SEPARATION AGREEMENT AND GENERAL RELEASE OF CLAIMS

SEPARATION AGREEMENT AND GENERAL RELEASE OF CLAIMS

This Separation Agreement and General Release of Claims (hereinafter “ Agreement ”) is entered into by and between John Scullion of        (hereinafter “ Executive ”) and LoyaltyOne, Inc., a Canadian corporation with its principal place of business at 438 University Ave. Suite 600, Toronto, Ontario M5G 2L1 Canada (individually “ LoyaltyOne Canada ”), Alliance Data Systems Corporation, a United States corporation with its principal place of business at 17655 Waterview Parkway, Dallas, Texas, and parent company to LoyaltyOne Canada (individually “ ADSC ”) together with their parents, affiliates and subsidiaries (hereinafter collectively “ LoyaltyOne ”).

WHEREAS , Executive has been continuously employed by LoyaltyOne Canada since 1993 in various capacities and under various corporate names; and

WHEREAS, included in the various capacities Executive has served is an expatriate assignment with ADSC ( “Expatriate Assignment”) pursuant to a Secondment Agreement between LoyaltyOne Canada and ADSC, which assignment ended on February 25, 2009; and

WHEREAS, Executive received notice of his termination as required under Canadian law, and effective May 1, 2009 (“ Termination Date ”), Executive’s employment terminated, and all of Executive’s duties will cease; and

WHEREAS, Executive agrees to include ADSC in this Agreement to ensure all aspects of his relationship with ADSC arising from the Expatriate Assignment are addressed and resolved; and

WHEREAS , Executive and LoyaltyOne desire to compromise, settle and forever resolve and dispose of all differences and potential claims and controversies between them and to insure that certain post-employment Protective Covenants (defined below) are honored; and

WHEREAS , this Agreement shall become effective following the expiration of the Revocation Period (as defined below) (the “ Effective Date ”).

NOW, THEREFORE , in consideration of the foregoing promises and other good and sufficient consideration contained hereinafter, the parties agree as follows:

I. SEVERANCE PAYMENTS

Executive shall be paid an amount in severance that, in conjunction with the other benefits described in this Agreement, is intended to satisfy applicable statutory requirements as well as provide consideration for this Agreement. The Severance Payments described below collectively supersede any and all other entitlements under law or that may be described in any and all other agreements executed prior to this date between Executive and LoyaltyOne as it relates to an amount due and owing upon termination, including but not limited to statutory or common law notice and severance and any amount associated with post-termination restrictions.

A.  Release Payment . Twenty (20) weeks of Executive’s current base salary in CDN dollars (less applicable taxes and withholdings) paid to Executive upon the later of the expiration of the Revocation Period referred to in Article III (F) or the Termination Date in consideration of the release and waiver of claims provided for in Article III and Executive’s agreement not to contest the Protective Covenants in Article IV (the “ Release Payment ” ) and inclusive of statutory severance. Such payment will be payable in ten (10) bi-weekly installment payments on regular payroll dates commencing on the first payroll date after the expiration of the later of the Revocation Period or the Termination Date;

B.  Protective Covenants Payment . Eighty-four (84) weeks of Executive’s current base salary in CDN dollars (less applicable taxes and withholdings) paid in consideration of the agreements and promises made by Executive in Article IV (the “ Protective Covenants Payment ” ). Such payments will be payable in forty-two (42) bi-weekly installment payments on regular payroll dates commencing on the first payroll date after the Release Payment has been paid in full.

Collectively, the one hundred and four (104) week period comprised of the twenty (20) week period during which the Release Payment is made and the eighty-four (84) week period during which the Protective Covenants Payment is made are referred to herein as the “ Severance Period ”.

C.  Additional Incentive Compensation . In further consideration for Executive entering into this Agreement, LoyaltyOne agrees to pay to Executive two (2) times Executive’s target incentive compensation equal to 125% of his 2008 base salary (the “Additional IC” ). The Additional IC shall be paid bi-weekly in forty-two (42) bi-weekly installment payments on regular payroll dates commencing on the first payroll cycle after the Release Payment has been paid in full.

Executive agrees that if Executive is rehired in an officer role by LoyaltyOne prior to the expiration of the Severance Period or prior to the payment of any payment under Article I (B) and (C) hereunder being made to Executive, all payments scheduled to be paid to Executive under this Agreement under Article I (B) and (C) shall cease as of the rehire date. The Release Payments shall continue to be made regardless of the date of rehire, unless rehire occurs prior to the expiration of the Revocation Period.

II. BENEFITS

A.  Payment of Wages and Paid Time Off . LoyaltyOne represents, and Executive agrees that as of the Effective Date, LoyaltyOne has paid to Executive in full all wages or other compensation, all accrued and unused vacation and all un-reimbursed business expenses for the period through and including the Termination Date. LoyaltyOne and Executive further agree that as of the Termination Date, Executive will not accrue any further vacation time or pay or other benefits for which Executive was eligible or previously entitled, except for those benefits expressly continued as set forth in this Agreement.

B.  Continuation of Benefits . Commencing on the Termination Date, LoyaltyOne agrees to further continue Executive’s health insurance benefits through the end of the Severance Period or until he is re-employed in a full-time capacity with benefits comparable to those in which Executive participates as of the date hereof (“ Health Insurance Benefit Continuation ”). LoyaltyOne and Executive shall pay their respective share of the premiums for the health insurance coverage selected by, and in effect for, Executive as of February 25, 2009 during the Health Insurance Benefit Continuation period. After the expiration of the Health Insurance Benefit Continuation period, LoyaltyOne will no longer provide health insurance benefits, including executive benefits for Executive.

C.  Taxes . Due to Executive’s Expatriate Assignment, for such tax years for which Executive is required to equalize tax responsibility between the United States and Canada arising from the Expatriate Assignment, ADSC and LoyaltyOne Canada agree to continue providing tax equalization services to Executive as previously agreed under the Secondment Agreement and the terms of Executive’s Expatriate Assignment with ADSC. Such services include providing tax preparation services with an accounting firm of ADSC’s choice for the purpose of equalizing Executive’s tax responsibility between the United States and Canada. Executive agrees to continue to abide by the tax equalization policy and procedure previously provided to him during his Expatriate Assignment. Executive agrees that any amount in tax that may be due to be paid by him as a result of the equalization process will be paid promptly to LoyaltyOne Canada, and that any delay in reimbursement of more than 30 days will allow LoyaltyOne Canada to deduct the amounts owed under the tax equalization policy from the next regular severance payment that is due to be paid to Executive, until such obligation is satisfied. Additionally, Executive agrees that all foreign tax credits that arise from the Expatriate Assignment and as a result of the tax equalization exercise will belong to ADSC for its use in addressing the United States portion of the tax requirement.

D .  Equity .

1.  Stock Options .

a.  Vested . Executive acknowledges and agrees that Executive’s options to acquire shares of ADSC common stock (“ Options ”) which are or shall become vested on or prior to the Termination Date shall be exercisable until October 31, 2010.

b.  Unvested . Executive acknowledges that any Options which have not vested as of the Termination Date but which will vest between the Termination Date and October 31, 2010 shall vest on the date such unvested Option is scheduled to vest during such period and be exercisable until October 31, 2010.

2.  Time-Based Restricted Stock (“ TBRS ”) and Time-Based Restricted Stock Units (“ TBRSU ”) . Executive acknowledges and agrees that the TBRS and TBRSU identified by Fidelity as RSU053YGC2 granted on 2/21/2007 and TBRSUCA08 granted on 4/28/2008 which are unvested as of the Termination Date shall continue to vest during the Severance Period.

3.  Performance-Based Restricted Stock Units . Executive acknowledges and agrees that any performance-based restricted stock units for which performance restrictions have not been met as of the Termination Date shall be forfeited.

E.  Special Retention Award . Alliance Data agrees that the 6,698 restricted stock units of the Special Retention Award identified by Fidelity as RSU07PBSA granted on 2/21/07 and outstanding as of the Termination Date will vest on February 21, 2010. However, Executive acknowledges and agrees that the cash portion of the Special Retention Award in the amount of $431,250.00 scheduled to be paid on February 13, 2010, shall be forfeited.

F.  Stock Transactions . Executive acknowledges and agrees that because of his status as a Section 16 officer of ADSC, he is required for a period of six (6) months after he was no longer deemed to be a Section 16 officer to file Securities and Exchange Commission (“ SEC ”) Forms 4 and 5 to report stock transactions related to ADSC, including, but not limited to, sales and purchases of ADSC common stock and derivative securities, and the exercise of employee stock options (“ Stock Transactions ”). Therefore, to enable timely filing of these forms with the SEC, which ADSC does on Executive’s behalf, and also to enable ADSC to prepare and make other disclosures to the SEC related to Executive’s Stock Transactions, for a period of fourteen (14) months from March 1, 2009, which is the date Executive was no longer deemed to be a Section 16 officer, Executive agrees to report any such Stock Transaction made by him to Alan M. Utay, ADSC’s General Counsel, as soon as possible, but no later than 12:00 Noon Central Time on the day following the day such Stock Transaction is executed, or provide a legal opinion that such Stock Transaction is not a reportable event requiring the filing of a Form 4 or 5 or other disclosure. Executive agrees to execute and forward to ADSC the No Filing Due Statement attached hereto as Exhibit B, or to provide to ADSC all necessary details to file a Form 5, for receipt no later than January 11, 2010.

G.  Termination of Other Agreements . The parties agree that as of the Termination Date, the Change in Control Severance Protection Agreement entered into by and between ADS Alliance Data Systems, Inc. (“ Alliance Data ”) and Executive on September 25, 2003, as amended by the Joint Amendment to Agreements Providing for Compensation or Benefits upon Involuntary Severance from Employment (as amended, the “ Change in Control Agreement ”) and the Offer Letter Dated September 7, 1993 as amended by the Joint Amendment to Agreements Providing for Compensation or Benefits upon Involuntary Severance from Employment, shall terminate and be of no further force and effect (together with the Change in Control Agreement, the “ Executive Agreements ”).

III. COVENANT NOT TO SUE AND RELEASE OF CLAIMS

A.  Covenant Not to Sue . Executive agrees not to file any charges, claims, suits, or complaints against LoyaltyOne with any federal, state, provincial or local governmental agency, or in any court of law, with respect to any aspect of his Expatriate Assignment with ADSC, and his employment with, or separation of employment from, LoyaltyOne, with respect to any matters whatsoever, which occurred prior to or on the Termination Date, whether known or unknown to Executive at the time of execution of this Agreement, with the exceptions of: (a) any claims the law precludes him from waiving by agreement, including an action challenging the validity of Executive’s release of claims under the Age Discrimination in Employment Act, 29 U.S.C. §621, et seq . (“ ADEA ”); (b) any claim that LoyaltyOne breached its commitments under this Agreement; (c) any claims with respect to any vested right Executive may have under any employee pension or welfare benefit plan of LoyaltyOne, or (d) any rights Executive has to indemnification under the bylaws or articles of LoyaltyOne existing as of the Effective Date or by contract. Items (b), (c), and (d) immediately above shall be excepted from the release in Article III (B) below.

B.  Release of Claims . Executive acquits, releases and forever discharges ADSC, LoyaltyOne Canada, and its predecessors, successors, parent entities, subsidiaries, affiliates, or related companies, its and their attorneys, officers, directors, employees, former employees, agents, insurers, and assigns (collectively the “ Released Parties ”), jointly and severally, from all, and in all manner of, actions and causes of action, suits, debts, claims and demands whatsoever, in law or in equity, which he ever had, may now have or may hereafter have with respect to any aspect of his Expatriate Assignment with ADSC, and his employment with, or separation of employment from, LoyaltyOne Canada, and with respect to any other matter whatsoever. This release includes, but is not limited to, claims relating to or arising out of the Sarbanes-Oxley Act; any claims alleging retaliation and/or whistleblower claims; any and all claims relative to agreements to sponsor for immigrant or non-immigrant positions; any claims for unpaid or withheld wages, the Executive Agreements, severance pay, benefits, incentive compensation, stock options, restricted stock units, restricted stock awards, special awards, commissions and/or other compensation of any kind; or any other claim, regardless of the forum in which it might be brought, if any, which Executive has, might have, or might claim to have against the Released Parties, or any of them individually, for any and all injuries, harm, damages, penalties, costs, losses, expenses, attorneys’ fees, and/or liability or other detriment, if any, whenever incurred, or suffered by Executive as a result of any and all acts, omissions, or events by the Released Parties, collectively or individually, through the date Executive executes this Agreement. It is expressly agreed and understood by Executive that this Agreement and General Release includes, without limitation, any and all claims, actions, demands, and causes of action, if any, arising from or in any way connected with the Expatriate Assignment with ADSC, and the employment relationship between Executive and LoyaltyOne Canada and the termination thereof, including any claim of discrimination, retaliation, harassment, failure to accommodate, wrongful termination, breach of contract, negligence, libel, slander, wrongful discharge, promissory estoppel, tortious conduct, bonus claims of any nature and kind whatsoever, any vacation pay entitlement claims, and demands for damages, including any disability claims, loss of benefit claims, indemnity, costs, interest, loss or injury of every nature and kind whatsoever and howsoever arising, and/or any claims that this Agreement was procured by fraud or signed under duress or coercion so as to make the Agreement not binding, including all claims that were or could have been brought by Executive. Furthermore, Executive asserts that he has been paid all wages as required by law; he does not have a workplace injury or workers compensation claim pending and has not suffered any injury that could be the basis for such claim; and he has been given the required amount of notice under Ontario law prior to his being terminated.

C.  Laws Included in Release . Executive agrees that, subject to the exceptions set forth in Article III (A) of this Agreement, his covenants and releases, as set forth in this Agreement, include a waiver of any and all rights or remedies which he ever had, may now have, or may hereafter have against LoyaltyOne, in tort or in contract, or under any present or future federal, province, local or other statute or law, including, but not limited to, the following Canadian laws: the statutory and common law of Ontario, Canada; the Ontario Employment Standards Act; Human Rights Code ; Labor Relations Act; and any successor legislation. The Executive further confirms that he has considered whether he has any possible claim against LoyaltyOne in respect of the Ontario Human Rights Code , and confirms that he either has no such claim or that this Agreement expressly compensates him for any such claim and that he will seek no further right or remedy in respect of any possible claim. In addition, Executive agrees that, subject to the exceptions set forth in Article III (A) of this Agreement, his covenants and releases, as set forth in this Agreement, include a waiver of any and all rights or remedies which he ever had, may now have, or may hereafter have against LoyaltyOne, in tort or in contract, or under any present or future federal, state, local or other statute or law, including, but not limited to, the following United States and State of Texas laws: statutory or common laws of the State of Texas, or any political subdivision of the State of Texas; the Texas and United States Constitutions; the Texas Payday Law; the Texas Commission on Human Rights Act; the National Labor Relations Act, 29 U.S.C. §151, et seq.; Title VII of the 1964 Civil Rights Act, 42 U.S.C. §2000e, et seq.; the 1866 Civil Rights Act, 42 U.S.C. §1981; the Civil Rights Act of 1991, P.L. 102-166; the Americans With Disabilities Act, 42 U.S.C. §12101, et seq.; the Occupational Safety & Health Act of 1970, 29 U.S.C. §553, et seq.; the Fair Labor Standards Act of 1938, 29 U.S.C. §201, et seq.; the Family & Medical Leave Act of 1993, 29 U.S.C. §2601, et seq.; the ADEA and the Older Workers Benefit Protection Act, 29 U.S.C. §621, et seq., 29 U.S.C. §621, et seq.; the Equal Pay Act, 29 U.S.C. §206(d); the Employee Retirement Income Security Act of 1974, 29 U.S.C., §1001, et seq.; Texas’s Workers’ Compensation Law; the Immigration Reform Control Act; the Occupational Safety and Health Act; the Worker Adjustment and Retraining Notification Act; the Consolidated Omnibus Budget Reconciliation Act of 1986, 29 U.S.C. §1161, et seq.; any and all Texas common law claims, including, but not limited to, any violation of Texas public policy, invasion of privacy, breach of contract and promissory estoppel.

D.  Waiver of Unknown Claims . Executive intends that this Agreement shall bar each and every claim, demand and cause of action hereinabove specified, whether known or unknown to him at the time of execution of this Agreement. As a result, Executive acknowledges that he might, in the future, discover claims or facts in addition to or different from those which he now knows or believes to exist with respect to the subject matters of this Agreement and which, if known or suspected at the time of executing this Agreement, may have materially affected the terms of this Agreement. Nevertheless, Executive hereby waives any right, claim, or cause of action that might arise as a result of such different or additional claims or facts.

E.  Adequacy of Consideration . The parties individually and collectively agree that the covenants and promises made in Article III of this Agreement are in consideration of the Release Payment and other promises made hereunder by all parties, and that, but for the execution of this Agreement, no party would be entitled to the amounts and promises provided for herein.

F.  ADEA Release . Executive hereby acknowledges that Executive is knowingly and voluntarily entering into this Agreement with the purpose of waiving and releasing any claims under the ADEA (a law which prohibits discrimination on the basis of age) as applicable to his Expatriate Assignment relationship with ADSC, and as such, Executive acknowledges and agrees that: