TRANSITION AGREEMENT

This Transition Agreement (hereinafter “ Agreement ”) is entered into by and between J. Michael Parks (hereinafter “ Executive ”) and ADS Alliance Data Systems, Inc., a Delaware corporation with its principal place of business at 17655 Waterview Parkway, Dallas, Texas (“ ADSI ”).

WHEREAS, Executive served as the Chief Executive Officer (“ CEO ”) of ADSI’s parent company, Alliance Data Systems Corporation (“ ADSC ”), from March 10, 1997 until March 1, 2009;

WHEREAS, Executive has served as Chairman of ADSC’s Board of Directors (the “ Board ”) since September 15, 1997;

WHEREAS, the Board desires that Executive continue to serve as Chairman of the Board and as an executive officer of ADSI through November 30, 2010 to ensure a smooth transition in connection with and following the announcement of a new CEO (the “ Transition Period ”);

WHEREAS, on November 30, 2010 (“ Transition Date ”), Executive’s employment as an executive officer of ADSI will end;

WHEREAS, the Board desires that Executive continue to serve as a member of the Board from the Transition Date until the earlier of his death, resignation, removal, or until his successor is duly elected and qualified (“ Board Service Period ”);

WHEREAS, the Board wishes to ensure that Executive will not utilize his institutional knowledge and unique insight into the operation of ADSC and its affiliates to compete with, solicit employees or customers of, disparage, or otherwise interfere with the operations of ADSC after the Board Service Period;

WHEREAS, the Board believes it is in the best interests of ADSC’s stockholders to enter into this Agreement to set forth the rights and obligations of the parties during the Transition Period, the Board Service Period and thereafter; and

WHEREAS, this Agreement shall become effective when both parties have signed this Agreement (the “ Effective Date ”).

NOW THEREFORE, in consideration of the premises and the covenants herein, the sufficiency of which is hereby acknowledged, the parties agree as follows:

I. TRANSITION PERIOD

In consideration for Executive’s agreement to provide such services to ADSI during the Transition Period as agreed to by the Executive and the Board, Executive shall be eligible to receive the following as compensation and benefits.

A.  2009 Compensation . Executive shall receive the following as compensation for 2009:

1. An annual base salary of $889,200.00, payable in bi-weekly installments, less required taxes and withholding; and

2. A target incentive compensation payment to be paid in February 2010 equal to 125% of the base salary set forth in Article I.A.1, with 50% of such target award tied to ADSC meeting an operating cash flow target of $604,000,000 and 50% tied to ADSC meeting a cash earnings per share target of $5.15 (as such metrics have been defined by the Board), and calculated in accordance with the payout scales set forth on Schedule 1, less required taxes and withholding; and

3. All perquisites Executive received during 2008 as ADSC CEO; and

4. Continued eligibility to participate in all benefit plans in which Executive is eligible to participate as an executive during 2009.

B.  2010 Compensation . During the period January 1, 2010 through the Transition Date, Executive shall receive the following as compensation:

1. A total base salary of $842,000.00, payable in bi-weekly installments, less required taxes and withholding; and

2. All perquisites Executive received during 2008 as ADSC CEO; and

3. Continued eligibility to participate in all benefit plans in which Executive is eligible to participate as an executive during the period of January 1, 2010 through the Transition Date.

On the Transition Date, all compensation and benefits related to Executive’s employment with ADSI under all other agreements and arrangements, including all perquisite programs, shall cease, and no further compensation or benefits shall be due from or paid by ADSC to Executive, except (i) as contemplated in this Agreement, (ii) pursuant to Board compensation plans available to non-employee directors of the Board, (iii) pursuant to retirement plans not otherwise referenced in this Agreement in which Executive is currently participating and which provide for post-retirement rights to participants, and/or (iv) as otherwise required by law.

C.  Continuation of Compensation Obligations . Should ADSI terminate Executive’s employment prior to the Transition Date for any reason other than a breach of the Restrictive Covenants, Executive shall continue to receive the compensation and payments contemplated in Articles I.A and I.B (“ Transition Period Compensation ”) as if there had been no termination of employment. Except to the extent otherwise provided under Article I.D below, such payments shall be made on the same dates the payments would have been made in accordance with Articles I.A and I.B, as applicable, as if there had been no termination of employment prior to the Transition Date.

D.  Section 409A Compliance .

1. Notwithstanding the foregoing, to the extent that the total amount of that part of the Transition Period Compensation that is provided by Articles I.A.1 and I.B.1 that becomes payable pursuant to Article I.C and that is not treated as a short-term deferral (as defined in Treas. Reg. § 1.409A-1(b)(4)) exceeds the involuntary separation pay safe harbor limit under Treas. Reg. § 1.409A-1(b)(9)(iii)(A), such amount will not be paid before the earlier of (1) the date that is six months after Executive’s termination of employment (as defined as a “separation from service” in Treas. Reg. § 1.409A-1(h)(1)), or (2) the date of Executive’s death. Any amount of Transition Period Compensation to which Executive would otherwise be entitled during such non-payment period will be accumulated and paid to Executive on the first day of the seventh month following such termination of Executive’s employment, or if earlier, within 30 days of the date of Executive’s death to his surviving spouse (or to Executive’s estate if Executive’s spouse does not survive him).

2. Article I.C and this Agreement will be administered and interpreted to maximize the short-term deferral exception to Section 409A of the Internal Revenue Code, and Executive is not permitted to designate, directly or indirectly, the taxable year of any payment made under this Agreement. The right to a series of installment payments under this Agreement will be treated as a right to a series of separate payments. Any installment payment under this Agreement that is payable during the short-term deferral period (as defined in Treas. Reg. § 1.409A-1(b)(4)) will be treated as a short-term deferral and not aggregated with other plans or payments. Installment payments that do not qualify as short-term deferrals will, to the maximum extent possible, be deemed to satisfy the involuntary separation pay safe harbor under Treas. Reg. § 1.409A-1(b)(9)(iii)(A) and will be treated as a separate payment and not be aggregated with any other payment. Payments that do not satisfy the short-term deferral exception or the involuntary separation pay safe harbor may be delayed only as permitted under Section 409A of the Internal Revenue Code and the regulations thereunder.

E.  Other Rights, Compensation and Benefits . Except as otherwise provided herein, Executive will be entitled to any other rights, compensation, and benefits as may be due to Executive in accordance with the terms and provisions of any agreements, plans, or programs of either or both of ADSC and ADSI.

II. HEALTH BENEFITS AND EXISTING EQUITY

A.  Health, Prescription Drug, Vision and Dental Insurance Benefits after Transition Date . It is the intention of the Parties to ensure that each of Executive and his spouse are provided the same or substantially the same health, prescription drug, vision and dental insurance coverage as they are receiving as of the Transition Date (or the date of termination of Executive’s employment with ADSI, if earlier) (“ Insurance Coverage ”) during the Transition Period and until each of Executive and his wife each becomes eligible for Medicare benefits (or, if earlier, dies) ( together, the “ Insurance Continuation Period ”) (regardless of whether Executive’s employment with ADSI terminates and/or the reason for termination). Therefore, during the Insurance Continuation Period, ADSI shall:

1. provide Executive and his wife, at no cost to them, retiree medical coverage pursuant to an ADSI plan with the same or substantially the same coverages as the Insurance Coverage, but only to the extent that providing such retiree medical coverage is permitted by the terms of an ADSI plan and will not result in taxable income to Executive; OR

2. reimburse Executive for his out-of-pocket cost to obtain the Insurance Coverage from one or more health insurance carriers mutually acceptable to the parties, such reimbursement to be made within thirty (30) days of receipt by ADSI of reasonably acceptable documentation of such cost as incurred; provided that , ADSI and Executive may agree that all or part of the first eighteen (18) months of such reimbursement obligation will be satisfied by ADSI continuing the Insurance Coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA). The amount of premium costs reimbursed during any taxable year during the Insurance Continuation Period may not affect the amount of premium costs reimbursed during any other taxable year during the Insurance Continuation Period. To the extent the Executive’s right to reimbursement hereunder is determined to be subject to Section 409A of the Internal Revenue Code as nonqualified deferred compensation, such right is not subject to liquidation or exchange for other benefits.

B.  Time-Based Restricted Stock (“TBRS”) and Time-Based Restricted Stock Units (“TBRSU”) . ADSC agrees that any TBRS and TBRSU that are scheduled to vest prior to March 31, 2012 shall continue to vest and be paid on the existing schedule through March 31, 2012. Any TBRS and TBRSU granted prior to March 31, 2009 that are unvested as of March 31, 2012 shall be forfeited.

C.  Performance-Based Restricted Stock (“ PBRS ”) and Performance-Based Restricted Stock Units (“ PBRSU ”) . All PBRS or PBRSU for which performance restrictions are scheduled to lapse prior to March 31, 2012 shall continue to vest and be paid on the existing schedule through March 31, 2012. Any PBRS or PBRSU for which performance restrictions have not been met as of March 31, 2012 shall be forfeited.

D.  Stock Options . Executive’s options to acquire shares of ADSC common stock (“ Options ”) that are or shall become vested on or prior to the Transition Date shall be exercisable until the later of March 31, 2012 or the date following completion of the Board Service Period as specified in the Amended and Restated Alliance Data Systems Corporation and its Subsidiaries Stock Option and Restricted Stock Plan, the Alliance Data Systems Corporation 2003 Long Term Incentive Plan, or the Alliance Data Systems Corporation 2005 Long-Term Incentive Plan, whichever is applicable to particular Options (collectively, the “ LTI Plans ”), but in no event shall any Option be exercisable following the expiration of ten (10) years from the date on which the applicable award was granted. Any Options that are unvested as of the Transition Date shall be forfeited.

III. BOARD SERVICE PERIOD

Beginning in June 2011, Executive shall be entitled to receive compensation as a non-employee director of the Board, as determined from time to time by the Board. Nothing contained in this Agreement shall be construed as having granted Executive a right to serve as a member of the Board, and such service may be terminated at any time prior to or during the Board Service Period, if any, as provided in ADSC’s Certificate of Incorporation and Bylaws. Except as set forth in the first sentence of this Article III, none of the payments contemplated in this Agreement are contingent on Executive remaining or serving as a member of the Board.

1

IV. RESTRICTIVE COVENANTS PAYMENTS

In exchange for the agreements and promises made by Executive in Article V, ADSC agrees to provide Executive:

A.  Cash Consideration . Executive shall be eligible to receive a target cash payment to be paid in February 2011 of $877,500.00, with 50% of such target award tied to an operating cash flow target and 50% tied to a cash earnings per share target, each to be defined and established by the Board (or the Compensation Committee thereof) for the Chief Executive Officer and executive committee of management of ADSC for the year 2010 and calculated in accordance with the payout scales set forth on Schedule 1, less required withholdings.

B.  Equity Consideration . ADSC shall grant to Executive 52,000 TBRSU on March 27, 2009. 26,000 of such TBRSU shall vest and be paid on March 1, 2011 and 26,000 shall vest and be paid on March 1, 2012.

Collectively, the payments and awards made to Executive pursuant to this Article IV shall be referred to herein as the “ Restrictive Covenants Payments ”.

V. RESTRICTIVE COVENANTS

A.  Restrictive Covenants . Notwithstanding any other provision contained in this Agreement, Executive acknowledges and agrees that he shall continue to be bound by the post-employment restrictions in any confidentiality, non-solicitation, and/or non-competition agreements (collectively, the “ Confidentiality Agreements ”) signed by Executive, which the parties agree are incorporated herein by reference, with the understanding that nothing contained in the Confidentiality Agreements shall limit the scope of this Article V:

1. Confidentiality and Nondisclosure. Executive agrees that, during the course of Executive’s employment with Alliance Data and because Executive’s position provides him unique insight into the operation of ADSC and its affiliates, Executive has access to certain general and specific information which is confidential and proprietary to Alliance Data and/or its affiliates (hereinafter “ Confidential Informatio n”). Executive agrees th