NONQUALIFIED STOCK OPTION AGREEMENT UNDER THE ALLIANCE DATA SYSTEMS CORPORATION 2005 LONG-TERM INCENTIVE PLAN

EXHIBIT 10.4

NONQUALIFIED STOCK OPTION AGREEMENT
UNDER THE ALLIANCE DATA SYSTEMS CORPORATION
2005 LONG-TERM INCENTIVE PLAN

     THIS AGREEMENT, made as of the [Day] day of [Month], YEAR, by and between Alliance Data Systems Corporation (the “Company”) and [First] [Last] (the “Participant”) who is an employee of the Company or one of its Affiliates.

W I T N E S S E T H:

     WHEREAS, pursuant to the Company’s 2005 Long-Term Incentive Plan (the “Plan”), the Company desires to afford the Participant the opportunity to acquire, or enlarge, his ownership of the Company’s common stock, $0.01 par value per share (“Stock”), so that he may have a direct proprietary interest in the Company’s success.

     NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows:

     1. Grant of Option. Subject to the term and conditions set forth herein and in the Plan, the Company hereby grants to the Participant, during the period commencing on the date of this Agreement and ending on the close of business on the day of the tenth anniversary of the date hereof (the “Termination Date”), the right and option (the “Option”) to purchase from the Company, at a price of [Option Price] per share (the “Option Price”), an aggregate of [# Options] shares of Stock (the “Option Shares”).

     2. Limitation on Exercise of Option. Subject to the terms and conditions set forth herein and in the Plan, the Option will become exercisable 33% upon the day of the first anniversary of grant; an additional 33% of the Option will become vested and exercisable on the day of the second anniversary of the date of grant; and the final 34% of the Option will become vested and exercisable on the day of the third anniversary of the date of grant provided, that, the Participant is then employed by the Company or an Affiliate. Notwithstanding the foregoing, subject to the limitations of the Plan, the Committee may accelerate the vesting and exercisability of all or part of the Option at any time and for any reason.

     3. Termination of Employment. Upon termination of employment, the Option shall remain exercisable as follows:

          (a) Upon termination of the Participant’s employment with the Company and its Affiliates for any reason other than death, Disability, Retirement or termination by the Company or an Affiliate for Cause, the Participant may exercise the Option, but only to the extent the Option was exercisable immediately prior to such termination of employment, until the earlier of the last day of the Option term or the last day of the 30-day period following such termination of employment.

          (b) If a Participant terminates employment due to Retirement, the Participant may exercise the Option, but only to the extent the Option was exercisable immediately prior to

Retirement, until the earlier of the last day of the Option term or the last day of the one-year period following Retirement.

          (c) Upon termination of the Participant’s employment with the Company and its Affiliates due to death or Disability, the Participant may exercise the Option, but only to the extent the Option was exercisable immediately prior to termination of employment, until the earlier of the last day of the Option term or the last day of the one-year period following termination of employment.

          (d) Upon termination of a Participant’s employment with the Company and its Affiliates due to Cause, the entire Option shall immediately be forfeited.

     4. Time and Method of Exercising Option. The Option, to the extent vested, may be exercised, in whole or in part, by giving written notice of exercise to the Company specifying the number of whole shares of Stock to be purchased. Such notice shall be accompanied by the payment in full of the Option Price. Such payment shall be made either: (i) in cash at the time of purchase; (ii) through such “cashless exercise” procedure that is acceptable to the Committee in its full discretion, to the extent that such procedure does not violate the Sarbanes-Oxley Act of 2002 or any other applicable law; or (iii) subject to applicable law, in any other form of legal consideration that may be acceptable to the Committee in its discretion. Notwithstanding the provision herein or in the Plan, once granted, neither the exercise period nor the term of any Option may be extended if such extension would cause the Option to be subject to excise tax under Section 409A of the Internal Revenue Code (“409A of the Code”). In addition, the timing of any payment shall also comply with 409A of the Code.

     5. Issuance of Shares. Except as otherwise provided in the Plan, and subject to applicable law, as promptly as practical after receipt of such written notification of exercise and full payment of the Option Price and any required income tax withholding, the Company shall issue or transfer to the Participant the number of Option Shares with respect to which Options have been so exercised (less shares withheld in satisfaction of tax withholding obligations, if any), and shall deliver to the Participant a certificate or certificates thereof, registered in the Participant’s name.

     6. Company; Participant.

          (a) The term “Company” as used in this Agreement with reference to employment shall include the Company and its Affiliates, as appropriate.

          (b) Whenever the word “Participant” is used in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the beneficiaries, the executors, the administrators, or the person or persons to whom the Options may be transferred by will or by the laws of descent and distribution, the word “Participant” shall be deemed to include such person or persons.

     7. Non-Transferability. The Option shall not be transferable by the Participant other than by will or by the laws of descent and distribution or pursuant to a domestic relations order (within the meaning of Rule 16a-12 promulgated under the Exchange Act) and the Option shall be exercisable during the lifetime of the Participant only by the Participant or his guardian