Exhibit 10.2

EXECUTION VERSION

 

   May 27, 2009    To:    Alliance Data Systems Corporation       17655
Waterview Parkway       Dallas, TX 75252   

  

Attn:

   Chief Financial Officer   

Telephone:

   (972) 348-5100   

Facsimile:

   (972) 348-5326

From:    [Dealer]       [Address]   

  

Attn:

   [                    ]   

Telephone:

  

[                    ]

  

Facsimile:

  

[                    ]

Re:

  

Convertible Bond Hedge Transaction

   (Transaction Reference Number:                    )

Ladies and Gentlemen:

The purpose of this communication (this “Confirmation”) is to set forth the
terms and conditions of the above-referenced transaction entered into on the
Trade Date specified below (the “Transaction”) between [Dealer] (“Dealer”) and
Alliance Data Systems Corporation (“Counterparty”). This communication
constitutes a “Confirmation” as referred to in the ISDA Master Agreement
specified below.

1. This Confirmation is subject to, and incorporates, the definitions and
provisions of the 2006 ISDA Definitions (the “2006 Definitions”) and the
definitions and provisions of the 2002 ISDA Equity Derivatives Definitions (the
“Equity Definitions”, and together with the 2006 Definitions, the
“Definitions”), in each case as published by the International Swaps and
Derivatives Association, Inc. (“ISDA”). In the event of any inconsistency
between the 2006 Definitions and the Equity Definitions, the Equity Definitions
will govern. Certain defined terms used herein have the meanings assigned to
them in the Indenture to be dated as of June 2, 2009 between Counterparty and
The Bank of New York Mellon Trust Company, National Association, as trustee (the
“Indenture”), relating to the USD300,000,000 principal amount of 4.75%
convertible senior notes due 2014 (the “Convertible Securities”). In the event
of any inconsistency between the terms defined in the Indenture and this
Confirmation, this Confirmation shall govern. For the avoidance of doubt,
references herein to sections of the Indenture are based on the draft of the
Indenture most recently reviewed by the parties at the time of execution of this
Confirmation. If any relevant sections of the Indenture are changed, added or
renumbered following execution of this Confirmation but prior to the execution
of the Indenture, the parties will amend this Confirmation in good faith to
preserve the economic intent of the parties. The parties further acknowledge
that references to the Indenture herein are references to the Indenture as in
effect on the date of its execution, and if the Indenture is amended, modified
or supplemented following its execution, any such amendment, modification or
supplement will be disregarded for purposes of this Confirmation (other than for
purposes of Section 8(a)(i) below) unless the parties agree otherwise in
writing.

This Confirmation evidences a complete and binding agreement between Dealer and
Counterparty as to the terms of the Transaction to which this Confirmation
relates. This Confirmation shall be subject to an agreement (the “Agreement”) in
the form of the ISDA 2002 Master Agreement (the “ISDA Form”) as if Dealer and
Counterparty had executed an agreement in such form (without any Schedule but
with the elections set forth in this Confirmation) on the Trade Date. For the
avoidance of doubt, the Transaction shall be the only transaction under the
Agreement.

All provisions contained in, or incorporated by reference to, the Agreement will
govern this Confirmation except as expressly modified herein. In the event of
any inconsistency between this Confirmation and either the Definitions or the
Agreement, this Confirmation shall govern.

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2. The Transaction constitutes a Share Option Transaction for purposes of the
Equity Definitions. The terms of the particular Transaction to which this
Confirmation relates are as follows:

General Terms:

 

 

Trade Date:

   May 27, 2009  

Effective Date:

   The closing date for the initial issuance of the Convertible Securities.  

Option Type:

   Call  

Seller:

   Dealer  

Buyer:

   Counterparty  

Shares:

   The common stock of Counterparty, par value USD0.01 per share (Exchange
Symbol: “ADS”).  

Number of Options:

   The number of Convertible Securities in denominations of USD1,000 principal
amount issued by Counterparty on the closing date for the initial issuance of
the Convertible Securities. For the avoidance of doubt, the Number of Options
shall not be increased as a result of the exercise by Merrill Lynch, Pierce,
Fenner & Smith Incorporated, J.P. Morgan Securities Inc. and Barclays Capital
Inc., as representatives of the Initial Purchasers (as defined in the Purchase
Agreement), of their option pursuant to Section 2(c) of the Purchase Agreement
dated as of May 27, 2009 among Counterparty and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, J.P. Morgan Securities Inc. and Barclays Capital Inc., as
representatives of the Initial Purchasers party thereto (the “Purchase
Agreement”).  

Number of Shares:

   As of any date, the product of the Number of Options, the Conversion Rate and
the Applicable Percentage.  

Conversion Rate:

   As of any date, the “Conversion Rate” (as defined in the Indenture) as of
such date, but without regard to any adjustments to the “Conversion Rate”
pursuant to Sections 15.03 or 15.04(i) of the Indenture.  

Applicable Percentage:

   [    ]%1  

Premium:

   USD[            ]2 (Premium per Option USD[            ]3 ).  

Premium Payment Date:

   The Effective Date.  

Exchange:

   New York Stock Exchange  

Related Exchange:

   All Exchanges Procedures for Exercise:     

Potential Exercise Dates:

   Each Conversion Date.  

Conversion Date:

   Each “Conversion Date”, as defined in the Indenture, occurring

 

1

For Bank of America, N.A. (“BofA”), insert 50%. For each of Barclays Bank PLC
(“Barclays”) and JPMorgan Chase Bank, National Association, London Branch
(“JPM”), insert 25%.

2

For BofA, insert 35,115,000. For each of Barclays and JPM, insert 17,557,500.

3

For BofA, insert 117.05. For each of Barclays and JPM, insert 58.5250.

 

2

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     during the period from and excluding the Trade Date to and including the
Expiration Date, for Convertible Securities, each in denominations of USD1,000
principal amount, that are submitted and meet the requirements for conversion on
such Conversion Date in accordance with the terms of the Indenture (excluding
Convertible Securities submitted on such date with respect to which Counterparty
makes an “Exchange in Lieu of Conversion” election (an “Exchange Election”)
pursuant to Section 15.11 of the Indenture (“Excluded Convertible Securities”))
(such Convertible Securities, other than Excluded Convertible Securities, the
“Relevant Convertible Securities” for such Conversion Date). For the avoidance
of doubt, Counterparty will not provide Dealer with a Notice of Exercise with
respect to any Excluded Convertible Securities for what would otherwise be the
corresponding Conversion Date, and such Excluded Convertible Securities may
subsequently trigger the exercise of Options hereunder if such Excluded
Convertible Securities are resubmitted and meet the requirements for conversion
in accordance with the terms of the Indenture (and are not subject to a
subsequent Exchange Election).      If the financial institution designated in
connection with any Exchange Election does not accept any Excluded Convertible
Securities for exchange or does not timely deliver the related conversion
consideration for any accepted securities (a “Failed Exchange Election”),
Counterparty will promptly provide Dealer with notice of such Failed Exchange
Election, which notice shall specify the number of Options corresponding to such
Excluded Convertible Securities, and such Failed Exchange Election shall be an
Additional Termination Event as to which the portion of the Transaction
described below shall be the sole Affected Transaction, Counterparty shall be
the sole Affected Party, and Dealer will promptly designate an Early Termination
Date pursuant to Section 6(b) of the Agreement with respect to the number of
Options corresponding to such Excluded Convertible Securities; provided that the
Early Termination Amount with respect to such number of Options shall be capped
so that it does not exceed the value of the Delivery Obligation that Dealer
would have been required to deliver hereunder if such Options had been
exercised.   Required Exercise on Conversion Dates:    On each Conversion Date,
a number of Options equal to the number of Relevant Convertible Securities for
such Conversion Date in denominations of USD1,000 principal amount shall be
automatically exercised.   Expiration Date:    The second “Scheduled Trading
Day” immediately preceding the “Maturity Date” (each as defined in the
Indenture).   Automatic Exercise:    As provided above under “Required Exercise
on Conversion Dates”.   Notice Deadline:    In respect of any exercise of
Options hereunder on any Conversion Date, the Exchange Business Day prior to the
first “Scheduled Trading Day” (as defined in the Indenture) of the “Cash
Settlement Averaging Period” (as defined in the Indenture and, for the avoidance
of doubt, irrespective of whether Counterparty’s election of the settlement
method with respect to the Relevant

 

3

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     Convertible Securities includes any portion thereof to be delivered in
cash) relating to the Convertible Securities converted on the Conversion Date
occurring on the relevant Exercise Date; provided that in the case of any
exercise of Options hereunder in connection with the conversion of any Relevant
Convertible Securities on any Conversion Date occurring during the period
beginning on, and including, January 13, 2014 and ending on, and including, the
second “Scheduled Trading Day” immediately preceding the “Maturity Date” (each
as defined in the Indenture) (the “Final Conversion Period”), the Notice
Deadline shall be the Exchange Business Day immediately following such
Conversion Date.   Notice of Exercise:    Notwithstanding anything to the
contrary in the Equity Definitions, Dealer shall have no obligation to make any
payment or delivery in respect of any exercise of Options hereunder unless
Counterparty notifies Dealer in writing prior to 5:00 P.M., New York City time,
on the Notice Deadline in respect of such exercise of (i) the number of Options
being exercised on such Exercise Date, (ii) the scheduled settlement date under
the Indenture for the Convertible Securities converted on the Conversion Date
corresponding to such Exercise Date, (iii) whether such Relevant Convertible
Securities will be settled by Counterparty by delivery of cash, Shares or a
combination of cash and Shares and, if such a combination, the “Specified Dollar
Amount” (as defined in the Indenture) and (iv) the first “Scheduled Trading Day”
of the “Cash Settlement Averaging Period” (each as defined in the Indenture);
provided that in the case of any exercise of Options hereunder in connection
with the conversion of any Relevant Convertible Securities on any Conversion
Date occurring during the Final Conversion Period, the contents of such notice
shall be as set forth in clause (i) above. Counterparty acknowledges its
responsibilities under applicable securities laws, and in particular Section 9
and Section 10(b) of the Exchange Act (as defined below) and the rules and
regulations thereunder, in respect of any election of a settlement method with
respect to the Convertible Securities.      For the avoidance of doubt, if
Counterparty fails to give such notice when due in respect of any exercise of
Options hereunder, Dealer’s obligation to make any payment or delivery in
respect of such exercise shall be permanently extinguished, and late notice
shall not cure such failure; provided that notwithstanding the foregoing, such
notice (and the related exercise of Options) shall be effective if given after
the Notice Deadline, but prior to (x) in the case of the Final Conversion
Period, 5:00 P.M. New York City time, on the Scheduled Trading Day immediately
preceding the relevant Settlement Date and (y) in all other cases, 5:00 P.M. New
York City time, on the fifth Exchange Business Day following the Notice
Deadline, in which event, except in the case of the Final Conversion Period, the
Calculation Agent shall have the right to adjust the Delivery Obligation as
appropriate to reflect the additional costs (including, but not limited to,
hedging mismatches and market losses) and expenses incurred by Dealer in
connection with its hedging activities (including the unwinding of any hedge
position) as a result of Dealer not having received such notice on or prior to
the Notice Deadline.

 

4

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  Notice of Specified Dollar Amount for Conversions during the Free
Convertibility Period:    Counterparty shall notify Dealer in writing before
5:00 P.M. (New York City time) on the “Scheduled Trading Day” immediately prior
to January 13, 2014 of the election by the Counterparty, in accordance with
Section 15.02(b)(iii) of the Indenture, of the settlement method and, if
applicable, the “Specified Dollar Amount” (each as defined in the Indenture)
applicable to the Relevant Convertible Securities with a Conversion Date
occurring on or after January 13, 2014 and ending on, and including, the second
“Scheduled Trading Day” immediately preceding the “Maturity Date” (each as
defined in the Indenture) (the “Free Convertibility Period”). If Counterparty
fails timely to provide such notice, Counterparty shall be deemed to have
notified Dealer of a “Specified Dollar Amount” (as defined in the Indenture) of
USD1,000 for all conversions occurring during the Free Convertibility Period.
Counterparty agrees that it shall settle any Relevant Convertible Securities
with a Conversion Date occurring during the Free Convertibility Period in the
same manner as provided in the Notice of Specified Dollar Amount for Conversions
during the Free Convertibility Period it provides or is deemed to have provided
hereunder.   Dealer’s Telephone Number and Telex and/or Facsimile Number and
Contact Details for purpose of Giving Notice:    To be provided by Dealer.

Settlement Terms:

     Settlement Date:    In respect of an Exercise Date occurring on a
Conversion Date, the settlement date for the cash and Shares (if any) to be
delivered in respect of the Relevant Convertible Securities converted on such
Conversion Date pursuant to Section 15.01(a) of the Indenture; provided that the
Settlement Date will not be prior to the latest of (i) the date that is one
Settlement Cycle following the final day of the relevant Cash Settlement
Averaging Period (as modified by the provision set forth opposite the caption
“Convertible Security Settlement Method”), (ii) the Exchange Business Day
immediately following the date on which Counterparty gives notice to Dealer of
such Settlement Date prior to 5:00 P.M., New York City time and (iii) the
Exchange Business Day immediately following the date Counterparty provides the
Notice of Delivery Obligation prior to 5:00 P.M., New York City time.   Delivery
Obligation:    In lieu of the obligations set forth in Sections 8.1 and 9.1 of
the Equity Definitions, and subject to “Notice of Exercise” above, in respect of
an Exercise Date occurring on a Conversion Date, Dealer will deliver to
Counterparty, on the related Settlement Date, a number of Shares and/or amount
of cash in USD equal to the product of (i) the Applicable Percentage and (ii)
the aggregate number of Shares that Counterparty would be obligated to deliver
to the holder(s) of the Relevant Convertible Securities converted on such
Conversion Date pursuant to Section 15.02(b) of the Indenture and/or the
aggregate amount of cash, if any, in excess of USD1,000 per Convertible Security
(in denominations of USD1,000) that Counterparty would be obligated to deliver
to holder(s) pursuant to Section 15.02(b) of the Indenture and cash in lieu of
fractional Shares, if any, as if Counterparty had elected to

 

5

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     satisfy its conversion obligation in respect of such Relevant Convertible
Securities by the Convertible Security Settlement Method, notwithstanding any
different actual election by Counterparty with respect to the settlement of such
Relevant Convertible Securities (the “Convertible Obligation”); provided that
such obligation shall be determined excluding any Shares and/or cash that
Counterparty is obligated to deliver to holder(s) of the Relevant Convertible
Securities as a result of any adjustments to the Conversion Rate pursuant to
Sections 15.03 or 15.04(i) of the Indenture; and provided further that if such
exercise relates to the conversion of Relevant Convertible Securities in
connection with which holders thereof are entitled to receive additional Shares
and/or cash pursuant to the adjustments to the Conversion Rate set forth in
Section 15.03 of the Indenture, then, notwithstanding the foregoing, the
Delivery Obligation shall include the Applicable Percentage of such additional
Shares and/or cash, except that the Delivery Obligation shall be capped so that
the value of the Delivery Obligation per Option (with the value of any Shares
included in the Delivery Obligation determined by the Calculation Agent using
the VWAP Price on the last day of the relevant Cash Settlement Averaging Period
(as modified by the provision set forth opposite the caption “Convertible
Security Settlement Method”)) does not exceed the amount as determined by the
Calculation Agent that would be payable by Dealer pursuant to Section 6 of the
Agreement if such Conversion Date were an Early Termination Date resulting from
an Additional Termination Event with respect to which the Transaction (except
that, for purposes of determining such amount (x) the Number of Options shall be
deemed to be equal to the number of Options exercised on such Exercise Date and
(y) such amount payable will be determined as if Section 15.03 of the Indenture
were deleted) was the sole Affected Transaction and Counterparty was the sole
Affected Party (determined without regard to Section 8(b) of this Confirmation).
Notwithstanding the foregoing, and in addition to the cap described in the
further proviso to the preceding sentence, in all events the Delivery Obligation
shall be capped so that the value of the Delivery Obligation does not exceed the
Applicable Percentage of the value of the Convertible Obligation (with the
Convertible Obligation determined based on the actual settlement method elected
by Counterparty with respect to such Relevant Convertible Securities instead of
the Convertible Security Settlement Method and with the value of any Shares
included in either the Delivery Obligation or such Convertible Obligation
determined by the Calculation Agent using the VWAP Price on the last day of the
relevant Cash Settlement Averaging Period (as modified by the provision set
forth opposite the caption “Convertible Security Settlement Method”)).  
Convertible Security Settlement Method:    For any Relevant Convertible
Securities, if Counterparty has notified Dealer in the related Notice of
Exercise (or in the Notice of Specified Dollar Amount for Conversions during the
Free Convertibility Period, as the case may be) that it has elected (or been
deemed to have elected) to satisfy its conversion obligation in respect of such
Relevant Convertible Securities in cash or in a combination of cash and Shares
in accordance with Section 15.02(b)(iii) of the Indenture (a “Cash Election”)
with a

 

6

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     “Specified Dollar Amount” (as defined in the Indenture) of at least
USD1,000, the Convertible Security Settlement Method shall be the settlement
method actually so elected by Counterparty (or been deemed to have elected) in
respect of such Relevant Convertible Securities; otherwise, the Convertible
Security Settlement Method shall (i) assume Counterparty had made a Cash
Election with respect to such Relevant Convertible Securities with a “Specified
Dollar Amount” (as defined in the Indenture) of USD1,000 per Relevant
Convertible Security and (ii) be calculated as if the relevant “Cash Settlement
Averaging Period” (as defined in the Indenture) consisted of 80 “Trading Days”
commencing on (x) the third “Scheduled Trading Day” (each as defined in the
Indenture) after the Conversion Date for conversions occurring prior to the Free
Convertibility Period or (y) the 82 “Scheduled Trading Day” prior to the
“Maturity Date” (each as defined in the Indenture) for conversions occurring
during the Free Convertibility Period.   Notice of Delivery Obligation:    No
later than the second Exchange Business Day immediately following the last day
of the relevant Cash Settlement Averaging Period (as modified by the provision
set forth opposite the caption “Convertible Security Settlement Method”),
Counterparty shall give Dealer notice of the final number of Shares and/or cash
comprising the Convertible Obligation; provided that, with respect to any
Exercise Date occurring during the Final Conversion Period, Counterparty may
provide Dealer with a single notice of an aggregate number of Shares and/or cash
comprising the Convertible Obligations for all Exercise Dates occurring in such
period (it being understood, for the avoidance of doubt, that the requirement of
Counterparty to deliver such notice shall not limit Counterparty’s obligations
with respect to Notice of Exercise or Notice of Specified Dollar Amount for
Conversions during the Free Convertibility Period or Dealer’s obligations with
respect to Delivery Obligation, each as set forth above, in any way).  
Other Applicable Provisions:    To the extent Dealer is obligated to deliver
Shares hereunder, the provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11
(except that the Representation and Agreement contained in Section 9.11 of the
Equity Definitions shall be modified by excluding any representations therein
relating to restrictions, obligations, limitations or requirements under
applicable securities laws arising as a result of the fact that Counterparty is
the Issuer of the Shares) and 9.12 of the Equity Definitions will be applicable
as if “Physical Settlement” applied to the Transaction.  
Restricted Certificated Shares:    Notwithstanding anything to the contrary in
the Equity Definitions, Dealer may, in whole or in part, deliver Shares required
to be delivered to Counterparty hereunder in certificated form in lieu of
delivery through the Clearance System. Section 9.11 of the Equity Definitions
shall be amended by excluding any representations therein relating to
restrictions, obligations, limitations or requirements under applicable
securities laws arising as a result of the fact that Counterparty is the Issuer
of the Shares. Share Adjustments:      Method of Adjustment:    Notwithstanding
Section 11.2 of the Equity Definitions, upon the occurrence of any event or
condition set forth in Sections 15.04(a)-(e) of the Indenture, the Calculation
Agent shall make a

 

7

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     corresponding adjustment to any variable relevant to the exercise,
settlement, payment or other terms of the Transaction to the extent an analogous
adjustment is made under the Indenture. Promptly following the calculation of
any adjustment to the Conversion Rate pursuant to the terms of the Indenture,
Counterparty shall notify the Calculation Agent in writing of the details of
such adjustment. Extraordinary Events:      Merger Events:    Notwithstanding
Section 12.1(b) of the Equity Definitions, a “Merger Event” means the occurrence
of any event or condition set forth in Section 15.06 of the Indenture.  
Consequences of Merger Events:    Notwithstanding Sections 12.2 and 12.3 of the
Equity Definitions, upon the occurrence of a Merger Event, the Calculation Agent
shall make the corresponding adjustment in respect of any adjustment under the
Indenture to any one or more of the nature of the Shares, the Number of Options,
the Option Entitlement and any other variable relevant to the exercise,
settlement, payment or other terms of the Transaction; provided that such
adjustment shall be made without regard to any adjustment to the Conversion Rate
pursuant to Sections 15.03 or 15.04(i) of the Indenture; and provided further
that if, with respect to a Merger Event, the consideration for the Shares
includes (or, at the option of a holder of Shares, may include) shares (or
depositary receipts with respect to shares) of an entity or person not organized
under the laws of the United States, any State thereof or the District of
Columbia, and the Calculation Agent determines that (x) treating such shares or
depositary receipts as “Reference Property” (as such term is defined in the
Indenture) will have a material adverse effect on Dealer’s rights or obligations
in respect of the Transaction, on its Hedging Activities in respect of the
Transaction or on the costs (including, without limitation, due to any increase
in tax liability, decrease in tax benefit or other adverse effect on its tax
position) of engaging in any of the foregoing and (y) Dealer cannot promptly
avoid the occurrence of each such material adverse effect by (I) transferring or
assigning its rights and obligations under this Confirmation and the Agreement
pursuant to Section 8(f) to an affiliate of Dealer that regularly engages in
transactions similar to the Transaction or (II) amending the terms of this
Confirmation (whether because amendments would not avoid such occurrence or
because Counterparty fails to agree promptly to such amendments), then
Cancellation and Payment (Calculation Agent Determination) shall apply.  
Notice of Merger Consideration:    Upon the occurrence of a Merger Event that
causes the Shares to be converted into the right to receive more than a single
type of consideration (determined based in part upon any form of stockholder
election), Counterparty shall reasonably promptly (but, in any event on or prior
to the relevant merger date) notify the Calculation Agent of (i) the weighted
average of the types and amounts of consideration to be received by the holders
of Shares entitled to receive cash, securities or other property or assets with
respect to or in exchange for such Shares in any Merger Event who affirmatively
make such an election and (ii) the details of the adjustment to be made under
the Indenture in respect of such Merger Event.

 

8

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  Nationalization, Insolvency or Delisting:    Cancellation and Payment
(Calculation Agent Determination); provided that, in addition to the provisions
of Section 12.6(a)(iii) of the Equity Definitions, it shall also constitute a
Delisting if the Exchange is located in the United States and the Shares are not
immediately re-listed, re-traded or re-quoted on any of the New York Stock
Exchange, the American Stock Exchange, The NASDAQ Global Select Market or The
NASDAQ Global Market (or their respective successors); if the Shares are
immediately re-listed, re-traded or re-quoted on any such exchange or quotation
system, such exchange or quotation system shall thereafter be deemed to be the
Exchange.   Additional Disruption Events:        (a)    Change in Law:   
Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions shall be
amended by (i) deleting the word “or” after the parenthetical “(including,
without limitation, any tax law)” in clause (A) thereof, (ii) inserting after
the parenthetical in clause (B) thereof the following words “or (C) due to a law
or regulation or interpretation becoming applicable as a result of
Counterparty’s or one or more of its subsidiaries entering a new business or
changing the jurisdiction of organization of Counterparty or one or more of its
subsidiaries or as a result of any other action taken by Counterparty or one or
more of its subsidiaries”, (iii) deleting the word “or” before “(Y)” in the
seventh line thereof and (iv) inserting after the parenthetical in clause (Y)
the following words “or (Z) in the case of a Change in Law described in clause
(C), there will be a not insignificant adverse effect on Dealer or any of its
affiliates in respect of such Transaction or any related transactions”; and
provided further that to the extent any increased cost described in clause (Y)
of Section 12.9(a)(ii) of the Equity Definitions is of a type also described in
Section 12.9(a)(vi) of the Equity Definitions, then the consequences provided
with respect to “Increased Cost of Hedging” in Section 12.9(b)(vi) of the Equity
Definitions shall apply.     (b)    Failure to Deliver:    Applicable     (c)   
Insolvency Filing:    Applicable     (d)    Hedging Disruption:    Not
Applicable     (e)    Increased Cost of Hedging:    Not Applicable   Hedging
Party:    For all applicable Additional Disruption Events, Dealer   Determining
Party:    For all applicable Additional Disruption Events, Dealer  
Non-Reliance:    Applicable   Agreements and Acknowledgments Regarding Hedging
Activities:    Applicable   Additional Acknowledgments:    Applicable

 

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3. Calculation Agent:

  

Dealer. Following any determination or calculation by the Calculation Agent
hereunder, the Calculation Agent will use its reasonable best efforts to provide
to Counterparty by e-mail promptly following such determination or calculation
(but in any event no later than three Scheduled Trading Days after any request
by Counterparty) a report (in a commonly used file format for the storage and
manipulation of financial data without disclosing Dealer’s proprietary models)
displaying in reasonable detail the basis for such determination or calculation,
as the case may be.

 

4. Account Details:

  Dealer Payment Instructions: [            ]     

Counterparty Payment Instructions:

   To be provided by Counterparty.   5. Offices:      The Office of Dealer for
the Transaction is:

 

[Dealer]

  

[Address]

  

Attention:

  

[            ]

Telephone:

  

[            ]

Facsimile:

  

[            ]

 

  The Office of Counterparty for the Transaction is: Not applicable   6.
Notices: For purposes of this Confirmation:     Address for notices or
communications to Counterparty:

 

To:    Alliance Data Systems Corporation    17655 Waterview Parkway    Dallas,
TX 75252 Attn:    Chief Financial Officer Telephone:    (972) 348-5100
Facsimile:    (972) 348-5326

Address for notices or communications to Dealer:

 

To:    [Dealer]    [Address] Attn:   

[            ]

Telephone:   

[            ]

Facsimile:   

[            ]

7. Representations, Warranties and Agreements:

(a) In addition to the representations and warranties in the Agreement and those
contained elsewhere herein, Counterparty represents and warrants to and for the
benefit of, and agrees with, Dealer as follows:

(i) On the Trade Date, and as of the date of any election by Counterparty of the
Share Termination Alternative under (and as defined in) Section 8(b) below,
(A) Counterparty is not aware of any material nonpublic information regarding
Counterparty or the Shares and (B) all reports and other documents filed by
Counterparty with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) when considered
as a whole (with the more recent such reports and documents deemed to amend
inconsistent statements contained in any earlier such reports and documents), do
not contain any untrue statement of a material fact or any omission of a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading.

 

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(ii) (A) On the Trade Date, transactions in the Shares are not prohibited by
Regulation M under the Exchange Act (“Regulation M”) as a result of such
transactions meeting the requirements of the exceptions set forth in Sections
101(b)(10) and 102(b)(7) of Regulation M and (B) Counterparty shall not engage
in any “distribution,” as such term is defined in Regulation M, other than a
distribution as to which the exceptions set forth in sections 101(b)(10) and
102(b)(7) of Regulation M are available, until the second Exchange Business Day
immediately following the Trade Date.

(iii) On the Trade Date, other than (A) purchases of Shares pursuant to the
prepaid forward transactions entered into by Counterparty on the date hereof in
connection with the issuance of the Convertible Securities; (B) purchases from,
by or on behalf of directors, officers and employees of Counterparty and its
affiliates that are not “Rule 10b-18 purchases” as such term is defined in Rule
10b-18 under the Exchange Act (“Rule 10b-18”) and (C) purchases pursuant to any
preexisting obligation arising under any employee benefit plan of Counterparty
or its subsidiaries, neither Counterparty nor any “affiliate” or “affiliated
purchaser” (each as defined in Rule 10b-18) shall directly or indirectly
(including, without limitation, by means of any cash-settled or other derivative
instrument) purchase, offer to purchase, place any bid or limit order that would
effect a purchase of, or commence any tender offer relating to, any Shares (or
an equivalent interest, including a unit of beneficial interest in a trust or
limited partnership or a depository share) or any security convertible into or
exchangeable or exercisable for Shares.

(iv) Without limiting the generality of Section 13.1 of the Equity Definitions,
Counterparty acknowledges that Dealer is not making any representations or
warranties with respect to the treatment of the Transaction under FASB
Statements 128, 133, 149 (each as amended), or 150, EITF Issue No. 00-19, 01-6,
03-6 or 07-5 (or any successor issue statements) or under FASB’s Liabilities &
Equity Project.

(v) Without limiting the generality of Section 3(a)(iii) of the Agreement, the
Transaction will not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act.

(vi) Counterparty shall deliver to Dealer a certified copy of the resolution of
Counterparty’s board of directors (or a duly authorized committee thereof)
authorizing the Transaction on or prior to the Trade Date.

(vii) Counterparty is not entering into this Confirmation to create actual or
apparent trading activity in the Shares (or any security convertible into or
exchangeable for Shares) or to raise or depress or otherwise manipulate the
price of the Shares (or any security convertible into or exchangeable for
Shares) or otherwise in violation of the Exchange Act.

(viii) Counterparty is not, and after giving effect to the transactions
contemplated hereby will not be, an “investment company” as such term is defined
in the Investment Company Act of 1940, as amended.

(ix) On each of the Trade Date and the Premium Payment Date, Counterparty would
be able to purchase the Shares hereunder in compliance with the laws of the
jurisdiction of its incorporation.

(x) Counterparty understands no obligations of Dealer to it hereunder will be
entitled to the benefit of deposit insurance and that such obligations will not
be guaranteed by any affiliate of Dealer or any governmental agency.

(xi) On the Trade Date (A) the assets of Counterparty at their fair valuation
exceed the liabilities of Counterparty, including contingent liabilities,
(B) the capital of Counterparty is adequate to conduct the business of
Counterparty and (C) Counterparty has the ability to pay its debts and
obligations as such debts mature and does not intend to, or does not believe
that it will, incur debt beyond its ability to pay as such debts mature.

(xii) On the Trade Date, Counterparty is not subject to the requirements of the
Bank Holding Company Act of 1956, as amended (the “BHCA”). Counterparty shall
promptly notify Dealer upon becoming aware that it is subject to the
requirements of the BHCA after the Trade Date.

(b) Each of Dealer and Counterparty agrees and represents that it is an
“eligible contract participant” as defined in Section 1a(12) of the U.S.
Commodity Exchange Act, as amended.

 

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(c) Each of Dealer and Counterparty acknowledges that the offer and sale of the
Transaction to it is intended to be exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”), by virtue of
Section 4(2) thereof. Accordingly, Counterparty represents and warrants to
Dealer that (i) it has the financial ability to bear the economic risk of its
investment in the Transaction and is able to bear a total loss of its
investment, (ii) it is an “accredited investor” as that term is defined in
Regulation D as promulgated under the Securities Act, (iii) it is entering into
the Transaction for its own account and without a view to the distribution or
resale thereof, and (iv) the assignment, transfer or other disposition of the
Transaction has not been and will not be registered under the Securities Act and
is restricted under this Confirmation, the Securities Act and state securities
laws.

(d) Each of Dealer and Counterparty agrees and acknowledges that Dealer is a
“financial institution,” “swap participant” and “financial participant” within
the meaning of Sections 101(22), 101(53C) and 101(22A) of Title 11 of the United
States Code (the “Bankruptcy Code”). The parties hereto further agree and
acknowledge (A) that this Confirmation is (i) a “securities contract,” as such
term is defined in Section 741(7) of the Bankruptcy Code, with respect to which
each payment and delivery hereunder or in connection herewith is a “termination
value,” “payment amount” or “other transfer obligation” within the meaning of
Section 362 of the Bankruptcy Code and a “settlement payment,” as such term is
defined in Section 741(8) of the Bankruptcy Code, and (ii) a “swap agreement,”
as such term is defined in Section 101(53B) of the Bankruptcy Code, with respect
to which each payment and delivery hereunder or in connection herewith is a
“termination value,” “payment amount” or “other transfer obligation” within the
meaning of Section 362 of the Bankruptcy Code and a “transfer,” as such term is
defined in Section 101(54) of the Bankruptcy Code, and (B) that Dealer is
entitled to the protections afforded by, among other sections, Sections
362(b)(6), 362(b)(17), 362(o); 546(e), 546(g), 548(d)(2); 555 and 560 of the
Bankruptcy Code.

(e) Counterparty shall deliver to Dealer an opinion of counsel, dated as of the
Effective Date and reasonably acceptable to Dealer in form and substance, with
respect to the matters set forth in Section 3(a) of the Agreement; provided that
such opinion of counsel may contain customary exceptions and qualifications,
including without limitation exceptions or qualifications relating to
indemnification provisions.

8. Other Provisions:

(a) Additional Termination Events.

(i) The occurrence of an Amendment Event shall be an Additional Termination
Event hereunder with respect to which the Transaction is the sole Affected
Transaction and Counterparty is the sole Affected Party and Dealer shall be the
party entitled to designate an Early Termination Date with respect thereto
pursuant to Section 6(b) of the Agreement. Upon a written request by
Counterparty prior to the occurrence of an event that would otherwise constitute
an Amendment Event, Dealer shall use good faith efforts to propose an adjustment
to the terms of the Transaction to preserve the economic intent of the parties.
If Dealer proposes such an adjustment and Counterparty accepts Dealer’s proposed
adjustment prior to the occurrence of such event, Dealer shall so adjust the
Transaction and such event shall not constitute an Amendment Event.

“Amendment Event” means that, without the prior written consent of Dealer (such
consent not to be unreasonably withheld or delayed), Counterparty amends,
modifies, supplements, waives or obtains a waiver in respect of any term of the
Indenture or the Convertible Securities governing the principal amount, coupon,
maturity, repurchase obligation of Counterparty, redemption right of
Counterparty, any term relating to conversion of the Convertible Securities
(including changes to the conversion price, conversion settlement dates or
conversion conditions) or any term that would require consent of the holders of
not less than 100% of the principal amount of the Convertible Securities to
amend.

(ii) The occurrence of an “Event of Default” with respect to Counterparty under
the terms of the Convertible Securities as set forth in Section 7.01 of the
Indenture shall be an Additional Termination Event with respect to which the
Transaction is the sole Affected Transaction and Counterparty is the sole
Affected Party and Dealer shall be the party entitled to designate an Early
Termination Date with respect thereto pursuant to Section 6(b) of the Agreement.

(iii) The occurrence of (x) a Repayment Event or (y) an Unexercised Options
Event shall be an Additional Termination Event with respect to which the
Transaction is the sole Affected Transaction, Counterparty is the sole Affected
Party and Dealer shall upon Counterparty’s notice to Dealer thereof, which
notice shall be delivered to Dealer on the date of such Repayment Event in the
case of a Repayment Event, promptly designate an Early Termination Date pursuant
to Section 6(b) of the Agreement; provided that in either case the Transaction
shall only be terminated in respect of the portion of the Transaction
corresponding to

 

12

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the number of Convertible Securities that cease to be outstanding in connection
with, as a result of or following such Repayment Event or Unexercised Options
Event; and provided further that in the case of an Unexercised Options Event,
the value of the Early Termination Amount shall be capped so that the Early
Termination Amount does not exceed in the case of an Unexercised Options Event,
the value of the Applicable Percentage of the cash, if any, and Shares, if any,
in excess of USD1,000 per Convertible Security (in denominations of USD1,000)
that Counterparty is obligated to deliver to the holder(s) of the Relevant
Convertible Securities converted on the relevant Conversion Date (with the value
of any Shares included in such consideration determined by the Calculation Agent
using the VWAP on the last day of the relevant Cash Settlement Averaging Period
(as modified by the provision set forth opposite the caption “Convertible
Security Settlement Method”)).

“Repayment Event” means that (A) any Convertible Securities are repurchased
(whether in connection with or as a result of a fundamental change, howsoever
defined, or for any other reason) by Counterparty or any of its subsidiaries,
(B) any Convertible Securities are delivered to Counterparty or any of its
subsidiaries in exchange for delivery of any property or assets of Counterparty
or any of its subsidiaries (howsoever described), (C) any principal of any of
the Convertible Securities is repaid prior to the final maturity date of the
Convertible Securities (whether following acceleration of the Convertible
Securities or otherwise), or (D) any Convertible Securities are exchanged by or
for the benefit of the holders thereof for any other securities of Counterparty
or any of its affiliates (or any other property, or any combination thereof)
pursuant to any exchange offer or similar transaction; provided that, in the
case of clause (B) and clause (D), conversions of Convertible Securities
pursuant to the terms of the Indenture and, for the avoidance of doubt, exchange
of Convertible Securities in connection with an Exchange Election shall not be
Repayment Events.

“Unexercised Options Event” means that Counterparty fails to give Dealer the
Notice of Exercise in writing prior to, in respect of any exercise of Options
(x) in the case of the Final Conversion Period, 5:00 P.M., New York City time,
on the Scheduled Trading Day preceding the relevant Settlement Date and (y) in
all other cases, 5:00 P.M., New York City time, on the fifth Exchange Business
Day following the relevant Notice Deadline.

(iv) The occurrence of a Failed Exchange Election shall be an Additional
Termination Event for which the provisions set forth opposite the caption
“Procedures for Exercise—Conversion Date” shall govern.

(b) Alternative Calculations and Payment on Early Termination and on Certain
Extraordinary Events. If Dealer shall owe Counterparty any amount pursuant to
“Consequences of Merger Events” above or Sections 12.6, 12.7 or 12.9 of the
Equity Definitions (except in the event of an Insolvency, a Nationalization or a
Merger Event, in each case, in which the consideration or proceeds to be paid to
holders of Shares consists solely of cash) or pursuant to Section 6(d)(ii) of
the Agreement (except in the event of an Event of Default in which Counterparty
is the Defaulting Party or a Termination Event in which Counterparty is the
Affected Party, that resulted from an event or events within Counterparty’s
control) (a “Payment Obligation”), Counterparty shall have the right, in its
sole discretion, to require Dealer to satisfy any such Payment Obligation by the
Share Termination Alternative (as defined below) by giving irrevocable
telephonic notice to Dealer, confirmed in writing within one Scheduled Trading
Day, between the hours of 8:00 A.M. and 5:00 P.M. New York City time on the
relevant merger date, Announcement Date, Early Termination Date or date of
cancellation or termination in respect of an Additional Disruption Event, as
applicable (“Notice of Share Termination”); provided that if Counterparty does
not require Dealer to satisfy its Payment Obligation by the Share Termination
Alternative, Dealer shall have the right, in its sole discretion, to elect to
satisfy its Payment Obligation by the Share Termination Alternative,
notwithstanding Counterparty’s failure to elect or election to the contrary.
Upon such Notice of Share Termination or such Dealer election, the following
provisions shall apply on the Scheduled Trading Day immediately following the
relevant merger date, Announcement Date, Early Termination Date or date of
cancellation or termination in respect of an Additional Disruption Event, as
applicable:

 

Share Termination Alternative:   Applicable and means that Dealer shall deliver
to Counterparty the Share Termination Delivery Property on the date on which the
Payment Obligation would otherwise be due pursuant to “Consequences of Merger
Events” above, Section 12.7 or 12.9 of the Equity Definitions or
Section 6(d)(ii) of the Agreement, as applicable, or such later date as the
Calculation Agent may reasonably determine (the “Share Termination Payment
Date”), in satisfaction of the Payment Obligation.

 

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Share Termination Delivery

Property:

  A number of Share Termination Delivery Units, as calculated by the Calculation
Agent, equal to the Payment Obligation divided by the Share Termination Unit
Price. The Calculation Agent shall adjust the Share Termination Delivery
Property by replacing any fractional portion of a security therein with an
amount of cash equal to the value of such fractional security based on the
values used to calculate the Share Termination Unit Price. Share Termination
Unit Price:   The value of property contained in one Share Termination Delivery
Unit, as determined by the Calculation Agent in its discretion by commercially
reasonable means and notified by the Calculation Agent to Dealer at the time of
notification of the Payment Obligation. Share Termination Delivery Unit:   In
the case of a Termination Event, Event of Default, Delisting or Additional
Disruption Event, one Share or, in the case of an Insolvency, Nationalization or
Merger Event, a unit consisting of the number or amount of each type of property
received by a holder of one Share (without consideration of any requirement to
pay cash or other consideration in lieu of fractional amounts of any securities)
in such Insolvency, Nationalization or Merger Event. If such Insolvency,
Nationalization or Merger Event involves a choice of consideration to be
received by holders, such holder shall be deemed to have elected to receive the
maximum possible amount of cash. Failure to Deliver:   Applicable Other
applicable provisions:   If Share Termination Alternative is applicable, the
provisions of Sections 9.8, 9.9, 9.10, 9.11 (except that the Representation and
Agreement contained in Section 9.11 of the Equity Definitions shall be modified
by excluding any representations therein relating to restrictions, obligations,
limitations or requirements under applicable securities laws arising as a result
of the fact that Counterparty is the Issuer of the Shares) and 9.12 of the
Equity Definitions will be applicable as if “Physical Settlement” applied to the
Transaction, except that all references to “Shares” shall be read as references
to “Share Termination Delivery Units.”

(c) Disposition of Hedge Shares. Counterparty hereby agrees that if, in the good
faith reasonable judgment of Dealer based on the advice of outside counsel, any
Shares (the “Hedge Shares”) acquired by Dealer for the purpose of hedging its
obligations pursuant to the Transaction cannot be sold in the public market by
Dealer without registration under the Securities Act, Counterparty shall, at its
election: (i) in order to allow Dealer to sell the Hedge Shares in a registered
offering, make available to Dealer an effective registration statement under the
Securities Act to cover the resale of such Hedge Shares and (A) enter into an
agreement, in form and substance reasonably satisfactory to Dealer,
substantially in the form of a registration agreement for a registered offering,
(B) provide accountants’ “comfort” letters in customary form for registered
offerings of equity securities, (C) provide negative assurance disclosure
opinions of nationally recognized outside counsel to Counterparty reasonably
acceptable to Dealer, (D) provide other customary opinions, certificates and
closing documents customary in form for registered offerings of equity
securities and (E) afford Dealer a reasonable opportunity to conduct a “due
diligence” investigation with respect to Counterparty customary in scope for
underwritten offerings of equity securities; provided, however, that if Dealer,
in its reasonable discretion, is not satisfied with access to due diligence
materials, the results of its due diligence investigation, or the procedures and
documentation for the registered offering referred to above, then clause (ii) or
clause (iii) of this Section 8(c) shall apply at the election of Counterparty;
(ii) in order to allow Dealer to sell the Hedge Shares in a private placement,
enter into a private placement agreement substantially similar to private
placement purchase agreements customary for private placements of equity
securities, in form and substance reasonably satisfactory to Dealer, including
customary representations, covenants, blue sky and other governmental filings
and/or registrations, indemnities to Dealer, due diligence rights (for Dealer or
any designated buyer of the Hedge Shares from Dealer), opinions and certificates
and such other documentation as is customary for private placement agreements,
all reasonably acceptable to Dealer (in which case, the Calculation Agent shall
make any adjustments to the terms of the Transaction that are necessary, in its
reasonable judgment, to compensate Dealer for any discount from the public
market price of the Shares incurred on the sale of Hedge Shares in a private
placement); or (iii) purchase the Hedge Shares from Dealer at the VWAP Price on
the days and in the amounts Dealer would have otherwise sold such Hedge Shares
in the public markets had Dealer not been restricted from so selling such Hedge
Shares. “VWAP Price” means, on any Exchange Business Day, the per Share
volume-weighted average price as displayed under the heading “Bloomberg VWAP” on
Bloomberg

 

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Screen ADS.N <Equity> AQR (or any successor thereto) in respect of the period
from 9:30 a.m. to 4:00 p.m. (New York City time) on such Exchange Business Day
(or if such volume-weighted average price is unavailable, the market value of
one Share on such Exchange Business Day, as determined by the Calculation Agent
using a volume-weighted method). This paragraph shall survive the termination,
expiration or early unwind of the Transaction.

(d) Amendment to Equity Definitions. The following amendment shall be made to
the Equity Definitions:

Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (1) deleting
from the fourth line thereof the word “or” after the word “official” and
inserting a comma therefor, and (2) deleting the semi-colon at the end of
subsection (B) thereof and inserting the following words therefor “or (C) at
Dealer’s option, the occurrence of any of the events specified in
Section 5(a)(vii) (1) through (9) of the ISDA 2002 Master Agreement with respect
to that Issuer.”

(e) Repurchase and Conversion Rate Adjustment Notices. Counterparty shall, at
least 10 Scheduled Trading Days prior to effecting any repurchase of Shares or
consummating or otherwise executing or engaging in any transaction or event,
other than a stock split or stock dividend (a “Conversion Rate Adjustment
Event”) that would lead to an increase in the Conversion Rate (as such term is
defined in the Indenture), give Dealer a written notice of such repurchase or
Conversion Rate Adjustment Event (a “Repurchase Notice”) if, following such
repurchase or Conversion Rate Adjustment Event, the Notice Percentage as
determined on the date of such Repurchase Notice is (i) greater than
[            ]%4 and (ii) in the case of any Repurchase Notice other than the
first such Repurchase Notice, greater by 0.5% or more than the Notice Percentage
included in the immediately preceding Repurchase Notice. The “Notice Percentage”
as of any day is the fraction, expressed as a percentage, the numerator of which
is the sum of (x) the Number of Shares for the Transaction, [            ]5, and
the denominator of which is the number of Shares outstanding on such day. In the
event that Counterparty fails to provide Dealer with a Repurchase Notice on the
day and in the manner specified in this Section 8(e) then Counterparty agrees to
indemnify and hold harmless Dealer, its affiliates and their respective
directors, officers, employees, agents and controlling persons (Dealer and each
such person being an “Indemnified Party”) from and against any and all losses,
claims, damages and liabilities (or actions in respect thereof), joint or
several, to which such Indemnified Party may become subject under applicable
securities laws, including without limitation, Section 16 of the Exchange Act,
relating to or arising out of such failure. If for any reason the foregoing
indemnification is unavailable to any Indemnified Party or insufficient to hold
harmless any Indemnified Party, then Counterparty shall contribute, to the
maximum extent permitted by law, to the amount paid or payable by the
Indemnified Party as a result of such loss, claim, damage or liability. In
addition, Counterparty will reimburse any Indemnified Party for all expenses
(including reasonable counsel fees and expenses) as they are incurred (after
notice to Counterparty) in connection with the investigation of, preparation for
or defense or settlement of any pending or threatened claim or any action, suit
or proceeding arising therefrom, whether or not such Indemnified Party is a
party thereto and whether or not such claim, action, suit or proceeding is
initiated or brought by or on behalf of Counterparty. This indemnity shall
survive the completion of the Transaction contemplated by this Confirmation and
any assignment and delegation of the Transaction made pursuant to this
Confirmation or the Agreement shall inure to the benefit of any permitted
assignee of Dealer. So long as the foregoing notice requirement set forth in
this Section 8(e) continues to be applicable to Counterparty, Counterparty shall
not be required to comply with the similar notice provision set forth in
Section 8(e) of the Convertible Bond Hedge Transaction between Counterparty and
Dealer dated June 23, 2008.

(f) Transfer and Assignment. Dealer may transfer any of its rights or
obligations under the Transaction only with the prior written consent of
Counterparty. Counterparty may transfer its rights and obligations under the
Transaction without the consent of Dealer; provided that (i) Counterparty shall
deliver opinions and documents reasonably satisfactory to Dealer in connection
with such assignment; (ii) such assignment shall be effected on terms

 

4 For each of BofA, Barclays and JPM, insert 17.7, 4.5 and 12.3, respectively.

5 For BofA, insert “(y) the Number of Shares for the Convertible Bond Hedge
Transaction between Counterparty and Dealer dated June 23, 2008 and (z) the
Number of Shares for the Forward Stock Purchase Transaction between Counterparty
and Merrill Lynch International dated the date hereof”.

For Barclays, insert “and (y) the Number of Shares for the Forward Stock
Purchase Transaction between Counterparty and Dealer dated the date hereof”.

For JPM, insert “and (y) the Number of Shares for the Convertible Bond Hedge
Transaction between Counterparty and Dealer dated June 23, 2008”.

 

15

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reasonably satisfactory to Dealer with respect to any legal and regulatory
requirements relevant to Dealer; (iii) Alliance Data Systems Corporation (or any
successor obligor under the Convertible Securities) shall continue to be
obligated to provide notices hereunder relating to the Convertible Securities
and continue to be obligated with respect to “Disposition of Hedge Shares” and
“Repurchase and Conversion Rate Adjustment Notices” above; (iv) such assignment
shall be made to a U.S. person (as defined in the Internal Revenue Code of 1986,
as amended); (v) Dealer shall not, as a result of such assignment, be required
to pay the transferee on any payment date an amount under Section 2(d)(i)(4) of
the Agreement greater than the amount that Dealer would have been required to
pay to Counterparty in the absence of such transfer and assignment; (vi) no
Event of Default, Potential Event of Default or Termination Event shall occur as
a result of such assignment; (vii) if Dealer reasonably requests, the transferee
shall agree not to hedge its exposure to the Transaction, or to hedge such
exposure only pursuant to an effective registration of Alliance Data Systems
Corporation (or any successor obligor under the Convertible Securities) or
otherwise in compliance with applicable securities laws in a manner that, in the
reasonable judgment of Dealer, will not expose Dealer to material risks under
applicable securities laws; (viii) without limiting the generality of clause
(v), Counterparty shall cause the transferee to make such Payee Tax
Representations and to provide such tax documentation as may be reasonably
requested by Dealer to permit Dealer to determine that results described in
clauses (v) and (vi) will not occur upon or after such transfer and assignment;
and (ix) Counterparty shall be responsible for Dealer’s reasonable out-of-pocket
costs and expenses, including reasonable fees of counsel, incurred in connection
with such transfer and assignment. At any time at which any Excess Ownership
Position exists, if Dealer, in its reasonable discretion, is unable to effect a
transfer or assignment to a third party in accordance with the requirements set
forth above after using its commercially reasonable efforts on pricing terms
reasonably acceptable to Dealer and within a time period reasonably acceptable
to Dealer such that an Excess Ownership Position no longer exists, Dealer may
designate any Scheduled Trading Day as an Early Termination Date with respect to
a portion (the “Terminated Portion”) of the Transaction, such that such Excess
Ownership Position no longer exists. In the event that Dealer so designates an
Early Termination Date with respect to a portion of the Transaction, a payment
or delivery shall be made pursuant to Section 6 of the Agreement and
Section 8(b) of this Confirmation as if (i) an Early Termination Date had been
designated in respect of a Transaction having terms identical to the Terminated
Portion of the Transaction, (ii) Counterparty shall be the sole Affected Party
with respect to such partial termination and (iii) such portion of the
Transaction shall be the only Terminated Transaction. “Excess Ownership
Position” means any of the following: (i) the Equity Percentage exceeds 8.5%,
(ii) the Option Equity Percentage exceeds [            ]%6 or (iii) the CBCA
Percentage exceeds 8.5%. The “Equity Percentage” as of any day is the fraction,
expressed as a percentage, (A) the numerator of which is the number of Shares
that Dealer and any of its affiliates or any other person subject to aggregation
with Dealer, for purposes of the “beneficial ownership” test under Section 13 of
the Exchange Act, or of any “group” (within the meaning of Section 13) of which
Dealer is or may be deemed to be a part, beneficially owns (within the meaning
of Section 13 of the Exchange Act) on such day and (B) the denominator of which
is the number of Shares outstanding on such day. The “Option Equity Percentage”
as of any day is the fraction, expressed as a percentage, (A) the numerator of
which is the sum of (i) the Number of Shares on such day, plus (ii) the Number
of Shares (as such term is defined in the Convertible Bond Hedge Transaction
between Dealer and Counterparty dated as of July 23, 2008) on such day and
(B) the denominator of which is the number of Shares outstanding on such day.
The “CBCA Percentage” as of any day is the fraction, expressed as a percentage,
(A) the numerator of which is the number of Shares deemed to be directly or
indirectly owned or controlled, for purposes of the Change in Bank Control Act,
as amended, by Dealer and its affiliates on such day and (B) the denominator of
which is the number of Shares outstanding on such day.

(g) Staggered Settlement. Dealer may, by notice to Counterparty on or prior to
any Settlement Date (a “Nominal Settlement Date”), elect to deliver the Shares
on two or more dates (each, a “Staggered Settlement Date”) or at two or more
times on the Nominal Settlement Date as follows:

(i) in such notice, Dealer will specify to Counterparty the related Staggered
Settlement Dates (each of which will be on or prior to such Nominal Settlement
Date, but not prior to the beginning of the related Cash Settlement Averaging
Period (as modified by the provision set forth opposite the caption “Convertible
Security Settlement Method”)) or delivery times and how it will allocate the
Shares it is required to deliver under “Delivery Obligation” (above) among the
Staggered Settlement Dates or delivery times; and

(ii) the aggregate number of Shares that Dealer will deliver to Counterparty
hereunder on all such Staggered Settlement Dates and delivery times will equal
the number of Shares that Dealer would otherwise be required to deliver on such
Nominal Settlement Date.

 

6 For BofA, insert 19. For each of Barclays and JPM, insert 14.5.

 

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(h) Right to Postpone or Extend. Dealer may postpone any Settlement Date, in
whole or in part, for up to 20 Scheduled Trading Days or extend the Cash
Settlement Averaging Period (as modified by the provision set forth opposite the
caption “Convertible Security Settlement Method”) by the addition of up to 20
Scheduled Trading Days, in each case if the Calculation Agent determines that
such postponement or extension is reasonably necessary or appropriate to
preserve Dealer’s hedging or hedge unwind activity hereunder in light of
existing liquidity conditions or to enable Dealer to effect purchases of Shares
in connection with its hedging, hedge unwind or settlement activity hereunder,
in each case in a manner that would, if Dealer were Counterparty or an
affiliated purchaser of Counterparty, be in compliance with applicable legal,
regulatory or self-regulatory requirements, or with related policies and
procedures applicable to Dealer. In connection with any Settlement Date that is
postponed or any Cash Settlement Averaging Period that is extended pursuant to
the immediately preceding sentence, if Shares are to be delivered by Dealer to
Counterparty on such postponed Settlement Date or on the Settlement Date related
to such extension to the Cash Settlement Averaging Period and the record date
for any dividend or distribution on the Shares occurs during the period from,
and including, the original Settlement Date to, but excluding, such postponed or
extended Settlement Date, then on such postponed or extended Settlement Date, in
addition to delivering such Shares, Dealer shall pay or deliver, as the case may
be, to Counterparty, the per Share amount of such dividend or distribution
multiplied by the number of Shares to be delivered.

(i) Disclosure. Effective from the date of commencement of discussions
concerning the Transaction, Counterparty and each of its employees,
representatives, or other agents may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the Transaction
and all materials of any kind (including opinions or other tax analyses) that
are provided to Counterparty relating to such tax treatment and tax structure.

(j) Designation by Dealer. Notwithstanding any other provision in this
Confirmation to the contrary requiring or allowing Dealer to purchase, sell,
receive or deliver any Shares or other securities to or from Counterparty,
Dealer may designate any of its affiliates to purchase, sell, receive or deliver
such shares or other securities and otherwise to perform Dealer obligations in
respect of the Transaction and any such designee may assume such obligations.
Dealer shall be discharged of its obligations to Counterparty only to the extent
of any such performance.

(k) No Netting and Set-off. Each party waives any and all rights it may have to
set off obligations arising under the Agreement and the Transaction against
other obligations between the parties, whether arising under any other
agreement, applicable law or otherwise.

(l) Equity Rights. Dealer acknowledges and agrees that this Confirmation is not
intended to convey to it rights with respect to the Transaction that are senior
to the claims of common stockholders in the event of Counterparty’s bankruptcy.
For the avoidance of doubt, the parties agree that the preceding sentence shall
not apply at any time other than during Counterparty’s bankruptcy to any claim
arising as a result of a breach by Counterparty of any of its obligations under
this Confirmation or the Agreement.

(m) Early Unwind. In the event the sale by Counterparty of the Convertible
Securities is not consummated with the initial purchasers pursuant to the
Purchase Agreement for any reason by the close of business in New York on
June 2, 2009 (or such later date as agreed upon by the parties, which in no
event shall be later than June 16, 2009) (June 2, 2009 or such later date being
the “Early Unwind Date”), the Transaction shall automatically terminate (the
“Early Unwind”), on the Early Unwind Date and the Transaction and all of the
respective rights and obligations of Dealer and Counterparty thereunder shall be
cancelled and terminated. Following such termination and cancellation, each
party shall be released and discharged by the other party from and agrees not to
make any claim against the other party with respect to any obligations or
liabilities of either party arising out of and to be performed in connection
with the Transaction either prior to or after the Early Unwind Date. Dealer and
Counterparty represent and acknowledge to the other that upon an Early Unwind,
all obligations with respect to the Transaction shall be deemed fully and
finally discharged.

(n) Counterparty’s Obligation to Pay Cancellation Amounts and Early Termination
Amounts. Dealer and Counterparty hereby agree that, notwithstanding anything to
the contrary herein or in the Agreement, following Dealer’s receipt from
Counterparty of the Premium on the Premium Payment Date, in the event that
(a) an Early Termination Date (whether as a result of an Event of Default or a
Termination Event) occurs or is designated with respect to the Transaction and,
as a result, Counterparty owes to Dealer an Early Termination Amount or
(b) Counterparty owes to Dealer, pursuant to Section 12.7 or Section 12.9 of the
Equity Definitions, a Cancellation Amount, such amount shall be deemed to be
zero. If Counterparty pays the Premium on the Premium Payment Date, then under
no circumstances shall Counterparty be required to pay any amount in addition to
the Premium under the Transaction. For the avoidance of doubt, the preceding
sentence shall not be construed as limiting any damages that may be payable by
Counterparty as a result of a breach of or an indemnity under this Confirmation
or the Agreement.

 

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(o) [Regulatory Provisions and Role of Agent language to be included, in each
case if applicable]

(p) Waiver of Trial by Jury. EACH OF COUNTERPARTY AND DEALER HEREBY IRREVOCABLY
WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON
BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THE TRANSACTION OR THE ACTIONS OF DEALER OR ITS AFFILIATES IN THE
NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF.

(q) Governing Law; Jurisdiction. THIS CONFIRMATION SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK. THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ALL
MATTERS RELATING HERETO AND WAIVE ANY OBJECTION TO THE LAYING OF VENUE IN, AND
ANY CLAIM OF INCONVENIENT FORUM WITH RESPECT TO, THESE COURTS.

 

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Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us.

 

Yours faithfully,

[DEALER]

By:

 

 

Name:

 

Title:

 

 

Agreed and Accepted By:

ALLIANCE DATA SYSTEMS CORPORATION

By:  

 

Name:   Edward J. Heffernan Title:   President and Chief Executive Officer