salary for purposes of calculating the
dollar target amount.

Determining IC Targets

Each participant has an IC target. IC targets are determined by the participant’s manager
using the guidelines established by the Senior Director of Corporate Compensation in the following
table:

	 	 	 	 	 	 
	 
	 	Grade Level	 	 	IC Target	 
	 	(Senior Vice President) 3
	 	 	35% or 40% or 45%	 
	 	(Vice President) 4
	 	 	25% or 30% or 35%	 
	 	(Director/Senior Director) 5
	 	 	15% or 20% or 25%	 
	 	8-10, 21-23, 33-35 and 95
	 	 	10% or 15%	 
	 	11, 32 and 94
	 	 	5% or 10%	 
	 

IC targets are set in 5% increments. When determining the appropriate target, the
following are considered:

	•  	The associate’s anticipated contribution to the organization’s success; and
	 
	•  	Targeted total compensation package that is competitive with similar positions in the appropriate labor market or
industry.

IC targets will be set at the beginning of the Plan year or at time of hire. If the IC target
percentage changes, the manager will explain how the target will be prorated for payout purposes
(if appropriate) and whether or not the performance expectations and weightings will change for the
current Plan year.

IC Components

All performance goals should be established and communicated to the participant at the
beginning of the Plan year or as soon as feasible after becoming a participant in the Plan. The
degrees to which these performance goals are accomplished have an impact on the actual incentive
earned from the Plan.

Alliance Revenue and EBITDA Targets: The Revenue and Earnings Before Interest, Taxes, Depreciation
and Amortization (“EBITDA”) targets generally make up 25%-75% of a participant’s IC payment (see
Standard

 

 

 

 

	 	 	 
	Effective January 1 – December 31, 2005

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Weightings Chart below). LOBs are not required to have an Alliance Revenue or EBITDA component if
they utilize LOB Revenue and EBITDA targets.

LOB Revenue and EBITDA Targets: There are a number of financial measures that can be used to
determine success for a particular area or individual. The appropriate Executive Vice President,
along with the LOB Human Resources Executive and the Senior Director of Corporate Compensation will
determine if sub-measures will be used for a particular LOB or a particular individual. However,
it is intended that the Board of Directors approve the achievement of LOB Revenue and EBITDA for
payout purposes.

Associate Satisfaction Index: The annual administration of the Associate Survey and the
tracking of data (i.e., improvement expectations) are designed to motivate ongoing attention to
issues that affect quality of client service, as well as the development and retention of
associates. The Associate Satisfaction Index (“ASI”) is a component of the Associate Survey
process. The ASI component is designed to recognize and incent critical non-financial
organizational factors that contribute to sustainable business performance and provide a
competitive advantage in recruiting, developing and retaining high performing associates. Targets
are set at the beginning of each year along with a payout schedule.

Individual Expectations: Participants may have a portion of their IC payments based upon the
achievement of individual expectations or team strategic imperatives (or action steps to accomplish
the strategic imperatives) as determined between the participant and his or her manager.
Achievement must fall into one of three (3) categories: accomplishments fall below expectations;
fully meets and/or exceeds the requirements; or has achieved/contributed well beyond expectations.
The percentage of payout will be 80%, 100% or 110% depending on the level of achievement. If
performance/accomplishments fall below 80% achievement, no payout will be made for the Individual
Expectation component.

Associate performance is defined as obtaining the needed results of the job and living the Company
values. The associate’s manager will focus on the following factors to determine whether and to
what extent the associate met his/her yearly goals for purposes of IC:

	 	•  	Results - To what extent were results at, above, or below expectations and/or standards?
	 
	 	•  	Values - To what extent did the associate demonstrate/live the values?

Differentiation of performance is considered within three broad levels. Performance toward
objectives and manager’s expectations within each category can be defined by meeting some or all of
the specified characteristics below:

	 	•  	Accomplishments fall below expectations: associate
completes 80 – 95% of individual
objectives and expectations. Associate falls short of completing all of the objectives
that are important to business strategy. Quality of work is less than expected and/or
work falls short of productivity, financial or schedule expectations.
	 
	 	•  	Fully meets and/or exceeds the requirements: associate completes up to 110% of
objectives or at least 95% of objectives with extenuating circumstances. The associate’s
completed objectives are closely tied to business strategy and success. The associate’s
work is of sufficient quality and meets productivity, financial and schedule
expectations.

 

 

 

 

	 	 	 
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	 	•  	Achieved/contributed well beyond expectations: associate completes more objectives
than committed to in all cases. Completed objectives are most important to business
strategy. Work exceeds all quality requirements and performed more efficiently, cheaply
and/or quickly than expected.

Less than 80% completion of individual objectives is below minimum level of performance and no IC
payout will be made for the Individual Expectation component.

Standard Weightings Chart for IC Components

IC objectives are weighted to drive financial and individual performance and increase
Associate Satisfaction. LOBs have the ability to use specific components that closely reflect
Alliance Scorecard measurements. Standard weightings have been established, however, LOBs/BSGs may
adjust the standard weightings and adjust the standard components to include measurable financial
drivers, such as bad debt or specific client revenue goals, with review and approval by the
appropriate Executive Vice President, along with the LOB/BSG Human Resources Executive and the
Senior Director of Corporate Compensation. All measures that deviate from the standard financial
measures must be objective and quantifiable.

The participant’s grade/job level as of October 1, 2005 will be used to determine the overall
weightings. The standard components and weightings are listed in the chart below. In certain
cases, LOBs/BSGs may use discretion to determine the overall weightings with the approval of the
associate’s supervisor and the LOB/BSGs Human Resources Executive.

Approved changes to the standard components and weightings should be communicated to associates as
soon as feasible after the beginning of the plan year.

2005 IC Plan

Standard Components and Weightings

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Senior	 	 	Exempts with	 	 	All	 
	 	 	 	 	 	 	 	Leadership	 	 	Direct Supervisory	 	 	Other	 
	 	 	 	 	 	 	 	Team1	 	 	Responsibility	 	 	Exempts2	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	LOB	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	LOB EBITDA	 	 	50%	 	 	25%	 	 	25%	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	LOB Revenue	 	 	25%	 	 	25%	 	 	25%	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Associate Satisfaction3	 	 	25%	 	 	25%	 	 	0%	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Individual Expectations4	 	 	0%	 	 	25%	 	 	50%	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	BSG	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Alliance EBITDA	 	 	50%	 	 	25%	 	 	25%	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Alliance Revenue	 	 	25%	 	 	25%	 	 	25%	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Associate Satisfaction3	 	 	25%	 	 	25%	 	 	0%	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Individual Expectations4	 	 	0%	 	 	25%	 	 	50%	 
	 	 	 	 	 	 	 	 	 	 	 	 	 

1 The LOB/BSG executive has some flexibility to establish
targets that are
important for the success of his or her respective area. The Individual Expectations weighting
should not be used for SLT members unless it is used to drive financial performance. Any changes
to the standard components, weightings or payout tables should be sent to the Senior Director of
Corporate Compensation for approval by the appropriate Executive Vice President, along with the
LOB/BSG Human Resources Executive.

 

 

 

 

	 	 	 
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2 The LOB/BSG has some flexibility in reassigning Revenue
targets for those associates
who fall into an all other eligible exempt category or in unique cases.

3 Some participants, such as National Account Managers
(“NAMs”), may have more emphasis
on client relationships than Associate Satisfaction. LOB/BSG executives can determine how they
want to distribute the weightings for these positions.

4 Eligible exempt associates below the Director level should
have Individual
Expectations that support strategic imperatives ensuring the success of their LOB/BSG and the
Company.

Determining Payment Calculations

Payment calculations are determined as provided below. With proper approval from the Senior
Director of Corporate Compensation, the appropriate Executive Vice President, and the LOB Human
Resources Executive, LOBs may provide for an alternate payout table for specific LOB measures
except for LOB Revenue or EBTIDA. LOB Revenue and EBITDA must follow the table specified in
Attachment B. A minimum of 100% achievement must be met for LOB Revenue and EBTIDA before any
other measures will payout over 100%.

Attachment A: Performance/Payout Table for Revenue, EBITDA, Associate Satisfaction and other
measures as approved.

     Identifies the relationship between level of performance and the percentage to be paid for
the
achievement of the Alliance Revenue & Alliance EBITDA, LOB Revenue & LOB EBITDA, and ASI. A
minimum of 80% must be achieved for any payment to be received; performance of 120% or greater
receives the maximum payment of 150%. Percentages are rounded to the nearer whole number.

     For BSGs, both the Alliance EBITDA and Alliance Revenue targets must be
achieved at
100% or greater in order for ASI to be paid above 100% of target. For LOBs, both the LOB EBITDA
and LOB Revenue targets must be achieved at 100% or greater in order for ASI and any LOB
specific financial measures to be paid above 100% of target.

Attachment B: Performance/Payout Table for Individual Expectations

     Identifies the relationship between level of performance and the percentage to be paid for
the
achievement of Individual Expectations. A minimum of 80% accomplishment of standard objectives
must be achieved for any payment to be received.

     For BSGs, both the Alliance EBITDA and Alliance Revenue targets must be
achieved at
100% or greater in order for Individual Expectations to be paid above 100% of target. For LOBs,
both the LOB EBITDA and LOB Revenue targets must be achieved at 100% or greater in order
for Individual Expectations to be paid above 100% of target.

Timing of Payment

IC earned for the 2005 Plan year is paid in the first quarter of the following year. A
participant must be actively employed on the date payment is made to receive his or her award. Any
participant who is on an approved leave

 

 

 

 

	 	 	 
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of absence or disability leave but is still on active status will receive his or her payment even
if he or she is not actively at work on the date payment is made.

Status Changes That May Affect IC Targets and Payout

Status changes can affect the amount of incentive a participant receives. Status changes
include:

	•  	Transfers;
	 
	•  	New Hires;
	 
	•  	IC Target Changes;
	 
	•  	Leaves of Absence; and
	 
	•  	Terminations.

Transfers: The LOB or BSG a participant is assigned to as of October 1, 2005 will be used to
determine any payments dependent upon LOB/BSG level of performance (see Standard Weightings Chart).
Year-end performance for the LOB/BSG will be used to calculate the incentive amount to be paid for
this component. No prorating will be done for the amount of time spent in another LOB/BSG or in a
different IC eligible grade over the Plan year without prior approval of the appropriate Executive
Vice President, along with the LOB/BSG Human Resources Executive and the Senior Director of
Corporate Compensation.

For the ASI component, leaders who have moved or transferred during the course of the year, and who
could therefore have their compensation tied to different reporting groups, will be reviewed as
follows:

	•  	Determine where the associate spent the most time during the action planning cycle;
	 
	•  	Assess where the associate had the greatest opportunity to influence Associate Satisfaction; and
	 
	•  	Before the end of December, the appropriate HR Executive will make a report recommendation to the Senior Director of
Corporate Compensation, to be approved by the appropriate Executive Vice President, along with the LOB/BSG Human
Resources Executive.

New Hires: For associates hired between January 1 and September 30, 2005 into an IC eligible
position, the base salary as of October 1, 2005 will be used to calculate the IC dollar target.
The dollar target will be prorated as follows:

	 	 	 	 	 	 
	 
	 	Hired Between These Dates	 	 	Prorated Amount	 
	 	January
1 – March 31
	 	 	100%	 
	 	April 1 – June 30
	 	 	75%	 
	 	July 1 – September 30
	 	 	50%	 
	 	October 1 – December 31
	 	 	No IC	 
	 

For example, if an associate is hired on March 12, the IC dollar target will not be prorated. If
an associate is hired on July 4, then the IC dollar target will be prorated by 50%.

IC Target Changes: For current Company associates, if there is a promotion or a grade level change
during the Plan year but before October 1 which results in either (a) an associate becoming newly
IC eligible or (b) a

 

 

 

 

	 	 	 
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change in IC target, the IC target will be prorated according to the chart below depending on the
associate’s IC eligible effective date. Note: changes in IC targets after October 1, 2005 will not
be used to calculate IC payout for the 2005 Plan year.

	 	 	 	 	 	 
	 
	 	IC Eligible Effective Date	 	 	Prorated Amount For	 
	 	Between These Dates	 	 	Old/New IC % Target	 
	 	January 1 – March 31
	 	 	0% / 100%	 
	 	April 1 – June 30
	 	 	25% / 75%	 
	 	July 1 – September 30
	 	 	50% / 50%	 
	 	October 1 – December 31
	 	 	100% / 0%	 
	 

The base salary as of October 1 will be used to calculate the dollar target, even if there is a
corresponding change in base salary at the time of the promotion or IC target change. For example,
a grade level change in April results in an IC target change from 5% to 10% and a base salary
change from $35,000 to $40,000. The base salary on October 1 is $40,000, so that is the salary
used in the calculation. The IC dollar target is then calculated using the following formula:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 
	 	 	 	 	10/01 Base	 	 	 	IC	 	 	Target	 	 	 	Prorate	 	 	Subtotal	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Old
	 	 	$	40,000	 	 	 	5%	 	 	$	2,000	 	 	 	25%	 	 	$	500	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	New
	 	 	$	40,000	 	 	 	10%	 	 	$	4,000	 	 	 	75%	 	 	$	3,000	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	TOTAL
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	3,500	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

The participant’s manager should communicate to the participant the new weightings of financial and
Individual Expectations (if applicable).

Leaves of Absence: If a participant takes a leave of absence in excess of twelve (12) weeks, either
paid or unpaid, during the Plan year, he or she will receive a prorated award. Leaves of absence
under twelve (12) weeks are not prorated. For any part of a week that a participant is on a leave
of absence over twelve (12) weeks, the IC payment will be prorated by one week. For instance, if a
participant is on leave for 12 weeks and 2 days, he or she will receive 51/52nds of the normal IC
payout. If a participant is on leave for 13 weeks and 2 days, then he or she will receive 50/52nds
of the normal IC payout and so on.

Terminations: If a participant terminates his or her position voluntarily or involuntarily during
the Plan year, he or she will not be eligible for an IC payment because he or she would not
be on active status on the date of the award distribution. If a participant retires, becomes
disabled or dies during the Plan year, he or she may be eligible for a prorated award at the
discretion of the appropriate Executive Vice President, along with the LOB/BSG Human Resources
Executive and the Senior Director of Corporate Compensation. In the event of death, any incentive
award is made to the beneficiary named in the Company-paid life insurance program.

Other Terms and Conditions

	•  	All decisions by the Company will be final in the
interpretation and administration of the Plan and shall lie
within the Company’s sole and absolute discretion. Decisions
shall be final, conclusive and binding on all parties
concerned.

 

 

 

 

	 	 	 
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	•  	This Plan does not constitute a contract for the
participant’s continued employment with the Company. All
Company associates are employed “at-will” which means either
the Company or the associate may terminate the employment
relationship at any time with or without cause.
	 
	•  	Participant’s rights under the Plan may not be assigned or
transferred in any way, except as otherwise set forth herein.
	 
	•  	The Alliance Data Systems 2005 Incentive Compensation Plan
may be amended, modified, suspended or terminated by the
Company at any time, without prior consent by or prior notice
to associates. The Company at its sole discretion may change
objectives at any time without prior consent by or prior
notice to associates.
	 
	•  	The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make
other segregation of assets to assure the payment of the
amounts under the Plan. Rights to the payment of amounts
under the Plan shall be no greater than the rights of the
Company’s general creditors.
	 
	•  	Texas state law governs the validity, construction,
interpretation, administration and effect of the Plan and the
substantive laws, but not the choice of law rules of the
State of Texas, shall govern rights relating to the Plan.
	 
	•  	Generally, all applicable employment and tax deductions plus
401(k) contribution deferrals will be withheld from the IC
payout.
	 
	•  	No associate has the right nor is guaranteed the right to
participate in the Plan by virtue of being an associate or
fulfilling any specific position with the Company. Selection
for participation in the Plan is solely within the discretion
of the Company. The Company may offer participation in the
Plan to additional associates or terminate the participation
of any participant in the Plan at any time during the Plan
Year.
	 
	•  	Revenues and earnings classified as “windfalls” or business
losses may or may not be excluded in whole or in part from
the calculation of Revenue and EBITDA at the discretion of
the Company.
	 
	•  	Notice to participate in the Plan shall not impair or limit
the Company’s rights to transfer, promote or demote Plan
participants to other jobs or to terminate their employment,
nor shall it create any claim or right to receive any payment
under the Plan or any right to be retained in the employ of
the Company.
	 
	•  	The Plan is established for the current fiscal year. There
shall be no obligation on the part of the Company to continue
the Plan in the same or modified form for any future years.
	 
	•  	In the event that a participant has a dispute concerning the
administration of this Plan, it shall first be submitted in
writing to the Senior Director of Corporate Compensation. In
the event that the Senior Director of Corporate Compensation
does not provide a response satisfactory to the participant
within 30 business days, the participant may submit the
dispute in writing within five business days thereafter to
the LOB/BSG Human Resources Executive, whose decision
regarding the dispute shall be final and binding on each
participant or person claiming under the Plan.

 

 

 

 

	 	 	 
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	•  	The Plan is effective January 1, 2005, and supersedes and
replaces all previous IC Plans. All such previous plans,
unless earlier terminated, are terminated at midnight,
December 31, 2004. If not renewed by the Company, this Plan
will automatically terminate on December 31, 2005.
	 
	•  	In the event an eligible associate’s performance falls below
satisfactory standards during the Plan year, the associate
may receive a reduced IC payment, at the discretion of the
Company, regardless of the performance results of the
Company, LOB, BSG or the ASI results (if applicable).
	 
	•  	The Company, at its sole discretion, may adjust or modify the
methodology for calculating IC payments, the eligibility for
receiving IC payments, and the actual amount of IC payments.
All adjustments or modifications must be approved by the CEO,
the appropriate Executive Vice President, the LOB/BSG Human
Resources Executive and the Senior Director of Corporate
Compensation.

 

 

 

 

 

 

 

 

	 	 	 
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Attachment A

PERFORMANCE/PAYOUT TABLE

FOR REVENUE, EBITDA, ASSOCIATE SATISFACTION

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	% of Objective(s)	 	 	%	 	 	 	 	 
	 	 	 	 	 	Achieved*	 	 	Payout*	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
80% is the threshold
for performance achievements to result in a payout.
   
®
	 	 	 	 	79% or less	 	 	0%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	80%	 	 	65%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	81%	 	 	67%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	82%	 	 	69%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	83%	 	 	70%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	84%	 	 	72%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	85%	 	 	74%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	86%	 	 	76%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	87%	 	 	77%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	88%	 	 	79%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	89%	 	 	81%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	90%	 	 	83%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	91%	 	 	84%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	92%	 	 	86%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	93%	 	 	88%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	94%	 	 	89%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	95%	 	 	91%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	96%	 	 	93%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	97%	 	 	95%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	98%	 	 	96%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	99%	 	 	98%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	100%	 	 	100%	 	 	 	 	
ß100% is the target for performance achievements to receive 100% payout.
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	101%	 	 	102.5%	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	102%	 	 	105.0%	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	103%	 	 	107.5%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	104%	 	 	110.0%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	105%	 	 	112.5%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	106%	 	 	115.0%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	107%	 	 	117.5%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	108%	 	 	120.0%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	109%	 	 	122.5%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	110%	 	 	125.0%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	111%	 	 	127.5%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	112%	 	 	130.0%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	113%	 	 	132.5%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	114%	 	 	135.0%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	115%	 	 	137.5%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	116%	 	 	140.0%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	117%	 	 	142.5%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	118%	 	 	145.0%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	119%	 	 	147.5%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	120% or greater	 	 	150.0%	 	 	 	 	
ß150% is the maximum payout level.
	 	 	 	 	 	 	 	 	 	 	 	 	 	 

For business support groups, both Alliance EBITDA and Alliance Revenue targets must be
achieved at 100% or greater in order for ASI to be paid above 100% of target. For lines of
business, both LOB EBITDA and LOB Revenue targets must be achieved at 100% or greater in
order for ASI or any LOB specific measure to be paid above 100% of target.

	 	 	 
	Effective January 1 – December 31, 2005

	 	A-1

 

 

Confidential – For Internal Use Only

Do Not Distribute Outside of Alliance Data Systems

Attachment B

PERFORMANCE/PAYOUT TABLE

FOR INDIVIDUAL EXPECTATIONS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	% of Objective(s)	 	 	%	 	 	 	 	 
	 	 	 	 	 	Achieved*	 	 	Payout*	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	Below Minimum	 	 	0%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
80% performance is
the threshold for performance achievements to result in a payout.
   
®
	 	 	 	 	Accomplishments fall below expectations	 	 	80%	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	Fully meets and/or exceeds the requirements	 	 	100%	 	 	 	 	
ßFully meets and/or exceeds the requirements is the target for performance achievements
to receive 100%
	 	 	 	 	 	 	 	 	 	 	 	 	 
	110%
is the maximum payout level.    
®
	 	 	 	 	Has achieved/contributed well beyond expectations	 	 	110%	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 

For business support groups, both Alliance EBITDA and Alliance Revenue targets must be
achieved at 100% or greater in order for Individual Expectations to be paid above 100% of target.
For lines of business, both LOB EBITDA and LOB Revenue targets must be achieved at 100% or
greater in order for Individual Expectations to be paid above 100% of target.

 

 

 

 

	 	 	 
	Effective January 1 – December 31, 2005

	 	B-1

 

 

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ALLIANCE DATA SYSTEMS CORPORATION

2005 Incentive Compensation Plan for Retail and Alliance Consolidated

(As Amended and Restated Effective January 1, 2005)

 

 

 

 

Effective January 1 – December 31, 2005

 

 

Confidential – For Internal Use Only

Do Not Distribute Outside of Alliance Data Systems

Table of Contents

	 	 	 	 	 
	Plan Philosophy
	 	 	3	 
	 
	 	 	 	 
	Effective Date
	 	 	3	 
	 
	 	 	 	 
	Eligibility
	 	 	3	 
	 
	 	 	 	 
	Base Compensation Used in Calculating IC Payout
	 	 	4	 
	 
	 	 	 	 
	Determining IC Targets
	 	 	4	 
	 
	 	 	 	 
	IC Components
	 	 	4	 
	 
	 	 	 	 
	Standard Weightings Chart for IC Components
	 	 	6	 
	 
	 	 	 	 
	Determining Payment Calculations
	 	 	7	 
	 
	 	 	 	 
	Timing of Payment
	 	 	8	 
	 
	 	 	 	 
	Status Changes That May Affect IC Targets and Payouts
	 	 	8	 
	 
	 	 	 	 
	Other Terms and Conditions
	 	 	10	 
	 
	 	 	 	 
	Attachment A -  Revenue and EBITDA Performance/Payout Table
	 	 	A-1	 
	 
	 	 	 	 
	Attachment B -  Associate Satisfaction and LOB Specific Measures Performance/Payout Table
	 	 	B-1	 
	 
	 	 	 	 
	Attachment B - Individual Expectations Performance/Payout Table
	 	 	C-1	 

 

 

 

 

	 	 	 
	Effective January 1 – December 31, 2005

	 	2

 

 

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Plan Philosophy

The intent of the Alliance Data Systems Incentive Compensation (“IC”) Plan (“Plan”) is to:

	•  	Provide IC to round out an eligible associate’s total compensation package in order to attract and retain high
performing associates;
	 
	•  	Improve organizational performance by driving financial and individual performance and increasing Associate
Satisfaction;
	 
	•  	Improve the alignment between strategic imperatives and initiatives with the Alliance Scorecard; and
	 
	•  	Provide an opportunity for associates to share in the success they help create.

Participation in this Plan reflects the importance of an associate’s position and the impact that
the associate’s performance can have on the success of the Company.

Effective Date 

The Plan Year is January 1, 2005 through December 31, 2005.

Eligibility

Subject to the provisions of this Plan, Associates are eligible to receive IC under this Plan
if they are:

	•  	Employed by Alliance Data Systems Corporation or any of its subsidiaries (collectively, the “Company”) and are either
(a) a member of the Alliance Senior Leadership Team, as defined by the title Director through Senior Vice President, or
(b) in an Exempt position that is designated by the Senior Director of Corporate Compensation as IC eligible (currently
jobs in pay grades 8-11, 21-23, 32-35, 94 and 95);
	 
	•  	Employed or promoted into an IC eligible position by the Company before October 1, 2005;
	 
	•  	On active status on the date of the award distribution or are eligible under the guidelines for retirement, disability
or leave of absence; and
	 
	•  	Designated by supervisor as having an Incentive Compensation target as a component of their overall pay package.

In the case of part-time associates in one of the specified pay grades listed above, they must be
working a schedule equal to a minimum of 25 hours per week in order to be eligible for this IC
Plan.

Associates are not eligible if they:

	•  	Do not meet the eligibility requirements listed above;
	 
	•  	Are participating in a sales commission or other incentive plan, unless approved by the appropriate Executive Vice
President of a Line of Business (“LOB”) or of a Business Support Group (“BSG”) and confirmed by the LOB/BSG Human
Resources Executive and the Senior Director of Corporate Compensation;
	 
	•  	Are temporary or on-call associates or contractors;

 

 

 

 

	 	 	 
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	•  	Are hired on or after October 1, 2005 or are promoted into an IC eligible pay grade on or after October 1, 2005; or
	 
	•  	Are on a documented performance improvement plan as of the date of award distribution.

Being eligible for the IC Plan does not mean associates automatically participate in the program.
The associate’s manager, with appropriate approvals, must specifically designate that incentive
compensation is a component of the associate’s overall pay package.

Base Compensation Used in Calculating IC Payout

Annualized base pay as of October 1, 2005 will be used as part of the IC calculation. The IC
target percentage(s) will be applied to October 1, 2005 base salary for purposes of calculating the
dollar target amount.

Determining IC Targets

Each participant has an IC target. IC targets are determined by the participant’s manager
using the guidelines established by the Senior Director of Corporate Compensation in the following
table:

	 	 	 	 	 	 	 	 
	 
	 	Grade Level	 	 	IC Target	 
	 	(Senior Vice President) 3
	 	 	35% or 40% or 45%	 
	 	(Vice President) 4
	 	 	25% or 30% or 35%	 
	 	(Director/Senior Director) 5
	 	 	15% or 20% or 25%	 
	 	8-10, 21-23, 33-35 and 95
	 	 	10% or 15%	 
	 	11, 32 and 94
	 	 	5% or 10%	 
	 

IC targets are set in 5% increments. When determining the appropriate target, the
following are considered:

	•  	The associate’s anticipated contribution to the organization’s success; and
	 
	•  	Targeted total compensation package that is competitive with similar positions in the appropriate labor market or
industry.

IC targets will be set at the beginning of the Plan year or at time of hire. If the IC target
percentage changes, the manager will explain how the target will be prorated for payout purposes
(if appropriate) and whether or not the performance expectations and weightings will change for the
current Plan year.

IC Components

All performance goals should be established and communicated to the participant at the
beginning of the Plan year or as soon as feasible after becoming a participant in the Plan. The
degrees to which these performance goals are accomplished have an impact on the actual incentive
earned from the Plan.

Alliance Revenue and EBITDA Targets: The Revenue and Earnings Before Interest, Taxes, Depreciation
and Amortization (“EBITDA”) targets generally make up 25%-75% of a participant’s IC payment (see
Standard

 

 

 

 

	 	 	 
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Weightings Chart below). LOBs are not required to have an Alliance Revenue or EBITDA
component if they utilize LOB Revenue and EBITDA targets.

LOB Revenue and EBITDA Targets: There are a number of financial measures that can be used to
determine success for a particular area or individual. The appropriate Executive Vice President,
along with the LOB Human Resources Executive and the Senior Director of Corporate Compensation will
determine if sub-measures will be used for a particular LOB or a particular individual. However,
it is intended that the Board of Directors approve the achievement of LOB Revenue and EBITDA for
payout purposes.

Associate Satisfaction Index: The annual administration of the Associate Survey and the
tracking of data (i.e., improvement expectations) are designed to motivate ongoing attention to
issues that affect quality of client service, as well as the development and retention of
associates. The Associate Satisfaction Index (“ASI”) is a component of the Associate Survey
process. The ASI component is designed to recognize and incent critical non-financial
organizational factors that contribute to sustainable business performance and provide a
competitive advantage in recruiting, developing and retaining high performing associates. Targets
are set at the beginning of each year along with a payout schedule.

Individual Expectations: Participants may have a portion of their IC payments based upon the
achievement of individual expectations or team strategic imperatives (or action steps to accomplish
the strategic imperatives) as determined between the participant and his or her manager.
Achievement must fall into one of three (3) categories: accomplishments fall below expectations;
fully meets and/or exceeds the requirements; or has achieved/contributed well beyond expectations.
The percentage of payout will be 80%, 100% or 110% depending on the level of achievement. If
performance/accomplishments fall below 80% achievement, no payout will be made for the Individual
Expectation component.

Associate performance is defined as obtaining the needed results of the job and living the Company
values. The associate’s manager will focus on the following factors to determine whether and to
what extent the associate met his/her yearly goals for purposes of IC:

	 	•  	Results - To what extent were results at, above, or below expectations and/or standards?
	 
	 	•  	Values - To what extent did the associate demonstrate/live the values?

Differentiation of performance is considered within three broad levels. Performance toward
objectives and manager’s expectations within each category can be defined by meeting some or all of
the specified characteristics below:

	 	•  	Accomplishments fall below expectations: associate completes 80 – 95% of individual
objectives and expectations. Associate falls short of completing all of the objectives
that are important to business strategy. Quality of work is less than expected and/or
work falls short of productivity, financial or schedule expectations.
	 
	 	•  	Fully meets and/or exceeds the requirements: associate completes up to 110% of
objectives or at least 95% of objectives with extenuating circumstances. The associate’s
completed objectives are closely tied to business strategy and success. The associate’s
work is of sufficient quality and meets productivity, financial and schedule
expectations.

 

 

 

 

	 	 	 
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	 	5

 

 

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	 	•  	Achieved/contributed well beyond expectations: associate completes more objectives
than committed to in all cases. Completed objectives are most important to business
strategy. Work exceeds all quality requirements and performed more efficiently, cheaply
and/or quickly than expected.

Less than 80% completion of individual objectives is below minimum level of performance and no IC
payout will be made for the Individual Expectation component.

Standard Weightings Chart for IC Components

IC objectives are weighted to drive financial and individual performance and increase
Associate Satisfaction. LOBs have the ability to use specific components that closely reflect
Alliance Scorecard measurements. Standard weightings have been established, however, LOBs/BSGs may
adjust the standard weightings and adjust the standard components to include measurable financial
drivers, such as bad debt or specific client revenue goals, with review and approval by the
appropriate Executive Vice President, along with the LOB/BSG Human Resources Executive and the
Senior Director of Corporate Compensation. All measures that deviate from the standard financial
measures must be objective and quantifiable.

The participant’s grade/job level as of October 1, 2005 will be used to determine the overall
weightings. The standard components and weightings are listed in the chart below. In certain
cases, LOBs/BSGs may use discretion to determine the overall weightings with the approval of the
associate’s supervisor and the LOB/BSGs Human Resources Executive.

Approved changes to the standard components and weightings should be communicated to associates as
soon as feasible after the beginning of the plan year.

2005 IC Plan

Standard Components and Weightings

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 
	 	 	 	 	Senior	 	 	Exempts with Direct	 	 	All	 
	 	 	 	 	Leadership	 	 	Supervisory	 	 	Other	 
	 	 	 	 	Team1	 	 	Responsibility	 	 	Exempts2	 
	 	LOB
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	LOB EBITDA
	 	 	 	50	%	 	 	 	25	%	 	 	 	25	%	 
	 	LOB Revenue
	 	 	 	25	%	 	 	 	25	%	 	 	 	25	%	 
	 	Associate Satisfaction3
	 	 	 	25	%	 	 	 	25	%	 	 	 	0	%	 
	 	Individual Expectations4
	 	 	 	0	%	 	 	 	25	%	 	 	 	50	%	 
	 	BSG
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Alliance EBITDA
	 	 	 	50	%	 	 	 	25	%	 	 	 	25	%	 
	 	Alliance Revenue
	 	 	 	25	%	 	 	 	25	%	 	 	 	25	%	 
	 	Associate Satisfaction3
	 	 	 	25	%	 	 	 	25	%	 	 	 	0	%	 
	 	Individual Expectations4
	 	 	 	0	%	 	 	 	25	%	 	 	 	50	%	 
	 

	1

The LOB/BSG executive has some flexibility to establish targets that are
important for the success of his or her respective area. The Individual Expectations weighting
should not be used for SLT members unless it is used to drive financial performance. Any changes
to the standard components, weightings or payout tables should be sent to the Senior Director of
Corporate Compensation for approval by the appropriate Executive Vice President, along with the
LOB/BSG Human Resources Executive.

 

 

 

 

	 	 	 
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	2

 The LOB/BSG has some flexibility in reassigning Revenue targets for those associates
who fall into an all other eligible exempt category or in unique cases.
	 
	3

 Some participants, such as National Account Managers (“NAMs”), may have more emphasis
on client relationships than Associate Satisfaction. LOB/BSG executives can determine how they
want to distribute the weightings for these positions.
	 
	4

 Eligible exempt associates below the Director level should have Individual
Expectations that support strategic imperatives ensuring the success of their LOB/BSG and the
Company.

Determining Payment Calculations

Payment calculations are determined as provided below. With proper approval from the Senior
Director of Corporate Compensation, the appropriate Executive Vice President, and the LOB Human
Resources Executive, LOBs may provide for an alternate payout table for specific LOB measures
except for LOB Revenue or EBTIDA. LOB Revenue and EBITDA must follow the table specified in
Attachment B. A minimum of 100% achievement must be met for LOB Revenue and EBTIDA before any
other measures will payout over 100%.

Attachment A: Performance/Payout Table for Revenue and EBITDA

     This table identifies the relationship between level of performance and the percentage to be
paid for the achievement of the Alliance Revenue, Alliance EBITDA, LOB Revenue and LOB EBITDA. A
minimum of 90% must be achieved for any payment to be received; performance of 110% or greater
receives the maximum payment of 150%. Percentages are rounded to the nearer whole number.

Attachment B: Performance/Payout Table for Associate Satisfaction and other measures as approved

     This table identifies the relationship between level of performance and percentage to be paid
for the achievement of associate satisfaction and any other LOB specific financial measures as
approved. For BSGs, both the Alliance EBITDA and Alliance Revenue targets must be achieved
at 100% or greater in order for ASI to be paid above 100% of target. For LOBs, both the LOB EBITDA
and LOB Revenue targets must be achieved at 100% or greater in order for ASI and any LOB
specific financial measures to be paid above 100% of target.

Attachment C: Performance/Payout Table for Individual Expectations

     This table identifies the relationship between level of performance and the percentage to be
paid for the achievement of Individual Expectations. A minimum of 80% accomplishment of standard
objectives must be achieved for any payment to be received.

     For BSGs, both the Alliance EBITDA and Alliance Revenue targets must be achieved at
100% or greater in order for Individual Expectations to be paid above 100% of target. For LOBs,
both the LOB EBITDA and LOB Revenue targets must be achieved at 100% or greater in order
for Individual Expectations to be paid above 100% of target.

 

 

 

 

	 	 	 
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	 	7

 

 

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Timing of Payment

IC earned for the 2005 Plan year is paid in the first quarter of the following year. A
participant must be actively employed on the date payment is made to receive his or her award. Any
participant who is on an approved leave of absence or disability leave but is still on active
status will receive his or her payment even if he or she is not actively at work on the date
payment is made.

Status Changes That May Affect IC Targets and Payout

Status changes can affect the amount of incentive a participant receives. Status changes
include:

	•  	Transfers;
	 
	•  	New Hires;
	 
	•  	IC Target Changes;
	 
	•  	Leaves of Absence; and
	 
	•  	Terminations.

Transfers: The LOB or BSG a participant is assigned to as of October 1, 2005 will be used to
determine any payments dependent upon LOB/BSG level of performance (see Standard Weightings Chart).
Year-end performance for the LOB/BSG will be used to calculate the incentive amount to be paid for
this component. No prorating will be done for the amount of time spent in another LOB/BSG or in a
different IC eligible grade over the Plan year without prior approval of the appropriate Executive
Vice President, along with the LOB/BSG Human Resources Executive and the Senior Director of
Corporate Compensation.

For the ASI component, leaders who have moved or transferred during the course of the year, and who
could therefore have their compensation tied to different reporting groups, will be reviewed as
follows:

	•  	Determine where the associate spent the most time during the action planning cycle;
	 
	•  	Assess where the associate had the greatest opportunity to influence Associate Satisfaction; and
	 
	•  	Before the end of December, the appropriate HR Executive will make a report recommendation to the Senior Director of
Corporate Compensation, to be approved by the appropriate Executive Vice President, along with the LOB/BSG Human
Resources Executive.

New Hires: For associates hired between January 1 and September 30, 2005 into an IC eligible
position, the base salary as of October 1, 2005 will be used to calculate the IC dollar target.
The dollar target will be prorated as follows:

	 	 	 	 	 	 	 	 
	 
	 	Hired Between These Dates	 	 	Prorated Amount	 
	 	January 1 – March 31
	 	 	 	100	%	 
	 	April 1 – June 30
	 	 	 	75	%	 
	 	July 1 – September 30
	 	 	 	50	%	 
	 	October 1 – December 31
	 	 	No IC	 
	 

 

 

 

 

	 	 	 
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For example, if an associate is hired on March 12, the IC dollar target will not be prorated. If
an associate is hired on July 4, then the IC dollar target will be prorated by 50%.

IC Target Changes: For current Company associates, if there is a promotion or a grade level change
during the Plan year but before October 1 which results in either (a) an associate becoming newly
IC eligible or (b) a change in IC target, the IC target will be prorated according to the chart
below depending on the associate’s IC eligible effective date. Note: changes in IC targets after
October 1, 2005 will not be used to calculate IC payout for the 2005 Plan year.

	 	 	 	 	 	 	 	 
	 
	 	IC Eligible Effective Date	 	 	Prorated Amount For	 
	 	Between These Dates	 	 	Old/New IC % Target	 
	 	January 1 – March 31
	 	 	 	0% / 100	%	 
	 	April 1 – June 30
	 	 	 	25% / 75	%	 
	 	July 1 – September 30
	 	 	 	50% / 50	%	 
	 	October 1 – December 31
	 	 	 	100% / 0	%	 
	 

The base salary as of October 1 will be used to calculate the dollar target, even if there is a
corresponding change in base salary at the time of the promotion or IC target change. For example,
a grade level change in April results in an IC target change from 5% to 10% and a base salary
change from $35,000 to $40,000. The base salary on October 1 is $40,000, so that is the salary
used in the calculation. The IC dollar target is then calculated using the following formula:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 
	 	 	 	 	10/01 Base	 	 	 	IC	 	 	Target	 	 	 	Prorate	 	 	Subtotal	 	 
	 	Old
	 	 	$	40,000	 	 	 	 	5	%	 	 	$	2,000	 	 	 	 	25	%	 	 	$	500	 	 
	 	New
	 	 	$	40,000	 	 	 	 	10	%	 	 	$	4,000	 	 	 	 	75	%	 	 	$	3,000	 	 
	 	TOTAL
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	3,500	 	 
	 	 	 

The participant’s manager should communicate to the participant the new weightings of financial and
Individual Expectations (if applicable).

Leaves of Absence: If a participant takes a leave of absence in excess of twelve (12) weeks, either
paid or unpaid, during the Plan year, he or she will receive a prorated award. Leaves of absence
under twelve (12) weeks are not prorated. For any part of a week that a participant is on a leave
of absence over twelve (12) weeks, the IC payment will be prorated by one week. For instance, if a
participant is on leave for 12 weeks and 2 days, he or she will receive 51/52nds of the normal IC
payout. If a participant is on leave for 13 weeks and 2 days, then he or she will receive 50/52nds
of the normal IC payout and so on.

Terminations: If a participant terminates his or her position voluntarily or involuntarily during
the Plan year, he or she will not be eligible for an IC payment because he or she would not
be on active status on the date of the award distribution. If a participant retires, becomes
disabled or dies during the Plan year, he or she may be eligible for a prorated award at the
discretion of the appropriate Executive Vice President, along with the LOB/BSG Human Resources
Executive and the Senior Director of Corporate Compensation. In the event of death, any incentive
award is made to the beneficiary named in the Company-paid life insurance program.

 

 

 

 

	 	 	 
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Other Terms and Conditions

	•  	All decisions by the Company will be final in the
interpretation and administration of the Plan and shall lie
within the Company’s sole and absolute discretion. Decisions
shall be final, conclusive and binding on all parties
concerned.
	 
	•  	This Plan does not constitute a contract for the
participant’s continued employment with the Company. All
Company associates are employed “at-will” which means either
the Company or the associate may terminate the employment
relationship at any time with or without cause.
	 
	•  	Participant’s rights under the Plan may not be assigned or
transferred in any way, except as otherwise set forth herein.
	 
	•  	The Alliance Data Systems 2005 Incentive Compensation Plan
may be amended, modified, suspended or terminated by the
Company at any time, without prior consent by or prior notice
to associates. The Company at its sole discretion may change
objectives at any time without prior consent by or prior
notice to associates.
	 
	•  	The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make
other segregation of assets to assure the payment of the
amounts under the Plan. Rights to the payment of amounts
under the Plan shall be no greater than the rights of the
Company’s general creditors.
	 
	•  	Texas state law governs the validity, construction,
interpretation, administration and effect of the Plan and the
substantive laws, but not the choice of law rules of the
State of Texas, shall govern rights relating to the Plan.
	 
	•  	Generally, all applicable employment and tax deductions plus
401(k) contribution deferrals will be withheld from the IC
payout.
	 
	•  	No associate has the right nor is guaranteed the right to
participate in the Plan by virtue of being an associate or
fulfilling any specific position with the Company. Selection
for participation in the Plan is solely within the discretion
of the Company. The Company may offer participation in the
Plan to additional associates or terminate the participation
of any participant in the Plan at any time during the Plan
Year.
	 
	•  	Revenues and earnings classified as “windfalls” or business
losses may or may not be excluded in whole or in part from
the calculation of Revenue and EBITDA at the discretion of
the Company.
	 
	•  	Notice to participate in the Plan shall not impair or limit
the Company’s rights to transfer, promote or demote Plan
participants to other jobs or to terminate their employment,
nor shall it create any claim or right to receive any payment
under the Plan or any right to be retained in the employ of
the Company.
	 
	•  	The Plan is established for the current fiscal year. There
shall be no obligation on the part of the Company to continue
the Plan in the same or modified form for any future years.

 

 

 

 

	 	 	 
	Effective January 1 – December 31, 2005

	 	10

 

 

Confidential – For Internal Use Only

Do Not Distribute Outside of Alliance Data Systems

	•  	In the event that a participant has a dispute concerning the
administration of this Plan, it shall first be submitted in
writing to the Senior Director of Corporate Compensation. In
the event that the Senior Director of Corporate Compensation
does not provide a response satisfactory to the participant
within 30 business days, the participant may submit the
dispute in writing within five business days thereafter to
the LOB/BSG Human Resources Executive, whose decision
regarding the dispute shall be final and binding on each
participant or person claiming under the Plan.
	 
	•  	The Plan is effective January 1, 2005, and supersedes and
replaces all previous IC Plans. All such previous plans,
unless earlier terminated, are terminated at midnight,
December 31, 2004. If not renewed by the Company, this Plan
will automatically terminate on December 31, 2005.
	 
	•  	In the event an eligible associate’s performance falls below
satisfactory standards during the Plan year, the associate
may receive a reduced IC payment, at the discretion of the
Company, regardless of the performance results of the
Company, LOB, BSG or the ASI results (if applicable).
	 
	•  	The Company, at its sole discretion, may adjust or modify the
methodology for calculating IC payments, the eligibility for
receiving IC payments, and the actual amount of IC payments.
All adjustments or modifications must be approved by the CEO,
the appropriate Executive Vice President, the LOB/BSG Human
Resources Executive and the Senior Director of Corporate
Compensation.

 

 

 

 

 

 

 

 

	 	 	 
	Effective January 1 – December 31, 2005

	 	11

 

 

Confidential – For Internal Use Only

Do Not Distribute Outside of Alliance Data Systems

Attachment A

PERFORMANCE/PAYOUT TABLE

FOR REVENUE and EBITDA

	 	 	 	 	 	 	 	 	 	 
	 	 	 	% of Objective(s)	 	 	%	 	 	 
	 	 	 	Achieved*	 	 	Payout*	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	89% or less	 	 	0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	90%
is the threshold for performance achievements to result in a
payout.®
	 	 	90%	 	 	65%	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	91%	 	 	68.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	92%	 	 	72%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	93%	 	 	75.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	94%	 	 	79%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	95%	 	 	82.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	96%	 	 	86%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	97%	 	 	89.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	98%	 	 	93%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	99%	 	 	96.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	100%	 	 	100%	 	 	
    ß 100% is the target for performance achievements to receive 100% payout.
	 	 	 	 	 	 	 	 	 
	 
	 	 	101%	 	 	105%	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	102%	 	 	110%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	103%	 	 	115%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	104%	 	 	120%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	105%	 	 	125%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	106%	 	 	130%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	107%	 	 	135%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	108%	 	 	140%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	109%	 	 	145%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	110% or greater	 	 	150%	 	 	
    ß 150% is the maximum payout level.
	 	 	 	 	 	 	 	 	 	 

 

 

 

 

	 	 	 
	Effective January 1 – December 31, 2005

	 	A-1

 

 

Confidential – For Internal Use Only

Do Not Distribute Outside of Alliance Data Systems

Attachment B

PERFORMANCE/PAYOUT TABLE

FOR ASSOCIATE SATISFACTION and LOB SPECIFIC MEASURES

	 	 	 	 	 	 	 	 	 	 
	 	 	 	% of Objective(s)	 	 	%	 	 	 
	 	 	 	Achieved*	 	 	Payout*	 	 	 
	 	 	 	 	 	 	 	 	 	 
	80%
is the threshold for performance achievements to result in a
payout.    ®
	 	 	79% or less	 	 	0%	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	80%	 	 	65%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	81%	 	 	67%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	82%	 	 	69%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	83%	 	 	70%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	84%	 	 	72%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	85%	 	 	74%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	86%	 	 	76%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	87%	 	 	77%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	88%	 	 	79%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	89%	 	 	81%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	90%	 	 	83%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	91%	 	 	84%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	92%	 	 	86%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	93%	 	 	88%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	94%	 	 	89%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	95%	 	 	91%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	96%	 	 	93%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	97%	 	 	95%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	98%	 	 	96%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	99%	 	 	98%	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	100%	 	 	100%	 	 	ß100% is the target for performance achievements to receive 100% payout.
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	101%	 	 	102.5%	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	102%	 	 	105.0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	103%	 	 	107.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	104%	 	 	110.0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	105%	 	 	112.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	106%	 	 	115.0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	107%	 	 	117.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	108%	 	 	120.0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	109%	 	 	122.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	110%	 	 	125.0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	111%	 	 	127.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	112%	 	 	130.0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	113%	 	 	132.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	114%	 	 	135.0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	115%	 	 	137.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	116%	 	 	140.0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	117%	 	 	142.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	118%	 	 	145.0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	119%	 	 	147.5%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	120% or greater	 	 	150.0%	 	 	
    ß 150% is the maximum payout level.
	 	 	 	 	 	 	 	 	 	 

For business support groups, both Alliance EBITDA and Alliance Revenue targets must be
achieved at 100% or greater in order for ASI to be paid above 100% of target. For lines of
business, both LOB EBITDA and LOB Revenue targets must be achieved at 100% or greater in
order for ASI or any LOB specific measure to be paid above 100% of target.

	 	 	 
	Effective January 1 – December 31, 2005

	 	B-1

 

 

Confidential – For Internal Use Only

Do Not Distribute Outside of Alliance Data Systems

Attachment C

PERFORMANCE/PAYOUT TABLE

FOR INDIVIDUAL EXPECTATIONS

	 	 	 	 	 	 	 	 	 	 
	 	 	 	% of Objective(s)	 	 	%	 	 	 
	 	 	 	Achieved*	 	 	Payout*	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	Below Minimum	 	 	0%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	80%
performance is the threshold for performance achievements to result
in a payout.®
	 	 	Accomplishments fall below expectations	 	 	80%	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	Fully meets and/or exceeds the requirements	 	 	100%	 	 	ßFully meets and/or exceeds the requirements is the target for performance achievements to receive 100%

	 	 	 	 	 	 	 	 	 	 
	110%
is the maximum payout level. ®
	 	 	Has achieved/contributed well beyond expectations	 	 	110%	 	 	 
	 	 	 	 	 	 	 	 	 	 

For business support groups, both Alliance EBITDA and Alliance Revenue targets must be
achieved at 100% or greater in order for Individual Expectations to be paid above 100% of target.
For lines of business, both LOB EBITDA and LOB Revenue targets must be achieved at 100% or
greater in order for Individual Expectations to be paid above 100% of target.

 

 

 

 

 

 

 

 

	 	 	 
	Effective January 1 – December 31, 2005

	 	C-1<PAGE>

                               FIFTH AMENDMENT TO
                                CREDIT AGREEMENT

      THIS FIFTH AMENDMENT TO CREDIT AGREEMENT, made and entered into as of the
11th day of August, 2003, by and between VIRBAC CORPORATION, a Delaware
corporation ("Virbac"), PM RESOURCES, INC., a Missouri corporation ("PM
Resources"), ST. JON LABORATORIES, INC., a California corporation ("St. JON"),
FRANCODEX LABORATORIES, INC., a Kansas corporation ("Francodex"), and VIRBAC AH,
INC., a Delaware corporation ("Virbac AH," and collectively with Virbac, PM
Resources, St. JON and Francodex referred to herein as the "Borrowers"), and
FIRST BANK, a Missouri state banking corporation ("Bank").

                                   WITNESSETH:

      WHEREAS, Borrowers heretofore jointly and severally executed and delivered
to Bank a Revolving Credit Note dated September 7, 1999, in the principal amount
of up to Ten Million Dollars ($10,000,000.00), payable to the order of Bank as
therein set forth, which Revolving Credit Note has been most recently amended
and restated by that certain Revolving Credit Note dated August 7, 2002 in the
original principal amount of up to Twelve Million Dollars ($12,000,000.00) (as
amended and restated, the "Note"); and

      WHEREAS, the Note is described in a certain Credit Agreement dated as of
September 7, 1999 made by and among Borrowers and Bank, as previously amended by
an Amendment to Credit Agreement dated as of December 30, 1999 made by and among
Borrowers and Bank, by a Second Amendment to Credit Agreement dated as of May 1,
2000 made by and among Borrowers and Bank, by a Third Amendment to Credit
Agreement dated as of April 4, 2001 made by and among Borrowers and Bank, and by
a Fourth Amendment to Credit Agreement dated as of August 7, 2002 made by and
among Borrowers and Bank (as amended, the "Loan Agreement," all capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to them in the Loan Agreement); and

      WHEREAS, Borrowers and Bank desire to increase the amount of the loans and
to make certain other amendments thereto on the terms and conditions set forth
herein;

      NOW, THEREFORE, in consideration of the premises and the mutual provisions
and agreements hereinafter set forth, the parties hereto do hereby mutually
promise and agree as follows:

      1. The Note shall be amended and restated in the form of that certain
Revolving Credit Note attached hereto as Exhibit C, to amend the maximum
principal amount thereof to Fourteen Million Five Hundred Thousand Dollars
($14,500,000.00), and to make certain amendments as set forth therein. All
references in the Loan Agreement and the other Transaction Documents to the
"Note," the "Revolving Credit Note" and other references of similar import shall
hereafter be amended and deemed to refer to the Note in the form of the
Revolving Credit Note, as amended and restated in the form attached hereto as
Exhibit C.

      2. The third paragraph beginning with the word "WHEREAS" on the first page
of the Loan Agreement shall be deleted in its entirety and in its place shall be
substituted the following:

            WHEREAS, Borrowers, including Virbac AH and Francodex which have
      been added as parties to the credit facilities, have requested that the
      aggregate amount thereof be amended to an aggregate principal amount of up
      to Fourteen Million Five Hundred

<PAGE>

      Thousand Dollars ($14,500,000.00) and otherwise amended on the terms and
      conditions set forth herein, with such loans to mature on July 31, 2005;
      and

      3. Section 3.1(a) of the Loan Agreement shall be deleted in its entirety
and in its place shall be substituted the following:

            (a) Revolving Credit Loans. Subject to the terms and conditions
      hereof, during the Term of this Agreement, Bank hereby agrees to make such
      loans (individually, a "Loan" and collectively, the "Loans") to Borrowers,
      jointly and severally, as any of the Borrowers may from time to time
      request pursuant to Section 3.2 and in Bank's discretion, to issue Letters
      of Credit for the account of the Borrowers, or any of them, upon any
      Borrower's execution of a Letter of Credit Application therefor pursuant
      to Section 3.3 (subject to Bank's approval of the form of the Letters of
      Credit requested to be issued). The maximum aggregate principal amount of
      Loans plus the face amount of issued and outstanding Letters of Credit
      which Bank, cumulatively, may be required to have outstanding hereunder at
      any one time shall not exceed the lesser of Fourteen Million Five Hundred
      Thousand Dollars ($14,500,000.00) (the "Bank's Commitment"), or (ii) the
      Borrowing Base (as hereinafter defined). Subject to the terms and
      conditions hereof, Borrowers may jointly and severally borrow, repay and
      reborrow such sums from Bank, provided, however, that the aggregate
      principal amount of all Loans outstanding hereunder plus the face amount
      of Letters of Credit issued and outstanding hereunder at any one time
      shall not exceed the lesser of the Bank's Commitment or the then current
      Borrowing Base. The Loans may be either (a) a Prime Loan, (b) a LIBOR Loan
      or (c) any combination thereof, as determined by the Borrowers and
      notified to the Bank in accordance with Section 3.2 herein, provided,
      however, that the amount of any Loan under this Section 3.1(a) which is a
      LIBOR Loan shall be for an aggregate principal amount of at least
      $500,000.00 or any larger multiple of $100,000.00.

      4. Section 3.1(d) of the Loan Agreement shall be deleted in its entirety
and in its place shall be substituted the following:

            (d) Borrowing Base Certificate. Borrowers shall deliver to Bank on
      the twenty-eighth (28th) day of each month, commencing in the month of
      August, 2003, a borrowing base certificate in the form of Exhibit A
      attached to the Fifth Amendment to Credit Agreement dated as of August 11,
      2003 made by and among Borrowers and Banks (the "Fifth Amendment") and
      incorporated herein by reference (a "Borrowing Base Certificate") setting
      forth:

                  (i) the Borrowing Base and its components as of the end of the
      immediately preceding month;

                  (ii) the aggregate principal amount of all outstanding Loans
      and the aggregate face amount of all issued and outstanding Letters of
      Credit; and

                  (iii) the difference, if any, between the Borrowing Base and
      the aggregate principal amount of all outstanding Loans plus the aggregate
      face amount of all issued and outstanding Letters of Credit.

      The Borrowing Base shown in such Borrowing Base Certificate shall be and
      remain the Borrowing Base hereunder until the next Borrowing Base
      Certificate is delivered to Bank, at which time the Borrowing Base shall
      be the amount shown in such subsequent

                                     - 2 -
<PAGE>

      Borrowing Base Certificate. Each Borrowing Base Certificate shall be
      certified (subject to normal year-end adjustments) as to truth and
      accuracy by the President, principal financial officer or controller of
      each of the Borrowers.

All references in the Loan Agreement and the other Transaction Documents to the
"Borrowing Base Certificate" and other references of similar import shall
hereafter be amended and deemed to refer to a Borrowing Base Certificate in the
form of the Borrowing Base Certificate, as amended and restated in the form
attached hereto as Exhibit A.

      5. The last sentence of Section 3.2 of the Loan Agreement shall be deleted
in its entirety and in its place shall be substituted the following:

      Contemporaneously with the execution of the Fifth Amendment (amending this
      Agreement), Borrowers shall execute and deliver to Bank a Note of
      Borrowers dated as of August 11, 2003 and payable jointly and severally to
      the order of Bank in the original principal amount of Fourteen Million
      Five Hundred Thousand Dollars ($14,500,000.00) in the form attached as
      Exhibit C to such Fifth Amendment and incorporated herein by reference (as
      the same may from time to time be amended, modified, extended or renewed,
      the "Note").

      6. Section 7.1(i)(i) of the Loan Agreement shall be deleted in its
entirety and in its place shall be substituted the following:

            (i) Maintain a ratio of Consolidated EBITDA minus permitted
      purchases by Borrowers of any of the outstanding capital stock of Virbac
      during any such period (determined on a consolidated basis for Borrowers
      and their Consolidated Subsidiaries and in accordance with Generally
      Accepted Accounting Principles consistently applied, for the applicable
      period ending on the date of any such calculation), to Consolidated Debt
      Service of at least 3.00 to 1.0 for the four quarter period ending at each
      quarter-end and fiscal year end during the Term hereof;

      7. In consideration of Bank's agreement to amend the Loan Agreement and
Note as set forth herein, Borrowers agree to jointly and severally pay to Bank
an amendment fee in the amount of $2,500.00, which amendment fee is due and
payable on the date hereof and shall be fully earned on the date hereof.
Borrowers further jointly and severally agree to reimburse Bank, upon demand,
for all reasonable out-of-pocket costs and expenses (including reasonable legal
fees and expenses of the attorneys for the Bank) incurred by Bank in the
preparation, negotiation and execution of this Fifth Amendment to Credit
Agreement and all other documents, instruments and agreements relating to this
Fifth Amendment to Credit Agreement with the Bank.

      8. The agreements of Bank contained herein are expressly conditioned upon
deliver by Borrowers of the following:

        (a) the executed original of this Fifth Amendment to Credit Agreement;

        (b) the executed original of the amended and restated Note;

        (c) the executed original of the Eleventh Amendment to Deed of Trust and
Security Agreement;

                                     - 3 -
<PAGE>

            (d) a copy of resolutions of the Board of Directors of each of the
Borrowers, duly adopted, which authorize the execution, delivery and performance
of this Fifth Amendment to Credit Agreement and the amended and restated Note
and the other Transaction Documents, certified by the Secretary of each such
Borrower;

            (e) such other documents as Bank may reasonably request; and

            (f) payment by Borrowers of the amendment fee required under
paragraph 7 above.

      9. Borrowers hereby represent and warrant to Bank that:

            (a) The execution, delivery and performance by Borrowers of this
Fifth Amendment to Credit Agreement and the amended and restated Note are within
the corporate powers of Borrowers, have been duly authorized by all necessary
corporate action and require no action by or in respect of, or filing with, any
governmental or regulatory body, agency or official. The execution, delivery and
performance by Borrowers of this Fifth Amendment to Credit Agreement and the
amended and restated Note do not conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under or result in
any violation of, and none of the Borrowers is now in default under or in
violation of, the terms of the Articles of Incorporation or Bylaws of such
Borrower, any applicable law, any rule, regulation, order, writ, judgment or
decree of any court or governmental or regulatory agency or instrumentality, or
any agreement or instrument to which any of the Borrowers is a party or by which
any of them is bound or to which any of them is subject;

            (b) This Amendment to Credit Agreement and the amended and restated
Note have been duly executed and delivered and constitute the legal, valid and
binding obligations of Borrowers enforceable in accordance with their terms; and

            (c) As of the date hereof, all of the covenants, representations and
warranties of Borrowers set forth in the Loan Agreement are true and correct and
no "Event of Default" (as defined therein) under or within the meaning of the
Loan Agreement has occurred and is continuing.

      10. All references in the Loan Agreement to "this Agreement" and any other
references of similar import shall henceforth mean the Loan Agreement as amended
by this Fifth Amendment to Credit Agreement.

      11. This Fifth Amendment to Credit Agreement and the amended and restated
Note shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, except that Borrowers may not assign,
transfer or delegate any of their rights or obligations hereunder.

      12. This Fifth Amendment to Credit Agreement and the amended and restated
Note shall be governed by and construed in accordance with the internal laws of
the State of Missouri.

      13. In the event of any inconsistency or conflict between this Fifth
Amendment to Credit Agreement and the Loan Agreement, the terms, provisions and
conditions of this Fifth Amendment to Credit Agreement shall govern and control.

      14. The Loan Agreement, as hereby amended and modified, and the amended
and restated Note, as hereby amended and restated, are and shall remain the
binding obligations of Borrowers and all of the provisions, terms, stipulations,
conditions, covenants and powers contained therein shall stand and remain in
full force and effect, except only as the same are herein and hereby
specifically varied or amended, and the same are hereby ratified and confirmed.
If any installment of principal or interest on

                                     - 4 -
<PAGE>

the amended and restated Note shall not be paid when due as provided in the
amended and restated Note, the holder of the amended and restated Note shall be
entitled to and may exercise all rights and remedies under the amended and
restated Note and the Loan Agreement, as amended.

      15. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWERS AND BANK FROM ANY
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWERS AND BANK
COVERING SUCH MATTERS ARE CONTAINED IN THE LOAN AGREEMENT, AS AMENDED BY THIS
AGREEMENT, WHICH CONSTITUTES A COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENTS BETWEEN BORROWERS AND BANK EXCEPT AS BORROWERS AND BANK MAY LATER
AGREE IN WRITING TO MODIFY. THE LOAN AGREEMENT, AS AMENDED BY THIS AGREEMENT,
EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND
SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO
THE SUBJECT MATTER HEREOF.

      IN WITNESS WHEREOF, the parties hereto have executed this instrument as of
the date first written above on this 11 day of August, 2003.

                                        VIRBAC CORPORATION
                                        PM RESOURCES, INC.
                                        ST. JON LABORATORIES, INC.
                                        VIRBAC AH, INC.
                                        FRANCODEX LABORATORIES, INC.

                                        By: /s/ Joseph Rougraff
                                           ----------------------------------
                                            Joseph Rougraff, Chief Financial
                                            Officer

                                        FIRST BANK

                                        By: /s/ Traci L. Dodson
                                           ----------------------------------
                                            Traci L. Dodson, Vice President

                                     - 5 -
<PAGE>

                                    EXHIBIT A

                           BORROWING BASE CERTIFICATE

      This Borrowing Base Certificate is delivered pursuant to Section 3.1(d) of
that certain Credit Agreement dated September 7, 1999, by and between Virbac
Corporation, PM Resources, Inc., St. JON Laboratories, Inc., Virbac AH, Inc.,
Francodex Laboratories, Inc. and First Bank (as amended, the "Loan Agreement").
All capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed to them in the Loan Agreement.

      Borrowers hereby represent and warrant to Bank that the following
information is true and correct as of ____________, 20__:

      1.    75% of face amount of Eligible Accounts of PM Resources      $______

      2.    75% of face amount of Eligible Accounts of Virbac            $______

      3.    50% of Eligible Inventory of PM Resources, valued at the
            lower of cost or market                                      $______

      4.    50% of Eligible Inventory of Virbac, valued at the lower of
            cost or market                                               $______

      5.    Sum of Items 3 and 4 above, but not to exceed $6,000,000.00  $______

      6.    Total Borrowing Base (sum of 1, 2 and 5 above not to exceed
            $14,500,000.00)                                              $______

      Borrowers hereby further represent and warrant to Bank that the following
information is true and correct as of ______________________, 20___:

      7.    Aggregate principal amount of outstanding Loans              $______

      8.    Aggregate face amount of outstanding Letters of Credit       $______

      9.    Total Outstanding (Item 7 plus Item 8)                       $______

      10.   Borrowing Base Excess (Deficit) (Item 6 minus Item 9)
            (Negative amount represents mandatory repayment)             $______

      If Item 10 above is negative, this Borrowing Base Certificate is
accompanied by the mandatory repayment required by Section 3.1(e) of the Loan
Agreement.

                                     - 6 -
<PAGE>

      This Borrowing Base Certificate is dated the _____ day of _________, 20__.

                                    VIRBAC CORPORATION
                                    PM RESOURCES, INC.
                                    ST. JON LABORATORIES, INC.
                                    VIRBAC AH, INC.
                                    FRANCODEX LABORATORIES, INC.

                                    By: ________________________________________
                                        Joseph Rougraff, Chief Financial Officer

                                     - 7 -
<PAGE>

                                    EXHIBIT C

                              Revolving Credit Note

$14,500,000.00                                              St. Louis, Missouri
                                                               August ___, 2003

      FOR VALUE RECEIVED, on July 31, 2005 (or such subsequent anniversary
thereof as determined pursuant to Section 3.16 of the Loan Agreement
(hereinafter identified)), the undersigned, VIRBAC CORPORATION, a Delaware
corporation (formerly known as Agri-Nutrition Group Limited), PM RESOURCES,
INC., a Missouri corporation, ST. JON LABORATORIES, INC., a California
corporation, FRANCODEX LABORATORIES, INC., a Kansas corporation and VIRBAC AH,
INC., a Delaware corporation (collectively, the "Borrowers"), hereby jointly and
severally promise to pay to the order of FIRST BANK, a Missouri state banking
corporation ("Bank"), the principal sum of Fourteen Million Five Hundred
Thousand Dollars ($14,500,000.00), or such lesser sum as may then be outstanding
hereunder. The aggregate principal amount which Bank shall be committed to have
outstanding hereunder at any one time shall not exceed the lesser of (i)
Fourteen Million Five Hundred Thousand Dollars ($14,500,000.00), or (ii) the
"Borrowing Base" (as defined in the Loan Agreement (as hereinafter defined)),
which amount may be borrowed, paid, reborrowed and repaid, in whole or in part,
subject to the terms and conditions hereof and of the Loan Agreement hereinafter
identified.

      Borrowers further jointly and severally promise to pay to the order of
Bank interest on the principal amount from time to time outstanding hereunder
prior to maturity from the date disbursed until paid at the rate or rates per
annum required by the Loan Agreement or otherwise selected by any of the
Borrowers as set forth in the Loan Agreement. All accrued and unpaid interest
with respect to each principal disbursement made hereunder shall be payable on
the dates set forth in Section 3.6 of the Loan Agreement and at the maturity of
this Note, whether by reason of acceleration or otherwise. After the maturity of
this Note, whether by reason of acceleration or otherwise, interest shall accrue
and be payable on demand on the entire outstanding principal balance hereunder
until paid at a rate per annum equal to Three and One-Half Percent (3.50%) over
and above the Prime Rate, fluctuating as and when said Prime Rate shall change.
All payments hereunder (other than prepayments) shall be applied first to the
payment of all accrued and unpaid interest, with the balance, if any, to be
applied to the payment of principal. All prepayments hereunder shall be applied
solely to the payment of principal.

      All payments of principal and interest hereunder shall be made in lawful
currency of the United States in Federal or other immediately available funds at
the office of Bank situated at 135 North Meramec, Clayton, Missouri 63105, or at
such other place as the holder hereof shall designate in writing. Interest shall
be computed on an actual day, 360-day year basis.

      Bank may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Bank's books and records showing the account between Bank and Borrowers
shall be admissible in evidence in any action or proceeding and shall constitute
prima facie proof of the items therein set forth.

      This Note is the Note referred to in that certain Credit Agreement dated
as of September 7, 1999 made by and between Borrowers and Bank (as the same may
from time to time be amended, the "Loan Agreement"), to which Loan Agreement
reference is hereby made for a statement of the terms and conditions upon which
the maturity of this Note may be accelerated, and for other terms and
conditions,

                                     - 8 -
<PAGE>

including prepayment, which may affect this Note. All capitalized terms used
herein and not otherwise defined shall have the meanings assigned to such terms
in the Loan Agreement.

      This Note is secured by that certain Security Agreement dated as of May
14, 1998 executed by Virbac Corporation in favor of Bank, by that certain
Security Agreement dated as of May 14, 1998 and executed by PM Resources, Inc.
in favor of Bank, by that certain Security Agreement dated as of May 14, 1998
executed by St. JON Laboratories, Inc. in favor of Bank, by that certain
Security Agreement dated as of September 7, 1999 and executed by Virbac AH, Inc.
in favor of Bank and by that certain Security Agreement dated as of September 7,
1999 executed by Francodex Laboratories, Inc. in favor of Bank (as the same may
from time to time be amended, the "Security Agreements"), to which Security
Agreements reference is hereby made for a description of the security and a
statement of the terms and conditions upon which this Note is secured.

      This Note is also secured by that certain Deed of Trust and Security
Agreement dated September 9, 1993 and executed by PM Resources, Inc. in favor of
Katherine D. Knocke, as trustee for Bank (as the same may from time to time be
amended, the "Deed of Trust"), to which Deed of Trust reference is hereby made
for a description of the security and a statement of the terms and conditions
upon which this Note is secured.

      This Note is also secured by that certain Agreement of Pledge dated as of
September 7, 1999 and executed by Virbac Corporation in favor of Bank and by
that certain Agreement of Pledge dated as of September 7, 1999 and executed by
Virbac AH, Inc. in favor of Bank (collectively, as the same may from time to
time be amended, the "Pledge Agreements"), to which Pledge Agreements reference
is hereby made for a description of the additional security and a statement of
the terms and conditions upon which this Note is further secured.

      If any of the Borrowers shall fail to make any payment of any principal of
or interest on this Note as and when the same shall become due and payable, or
if an "Event of Default" (as defined therein) shall occur under or within the
meaning of the Loan Agreement, any of the Security Agreements, the Deed of Trust
or any of the Pledge Agreements, Bank may, at its option, terminate its
obligation to make any additional loans under this Note and Bank may further
declare the entire outstanding principal balance of this Note and all accrued
and unpaid interest thereon to be immediately due and payable.

      In the event that any payment of any principal of or interest on this Note
shall not be paid when due, whether by reason of acceleration or otherwise, and
this Note shall be placed in the hands of an attorney or attorneys for
collection or for foreclosure of any of the Security Agreements, the Deed of
Trust or any of the Pledge Agreements securing payment hereof or for
representation of Bank in connection with bankruptcy or insolvency proceedings
relating hereto, Borrowers jointly and severally promise to pay, in addition to
all other amounts otherwise due hereon, the reasonable costs and expenses of
such collection, foreclosure and representation, including, without limitation,
reasonable attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). All parties hereto severally waive presentment for
payment, demand, protest, notice of protest and notice of dishonor.

                                     - 9 -
<PAGE>

      This Note shall be governed by and construed in accordance with the
internal laws of the State of Missouri.

      This Revolving Credit Note is a renewal, restatement and continuation of
the obligations due Bank as evidenced by a Revolving Credit Note dated August 7,
2002 from Borrower payable to the order of Bank in the maximum principal amount
of $12,000,000.00 (the "Prior Note"), and is not a novation thereof. All
interest evidenced by the Prior Note being amended and restated by this
instrument shall continue to be due and payable until paid.

                                   VIRBAC CORPORATION

                                   By: /s/ Joseph Rougraff
                                      -----------------------------------------
                                       Joseph Rougraff, Chief Financial Officer

                                   PM RESOURCES, INC.

                                   By: /s/ Joseph Rougraff
                                      -----------------------------------------
                                       Joseph Rougraff, Chief Financial Officer

                                   ST. JON LABORATORIES, INC.

                                   By: /s/ Joseph Rougraff
                                      -----------------------------------------
                                       Joseph Rougraff, Chief Financial Officer

                                   VIRBAC AH, INC.

                                   By: /s/ Joseph Rougraff
                                      -----------------------------------------
                                       Joseph Rougraff, Chief Financial Officer

                                   FRANCODEX LABORATORIES, INC.

                                   By: /s/ Joseph Rougraff
                                      -----------------------------------------
                                       Joseph Rougraff, Chief Financial Officer

                                     - 10 -

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