MEMBERWORKS INC, S-1, 1996-08-21

MEMBERWORKS INC
S-1, 1996-08-21

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1996

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEMBERWORKS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------------

<TABLE>
<S> <C> <C>
DELAWARE 7389 06-1276882
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

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680 WASHINGTON BLVD.; SUITE 1100; STAMFORD, CONNECTICUT 06901
(203) 324-7635
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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GARY A. JOHNSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MEMBERWORKS INCORPORATED
680 WASHINGTON BLVD., SUITE 1100
STAMFORD, CONNECTICUT 06901
(203) 324-7635
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------------

COPIES TO:

<TABLE>
<S> <C>
MARK G. BORDEN, ESQ. ALAN K. AUSTIN, ESQ.
THOMAS L. BARRETTE, JR., ESQ. STEVEN V. BERNARD, ESQ.
HALE AND DORR DAVID S. KIM, ESQ.
60 STATE STREET WILSON SONSINI GOODRICH & ROSATI
BOSTON, MASSACHUSETTS 02109 PROFESSIONAL CORPORATION
(617) 526-6000 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(415) 493-9300
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date hereof.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
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Common Stock, $0.01 par value per share............ $60,000,000 $20,690
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</TABLE>

(1) Calculated pursuant to Rule 457(o) under the Securities Act of 1933.
---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED AUGUST 21, 1996

LOGO

COMMON STOCK

Of the shares of Common Stock offered hereby,
shares are being sold by MemberWorks Incorporated ("MemberWorks" or the
"Company") and shares are being sold by certain Selling
Stockholders. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the shares by the Selling
Stockholders. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently anticipated that the initial public
offering price will be between $ and $ per share. See
"Underwriting" for information relating to the method of determining the initial
public offering price.
------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C> <C>
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
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Per Share.......................... $ $ $ $
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Total(2)........................... $ $ $ $
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</TABLE>

(1) Before deducting expenses payable by the Company, estimated at $900,000.

(2) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an additional shares of Common Stock solely to
cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Stockholders will be $ ,
$ and $ , respectively.
------------------------

The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about , 1996.
------------------------

ROBERTSON, STEPHENS & COMPANY

HAMBRECHT & QUIST

PAINEWEBBER INCORPORATED

The date of this Prospectus is , 1996
<PAGE> 3

THE COMPANY'S MEMBERSHIP SERVICE PROGRAMS CREATE A SYNERGISTIC RELATIONSHIP
AMONG MEMBERS, VENDORS, CLIENTS AND THE COMPANY.

[CHART]

In this place appears a graphic depicting the exchange of economic and other
value between the Company and its members, service providers and clients. In
exchange for fees, the Company provides its members value-added membership
service programs. In exchange for marketing support, the Company's service
providers provide it with program support. In exchange for customer lists, the
Company pays royalties to its clients.

------------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 4

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary............................................................................... 4
Risk Factors.......................................................................... 6
Use of Proceeds....................................................................... 14
Dividend Policy....................................................................... 14
Capitalization........................................................................ 15
Dilution.............................................................................. 16
Selected Consolidated Financial Information........................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 18
Business.............................................................................. 25
Management............................................................................ 37
Certain Transactions.................................................................. 45
Principal and Selling Stockholders.................................................... 46
Description of Capital Stock.......................................................... 48
Shares Eligible for Future Sale....................................................... 51
Underwriting.......................................................................... 53
Legal Matters......................................................................... 54
Experts............................................................................... 54
Additional Information................................................................ 54
Index to Consolidated Financial Statements............................................ F-1
</TABLE>

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The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by its independent accountants, and with quarterly reports for the
first three quarters of each fiscal year containing unaudited consolidated
financial information.

Countrywide Dental Program and HealthTrends are registered trademarks of
the Company. Connections, Your source for entertainment values; Countrywide
Dental and Health Program; Home PC Link; MoneyMaster; Official Sports
Connection; and Travel Arrangements are trademarks of the Company. This
Prospectus also includes trademarks and registered trademarks of other
companies.

The Company was incorporated in Delaware on July 12, 1989. The Company's
principal executive offices are located at 680 Washington Blvd., Suite 1100,
Stamford, Connecticut 06901 and its telephone number is (203) 324-7635. In
August 1996, the Company changed its name from CardMember Publishing Corporation
to MemberWorks Incorporated.

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<PAGE> 5

SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.

THE COMPANY

MemberWorks Incorporated ("MemberWorks" or the "Company") is a leading
designer and provider of innovative membership service programs. The Company
addresses the needs of organizations seeking to leverage the expertise of an
outside provider in offering these programs. MemberWorks offers its programs to
increasingly sophisticated consumers seeking economy, efficiency and convenience
in their purchase of products and services. For participating vendors, the
programs provide the opportunity to reach a large number of demographically
attractive members at minimal incremental marketing cost. As of June 30, 1996,
the Company had approximately 40 client organizations and approximately 1.5
million members.

The Company currently offers eight membership programs in broad lifestyle
areas such as health, dental, travel, entertainment, sports, financial, and
computers and software. The Company offers memberships primarily on an
individual basis. Individual memberships are marketed by the Company to
consumers listed in databases provided to it by clients. The Company analyzes
these client lists to identify likely members utilizing a sophisticated,
proprietary membership database system. Individual members pay fees directly to
the Company, while the Company incurs the marketing costs to solicit these
members and pays royalties to the clients on membership fees. The Company
solicits members for its programs primarily through third-party telemarketers
and to a lesser extent direct mail campaigns. Some of the Company's individual
memberships are available at retail stores and on-line through the World Wide
Web. Recently, the Company also began to offer memberships on a wholesale basis.
Wholesale memberships incorporate elements from the Company's eight membership
programs and are sold to client organizations who then market them to their
consumers.

The Company distributes its programs almost exclusively through credit card
issuers. Currently, the Company has 36 credit card issuer clients to whom it
pays royalties, including 10 of the top 20 issuers of bank credit cards, such as
Household Credit Services, Inc. and Capital One Financial Corp., four of the top
five issuers of oil company credit cards, such as Shell Oil Company and Texaco
Credit Card Services, and the leading issuer of retail company credit cards,
Sears, Roebuck and Co.

The Company has developed a consultative product development process which
it believes has allowed it to respond quickly and effectively to market demand
for new products. The Company believes it was the first membership services
company to introduce aggregated discount services in health, sports, financial
and, most recently, through Home PC Link, personal computers and software. The
Company also believes that its programs are innovative with respect to the
variety and quality of particular services, discounts and other features which
those programs offer.

To achieve its objective of becoming the leading provider of innovative
membership programs, the Company intends to continue to develop innovative
service programs for broad markets, expand existing and develop new distribution
channels, maintain and build its renewal membership base, offer premium quality
services, develop and use innovative technical solutions, leverage and develop
multiple vendor partners, and pursue international opportunities.

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<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company....................... shares
Common Stock offered by the Selling Stockholders.......... shares
Common Stock outstanding after the offering............... shares(1)
Use of Proceeds........................................... Redemption of redeemable
preferred stock and general
corporate purposes, including the
acquisition of new members,
program development, capital
expenditures and working capital.
Proposed Nasdaq National Market symbol.................... MBRS
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................................ $25,830 $41,547 $57,012
Total expenses.......................................................... 31,846 52,279 62,259
Net loss................................................................ (6,016) (10,732) (5,247)
Pro forma net loss per share(2)......................................... $ (2.94)
Pro forma weighted average common and common equivalent shares
outstanding(2)........................................................ 1,839
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------------
PRO PRO FORMA
ACTUAL FORMA(3) AS ADJUSTED(3)(4)
-------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 4,312 $ 4,312 $
Working capital (deficit)............................... (10,561) (10,561)
Total assets............................................ 19,715 19,715
Deferred membership income, net......................... 8,416 8,416
Long-term obligations................................... 1,089 1,089
Redeemable preferred stock.............................. 20,487 1,949
Total stockholders' equity (deficit).................... (36,332) (17,794)
</TABLE>

- ---------------
(1) Based on the number of shares of Common Stock outstanding as of June 30,
1996. Excludes 177,467 shares of Common Stock issuable pursuant to stock
options outstanding at June 30, 1996 (of which options to purchase 52,525
shares were exercisable) at a weighted average exercise price of $18.89 per
share, and 53,864 shares of Common Stock issuable upon the exercise of
warrants outstanding at June 30, 1996 (all of which warrants were
exercisable) at a weighted average exercise price of $9.29 per share. See
"Capitalization," "Management -- Stock Plans," "Certain Transactions" and
"Principal and Selling Stockholders." Also excludes 18,000 shares of Common
Stock issuable upon exercise of options that may be granted to an executive
officer of the Company upon achievement of certain performance goals prior
to December 31, 1996. All such options will be exercisable at an exercise
price of $20.00 per share and will vest ratably over a four-year period. See
"Management -- Executive Compensation."

(2) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the computation of pro forma net loss per share and the shares used in
computing pro forma net loss per share.

(3) Gives effect to the conversion of all outstanding shares of the Company's
Class A Common Stock and Series A, Series B, Series C, Series D and Series H
Preferred Stock into an aggregate of 1,675,311 shares of Common Stock.

(4) As adjusted to give effect to the sale of shares of Common Stock
offered by the Company hereby, at an assumed initial public offering price
of $ per share, and the application of the estimated net proceeds
therefrom, including the redemption of all outstanding shares of the
Company's Series E and Series F Preferred Stock upon the closing of this
offering. See "Use of Proceeds."

Except as otherwise indicated, all information in this Prospectus (i)
reflects the conversion of all outstanding shares of the Company's Class B
Common Stock into an aggregate of 11,723 shares of Common Stock, effected in
August 1996; (ii) reflects the conversion of all outstanding shares of the
Company's Class A Common Stock and Series A, Series B, Series C, Series D and
Series H Preferred Stock into an aggregate of 1,675,311 shares of Common Stock
upon the closing of this offering; (iii) reflects the redemption of all
outstanding shares of the Company's Series E and Series F Preferred Stock upon
the closing of this offering; and (iv) assumes no exercise of the Underwriters'
over-allotment option. The Company's fiscal year ends on June 30 of each year.

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<PAGE> 7

RISK FACTORS

In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward-looking statements as a result of certain
of the factors set forth in the following risk factors and elsewhere in this
Prospectus.

HISTORY OF LOSSES

The Company has incurred significant operating losses since its inception.
As of June 30, 1996, the Company had an accumulated deficit of approximately
$38.3 million. For fiscal years 1996 and 1995, the Company incurred net losses
of approximately $5.2 million and $10.7 million, respectively. Because of
on-going costs in connection with obtaining new members, the Company expects to
continue to incur operating and net losses at least through fiscal 1997.
Although the Company has experienced revenue growth in recent periods, such
growth rates may not be sustainable and are not indicative of future operating
results. There can be no assurance that the Company will achieve or maintain
profitability in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DEPENDENCE ON CLIENTS; CLIENT CONCENTRATION

The Company obtains substantially all of the information necessary to the
Company's marketing efforts from customer lists supplied by its clients. Clients
provide the lists to the Company for use in marketing a single, specific program
which has been pre-approved by the client. As a result, the Company's ability to
market a new program to an existing customer base or an existing program to a
new customer base is dependent on first obtaining approval from a client.

Approximately 61.3% of the Company's revenues for the year ended June 30,
1996 was attributable to members solicited from the customer lists provided by
three key clients, including approximately 35.2% from customer lists provided by
Sears, Roebuck and Co. ("Sears"). These and other client relationships are
pursuant to contracts which may be terminated by the client upon 30 to 90 days'
notice without penalty. Upon such termination, the Company generally has the
right to continue its relationship with the client's customers that have become
program members for a specified period to substantially the same extent as prior
to the termination, but may not resolicit those members upon such members'
cancellation or non-renewal of the membership. Approximately 75% of the revenue
attributable to Sears for the year ended June 30, 1996 was generated pursuant to
a contract which also provides that, upon termination of the agreement for
default, Sears may prohibit the Company from renewing memberships and otherwise
cause the Company to terminate its relationship with existing members. Events
that constitute default include events outside the control of the Company,
including acts and omissions by the Company's third-party vendors. There can be
no assurance that one or more of the Company's key or other clients will not
terminate its relationship with the Company or that clients will provide
additional customer lists to the Company for use in further marketing new or
existing membership programs. In addition, the Company's agreement with one of
its key clients expires in September 1996, and there can be no assurance that
the client will renew such agreement on favorable terms, if at all. Termination
or expiration of a key client relationship could have a material adverse effect
on the future revenues from existing programs of which such client's customers
are members and on the Company's ability to further market new or existing
programs through such client.

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<PAGE> 8

upon exercise of such option, the Company would receive, as a result of
negotiation, arbitration or otherwise, revenue or net income commensurate with
the amount which the Company would receive if the option were not exercised.
Failure to receive a commensurate amount, and the loss of the ability to market
to the members of the program following exercise of the option, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Client relationships generally take six months or more to develop and are
based in part on professional relationships and the reputation of the Company's
management and marketing personnel. As a result, client relationships may be
adversely affected by events beyond the Company's control, such as departures of
key personnel and alterations in professional relationships, and such clients
may not be replaced on a timely basis, if at all. The loss of any client,
particularly a key client, could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Distribution."

DEPENDENCE ON MEMBERSHIP RENEWALS

The Company generally incurs losses and negative cash flow during the
initial year of an individual membership program, as compared to renewal years,
due primarily to higher marketing costs associated with initial member
procurement. In addition, the Company experiences a higher percentage of
cancellations during the initial membership period as compared to renewal
periods. During an initial annual membership term or renewal term, a member may
cancel his or her membership in the program, generally for a complete refund of
the membership fee for that period. Accordingly, the profitability of each of
the Company's programs depends on recurring and sustained membership renewals.
Renewal rates are inherently uncertain and are subject to several factors, many
of which are outside of the Company's control, including changing member
preferences, competitive price pressures, general economic conditions, customer
satisfaction and credit card holder turnover. There can be no assurance that a
particular program will generate sufficient renewals to become profitable or
that memberships, if renewed, will not be canceled. Failure of one or more of
the Company's programs to generate recurring and sustained membership renewals
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Sales and
Marketing."

FLUCTUATIONS IN OPERATING RESULTS

The Company's quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly from
quarter to quarter in the future. Factors which affect the Company's financial
results include: the timing and cancellation of customer orders; the Company's
ability to introduce new programs on a timely basis; the introduction of
programs by the Company's competitors; market acceptance of the Company's and
its clients' programs; the timing of investments in program development;
personnel changes; the demand for membership programs generally; the mix of
programs offered by the Company; unanticipated service interruptions; increased
costs associated with expansion of operations; the availability of vendors to
support offered programs; the rate of renewal by existing members of programs;
the level of enthusiasm for health and fitness, travel, entertainment and
leisure activities, and other lifestyle elements underlying the Company's
programs; and competitive pressures on selling prices. Many of these factors are
beyond the Company's control. Because the Company determines its expenditure
levels in advance of each quarter, the Company's ability to reduce costs quickly
in response to any revenue shortfall is limited, and thus operating results
would be adversely affected if projected revenues for a given quarter are not
achieved. The Company incurs significant start-up costs in advance of the
offering of a new program, including costs associated with hiring and training
additional personnel, program development and distributing membership kits. In
addition, any delay in the offering of the program, by the Company, its clients
or otherwise, or slower than anticipated consumer acceptance of such program,
could increase the Company's cost of revenues in a given period. There also can
be no assurance that future acquisitions, if any, by the

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<PAGE> 9

Company will not have an adverse effect upon the Company's results of
operations, particularly in quarters immediately following consummation of such
transactions, while the operations of the acquired business are being integrated
into the Company's operations.

In addition, the Company is required to grant options to purchase up to
18,000 shares of Common Stock to an executive officer upon achievement of
certain performance goals, which options shall be exercisable at an exercise
price of $20.00 per share. To the extent that such options are granted, the
Company will incur compensation expense ratably over the four-year vesting
period in an aggregate amount equal to the number of options granted multiplied
by the difference between the exercise price and the trading price of the
Company's Common Stock on the date of the grant. The Company's agreement to
grant such options terminates on December 31, 1996.

Due to the foregoing and other factors, the Company believes that its
quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period to period comparisons of its operating
results are not necessarily meaningful and that such comparisons cannot be
relied upon as indicators of future performance. It is also likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors, which, in turn, could have a severe
adverse effect on the price of the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

INTENSE COMPETITION

Competition in the membership services market for clients, such as credit
card issuers, is intense. Several of the Company's competitors offer membership
programs which provide services similar to, or which directly compete with,
those provided by the Company. Because contracts between clients and program
providers are often exclusive with respect to a particular service, potential
clients may be prohibited from contracting with the Company to promote a program
if the services provided by the Company's program are similar to, or merely
overlap with, the services provided by an existing program of a competitor. Most
of the Company's clients provide, either directly or through third parties,
programs offered by the Company's competitors, and the Company's agreement with
Sears, its principal client, permits Sears to offer its customers programs that
directly compete with those offered by the Company. Competition for new members
is also intense, particularly as the market becomes saturated with customers who
are already members of competing programs. The Company's principal competitor is
CUC International Inc. ("CUC"). The Company's other competitors include large
retailers, travel agencies, financial institutions and other organizations which
offer benefit programs to their customers. There can be no assurance that the
Company's competitors will not increase their emphasis on programs similar to
those offered by the Company and more directly compete with the Company, that
new competitors will not enter the market, or that other businesses will not
themselves introduce competing programs. Many of the Company's current and
prospective competitors, including CUC, have substantially larger customer bases
and greater financial and other resources than the Company. There can be no
assurance that the Company's current or potential competitors will not provide
programs comparable or superior to those provided by the Company at lower
membership prices or adapt more quickly than the Company to evolving industry
trends or changing market requirements. In addition, alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
may result in price reductions, reduced gross margins and loss of market share,
any of which could materially adversely affect the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to compete effectively against current and future competitors. See
"Business -- Competition."

NEW PROGRAM INTRODUCTIONS

The Company's business is substantially dependent on its ability to develop
and successfully introduce new programs which generate consumer interest.
Failure to introduce new programs in a timely manner could result in the
Company's competitors acquiring additional market share for a program in a
particular area of consumer interest. In addition, the introduction or
announcement of

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<PAGE> 10

new programs by the Company or by others could render existing programs
uncompetitive or obsolete, or result in a delay or decrease in orders for
existing programs as customers evaluate new programs or select the new programs
as an alternative to existing programs. Therefore, the announcement or
introduction of new programs by the Company or others, or the failure by the
Company to introduce new programs which have broad consumer appeal, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Membership Service Programs" and
"-- Competition."

DEPENDENCE ON VENDORS AND TELEMARKETERS
The Company depends on independent vendors to provide most program products
and services to members and on telemarketers to market its programs to
prospective members. The vendors and telemarketers operate pursuant to
agreements with the Company that may be terminated by the vendor or telemarketer
with limited prior notice. There can be no assurance that, in the event a vendor
or telemarketer ceases operations, or terminates, breaches or chooses not to
renew its agreement with the Company, a replacement vendor or telemarketer could
be retained on a timely basis, if at all. In addition, vendors and telemarketers
are independent contractors and the level and quality of services provided is
outside the control of the Company. Any service interruptions, delays or quality
problems could result in customer dissatisfaction and membership cancellations,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Sales and Marketing."

DEPENDENCE ON CREDIT CARD INDUSTRY
The Company's future success is dependent in large part on continued demand
for the Company's programs from businesses within the industries served by the
Company. In particular, programs marketed through the Company's credit card
issuer clients accounted for substantially all of the Company's revenues in
fiscal 1996. A significant downturn in the credit card industry or a trend in
that industry to reduce or eliminate its use of membership programs would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company is obligated under the terms of
its agreement with credit card issuers and merchant processors under rules
promulgated by credit card associations such as Visa International and Master
Card to maintain certain standards of commercial conduct with respect to credit
card users. Violations of such standards could jeopardize the Company's ability
to sell its programs using such credit cards as the medium of commercial
exchange, which could have a material adverse effect on Company's business,
financial condition and results of operations. See "Business -- Distribution."

MANAGEMENT OF GROWTH
The Company has recently experienced a period of rapid growth that has
placed significant demands on its management and other resources, and continued
growth, if any, could continue to place significant demands on such resources.
Net sales increased from approximately $9.4 million in fiscal 1992 to $57.0
million in fiscal 1996. In addition, the number of employees increased from 76
to approximately 400 during the same period. The Company's ability to compete
effectively and to manage future growth, if any, will depend on its ability to
continue to implement and improve operational, financial and management
information systems on a timely basis and to expand, train, motivate and manage
its work force. There can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's operations,
and the failure to support the Company's operations effectively could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Although the Company has not historically generated significant
international revenues, the Company intends to attempt to penetrate
international markets. In order to successfully expand internationally, the
Company must establish foreign operations and hire additional personnel. This
will require significant management attention and financial resources and could
materially adversely affect the Company's operating margins. International sales
and operations are subject to numerous risks, including unexpected changes in
regulatory requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, difficulties in
protecting intellectual

9
<PAGE> 11

property rights, longer payment cycles, problems in collecting accounts
receivable, political instability, fluctuations in currency exchange rates,
implementation of foreign exchange controls and potentially adverse tax
consequences. There can be no assurance that one or more of such factors will
not have a material adverse effect on the Company's future international
operations and, consequently, on the Company's business, financial condition and
results of operations. See "Business -- Strategy" and "-- Sales and Marketing."

MEMBERSHIP PROGRAM INDUSTRY; NEGATIVE IMPACT OF COMPETING INDUSTRIES

Providers of membership service programs compete for client marketing
budget dollars with other marketing activities and, in particular, other forms
of direct marketing activities, such as direct mail. In recent years, there have
been significant advances in new forms of direct marketing, such as the
development of interactive shopping and data collection through television, the
Internet and other media. Many industry experts predict that electronic
interactive commerce, such as shopping and information exchange via the World
Wide Web, will proliferate significantly in the foreseeable future. To the
extent such proliferation occurs, it could have a material adverse effect on the
demand for membership service programs. Furthermore, as the telemarketing
industry continues to grow, the effectiveness of telemarketing, which is the
Company's major means of marketing its programs, as a direct marketing tool may
decrease as a result of increased consumer resistance to telemarketing in
general. See "Business -- Industry Overview," "-- Sales and Marketing" and
"-- Competition."

FUTURE CAPITAL NEEDS

The Company typically incurs high costs in the year a program is
introduced. Principal elements of these costs relate to hiring personnel,
developing program content, contracting with vendors, drafting, testing and
refining telemarketing scripts and creating membership kits for mailing to
potential new program members. The Company must incur costs to market programs
to each potential member, regardless of whether that individual actually becomes
a paying member. The Company's capital base is smaller than that of many of its
competitors, and there can be no assurance that the Company's cash resources
will be able to sustain its business, particularly if it experiences a reduction
in revenues for a prolonged period or if it faces substantial unexpected capital
requirements. To the extent that such cash resources are insufficient to fund
the Company's activities, additional funds will be required. There can be no
assurance that additional financing will be available on reasonable terms or at
all. If additional capital is raised through the sale of additional equity or
convertible debt securities, dilution to the Company's stockholders would occur.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

RELIANCE ON COMPUTER AND COMMUNICATIONS SYSTEMS; TECHNOLOGY RISKS

The Company's business is highly dependent on its computer and
telecommunications systems and any temporary or permanent loss of either system,
for whatever reason, could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
technologies on which the Company is dependent to compete effectively and meet
its clients' needs are rapidly evolving and in many instances are characterized
by short product life cycles and/or innovation. As a result, the Company is
dependent on ongoing, significant investment in advanced computer and
telecommunications technology, including automated call distributors and digital
switches, and its ability to anticipate and adapt to technological shifts. There
can be no assurance that the Company will be successful in anticipating or
adapting to technological changes or in selecting and developing new and
enhanced technology on a timely basis. See "Business -- Technology."

DEPENDENCE ON TELEPHONE SERVICE

The Company markets and services its programs primarily telephonically, and
accordingly, its business is highly dependent on telephone services provided by
various local and long distance telephone companies. Any significant
interruption in telephone services could adversely affect the

10
<PAGE> 12

Company. Additionally, limitations on the ability of telephone companies to
provide the Company with increased capacity that may be required in the future,
if any, could adversely affect the Company's business, financial condition and
results of operations. Rate increases imposed by these telephone companies will
increase the Company's operating expenses and could materially adversely affect
its business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent on the members of its management and
marketing staff, the loss of one or more of whom could have a material adverse
effect on the Company. In addition, the Company believes that its future success
will depend in large part upon its ability to attract and retain highly skilled
managerial and marketing personnel, particularly as the Company expands its
activities. The Company faces significant competition for such personnel, and
there can be no assurance that the Company will be successful in hiring or
retaining the personnel it requires for continued growth, if any. The failure to
hire and retain such personnel could materially and adversely affect the
Company's business, financial condition and results of operations. See
"Management."

GOVERNMENT REGULATION; ADVERSE PUBLICITY

The primary means which the Company uses to market its programs is
telemarketing. The telemarketing industry has become subject to an increasing
amount of Federal and state regulation as well as general public scrutiny in the
past several years. The Federal Telephone Consumer Protection Act of 1991 limits
the hours during which telemarketers may call consumers and prohibits the use of
automated telephone dialing equipment to call certain telephone numbers. The
Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, and
Federal Trade Commission ("FTC") regulations promulgated thereunder, prohibit
deceptive, unfair or abusive practices in telemarketing sales. Both the FTC and
state attorneys general have authority to prevent telemarketing activities that
constitute "unfair or deceptive acts or practices." Additionally, some states
have enacted laws and others are considering enacting laws targeted directly at
telemarketing practices, and there can be no assurance that any such laws, if
enacted, will not adversely affect or limit the Company's current or future
operations. Compliance with these regulations is generally the responsibility of
the Company, and the Company could be subject to a variety of enforcement or
private actions for any failure to comply with such regulations. The Company's
provision of membership programs requires the Company to comply with certain
state regulations, changes in which could materially increase the Company's
operating costs associated with complying with such regulations. The risk of
non-compliance by the Company with any rules and regulations enforced by a
Federal or state consumer protection authority may subject the Company or its
management to fines or various forms of civil or criminal prosecution, any of
which could materially adversely affect the Company's business, financial
condition and results of operations. Also, the media often publicizes perceived
non-compliance with consumer protection regulations and violations of notions of
fair dealing with consumers, and the membership programs industry is susceptible
to preemptory charges by the media of regulatory noncompliance and unfair
dealing. Any such publicity is potentially damaging to the Company's reputation,
its client relationships and consumer acceptance and loyalty. See "Business --
Government Regulation."

The Company believes that its Countrywide Dental Program currently is not
considered to constitute an insurance program either by Federal or any state
insurance regulatory authority where it is offered. If this program were in the
future to be viewed by a Federal or any state insurance regulatory authority as
an insurance program, this would subject the Company to the regulatory authority
of such Federal or state insurance authority. The insurance industry currently
is one of the most heavily regulated industries in the United States. The
subjection of the Company to such regulatory authority would significantly
increase the Company's costs associated with regulatory compliance and
potentially cause the Company to terminate its Countrywide Dental Program in
particular states, either of which would materially adversely affect the

11
<PAGE> 13

Company's business, financial condition and results of operations. There can be
no assurance that the Company will not in the future become subject to
regulatory authority by the Federal or any state government as the result of its
Countrywide Dental Program. See "Business -- Membership Service Programs" and
"-- Government Regulation."

NO PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined by negotiations between the Company, the
Selling Stockholders and the Representatives of the Underwriters. See
"Underwriting" for information relating to the method of determining the initial
public offering price. Factors such as fluctuations in the Company's operating
results, announcements of product or service innovations or new contracts by the
Company or its competitors, and market conditions for stocks of companies
similar to the Company and the condition of the capital markets generally could
have a significant impact on the market price of the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of substantial amounts of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon closing of this offering, based upon the number of shares
outstanding at June 30, 1996 and assuming no exercise after June 30, 1996 of
outstanding stock options or warrants, there will be shares of Common
Stock of the Company outstanding. Of these shares, the shares offered
hereby ( shares if the Underwriters' over-allotment option is exercised
in full) will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), unless
purchased by "affiliates" of the Company, as that term is defined in Rule 144
("Rule 144") under the Securities Act ("Affiliates"). The remaining
shares of Common Stock are deemed "restricted securities" as that term is
defined in Rule 144. Of the restricted securities, shares of Common
Stock are subject to certain lock-up agreements (the "Lock-Up Agreements"). See
"Underwriting." Approximately shares of Common Stock, which are not
subject to Lock-Up Agreements, will be eligible for sale in the public market in
accordance with Rule 144 or Rule 701 under the Securities Act beginning 90 days
after the date of this Prospectus. Upon expiration of the Lock-Up Agreements 181
days after the date of this Prospectus, approximately additional
shares of Common Stock will be available for sale in the public market, subject
to the provisions of Rule 144 under the Securities Act. In addition, upon
expiration of Lock-Up Agreements, an additional shares subject to
stock options outstanding, if exercised, will be eligible for sale pursuant to
Rule 701 unless sold pursuant to an effective registration statement under the
Securities Act. As of June 30, 1996 there were outstanding warrants to purchase
53,864 shares of Common Stock. These warrants contain net exercise provisions.
Accordingly, any shares issued upon net exercise will be eligible for sale
immediately upon expiration of Lock-Up Agreements pursuant to Rule 144. See
"Shares Eligible for Future Sale." In addition, after this offering, the holders
of approximately shares of Common Stock and warrants to purchase an
aggregate of shares of Common Stock will be entitled to certain demand
and piggyback rights with respect to registration of such shares under the
Securities Act. Registration of such shares under the Securities Act would
result in such shares becoming freely tradeable without restriction under the
Securities Act (except for shares purchased by Affiliates) immediately upon the
effectiveness of such registration. If such holders, by exercising their demand
registration rights, cause a large number of securities to be registered and
sold in the public market, such sales could have an adverse effect on the market
price for the Company's Common Stock. If the Company were to include in a
Company initiated registration such shares pursuant to the exercise of piggyback
registration rights, such sales may have an adverse effect on the Company's
ability to raise additional capital. See "Description of Capital
Stock -- Registration Rights."

12
<PAGE> 14

CONTROL BY DIRECTORS AND OFFICERS

Upon completion of this offering, the Company's officers and directors and
their affiliates will beneficially own approximately % of the
Company's outstanding Common Stock. As a practical matter, these stockholders,
if acting together, would have the ability to elect the Company's directors and
may have the ability to determine the outcome of corporate actions requiring
stockholder approval, irrespective of how other stockholders of the Company may
vote. This concentration of ownership also may have the effect of delaying or
preventing a change in control of the Company. See "Management" and "Principal
and Selling Stockholders."

MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS

Excluding approximately $2.6 million designated to redeem the Company's
Series E and F Preferred Stock, the Company has not designated any specific use
for the net proceeds from the sale of Common Stock described in this Prospectus.
Rather, the Company expects to use the net proceeds for general corporate
purposes, including working capital. Consequently, the Board of Directors and
management of the Company will have significant discretion in applying the net
proceeds of this offering. See "Use of Proceeds."

ANTI-TAKEOVER PROVISIONS

The Company's Restated Certificate of Incorporation (the "Charter")
requires that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing, and requires
reasonable advance notice by a stockholder of a proposal or director nomination
which such stockholder desires to present at any annual or special meeting of
stockholders. Special meetings of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer or, if none, the President of
the Company or by the Board of Directors. The Charter provides for a classified
Board of Directors, and members of the Board of Directors may be removed only
for cause upon the affirmative vote of holders of at least two-thirds of the
shares of capital stock of the Company entitled to vote. In addition, shares of
the Company's Preferred Stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of any holders of Preferred Stock that may be issued in the
future. The Company has no present plans to issue any shares of Preferred Stock.
In addition, the Company is subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law which prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. These provisions, and other provisions of the Charter, may
have the effect of deterring hostile takeovers or delaying or preventing changes
in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock -- Delaware Law and Certain Charter
and By-Law Provisions."

DILUTION

Purchasers of shares of Common Stock in this offering will suffer an
immediate and substantial dilution in the net tangible book value per share of
the Common Stock from the initial public offering price. To the extent that
outstanding options to purchase the Company's Common stock are exercised, there
will be further dilution. See "Dilution."

LACK OF DIVIDENDS

The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."

13
<PAGE> 15

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $ per share (after deducting estimated underwriting discounts and
commissions and offering expenses) are estimated to be approximately $
million. The Company will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders.

Approximately $2.6 million of the estimated net proceeds will be applied to
redeem all outstanding shares of Series E and Series F Preferred Stock,
including approximately $637,000 in accrued dividends and redemption premiums.
The remaining proceeds will be used for general corporate purposes, including
acquisition of new members, program development, capital expenditures and
working capital. A portion of the net proceeds may also be used for the
acquisition of businesses, services and technologies that are complementary to
those of the Company. The Company presently has no commitments or understandings
for any such acquisitions, and is not presently engaged in any discussions or
negotiations for any such acquisitions, and no portion of the net proceeds has
been allocated for any specific acquisition. Pending such uses, the Company
intends to invest the net proceeds from this offering in short-term
interest-bearing securities.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends to date and
anticipates that all of its earnings in the foreseeable future will be retained
for use in its business. The Company's future dividend policy will depend on the
Company's earnings, capital requirements, financial condition, requirements of
the financing agreements to which the Company is a party and other factors
considered relevant by the Board of Directors.

14
<PAGE> 16

CAPITALIZATION

The following table sets forth the capitalization of the Company at June
30, 1996 on (i) an actual basis, (ii) a pro forma basis to give effect to the
conversion of all outstanding shares of the Company's Class A Common Stock and
Series A, Series B, Series C, Series D and Series H Preferred Stock into an
aggregate of 1,675,311 shares of Common Stock upon the closing of this offering,
and (iii) a pro forma as adjusted basis to reflect the issuance and sale by the
Company of shares of Common Stock offered hereby at an assumed initial
public offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses, and the
application of the net proceeds therefrom, including the redemption of all
outstanding shares of the Company's Series E and Series F Preferred Stock upon
the closing of this offering. See "Use of Proceeds." This table should be read
in conjunction with the Company's Consolidated Financial Statements and the
Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred membership income, net.......................... $ 8,416 $ 8,416 $
Long-term obligations.................................... 1,089 1,089
Redeemable Preferred Stock, $0.01 par value; actual:
978,226 shares authorized, 978,226 shares issued and
outstanding; pro forma: 978,226 shares authorized,
80,536 shares issued and outstanding; pro forma as
adjusted: no shares authorized, issued and
outstanding ........................................... 20,487 1,949
Total stockholders' equity (deficit)(1):
Preferred Stock, $0.01 par value; actual and pro forma:
no shares authorized, issued and outstanding; pro forma
as adjusted: 1,000,000 shares authorized, no shares
issued and outstanding................................. -- --
Common Stock, $0.01 par value; 40,000,000 shares
authorized; actual: 813,487 shares issued and
outstanding; pro forma: 1,711,177 shares issued and
outstanding; pro forma as adjusted: shares
issued and outstanding................................. 8 17
Additional paid-in-capital.......................... 2,253 20,782
Accumulated deficit................................. (38,320) (38,320)
Treasury Stock, 24,143 shares at cost............... (273) (273)
-------- --------
Total stockholders' equity (deficit).............. (36,332) (17,794)
-------- --------
Total capitalization (deficit)................. $ (6,340) $ (6,340) $
======== ======== ========
</TABLE>

- ---------------
(1) Excludes 177,467 shares of Common Stock issuable pursuant to stock options
outstanding at June 30, 1996 (of which options to purchase 52,525 shares
were exercisable) at a weighted average exercise price of $18.89 per share
and 53,864 shares of Class A Common Stock issuable upon exercise of warrants
outstanding at June 30, 1996 (all of which warrants were exercisable) at a
weighted average exercise price of $9.29 per share. See "Management -- Stock
Plans." Also excludes 18,000 shares of Common Stock that may be granted to
an executive officer of the Company upon achievement of certain performance
goals prior to December 31, 1996. All of such options will be exercisable at
an exercise price of $20.00 per share and will vest ratably over a four-year
period. See "Management -- Executive Compensation."

15
<PAGE> 17

DILUTION

The pro forma deficit in net tangible book value of the Company's Common
Stock as of June 30, 1996, was approximately $18,459,000, or $10.94 per share of
Common Stock. Pro forma net tangible book value per share of Common Stock
represents the amount of tangible assets (total assets less intangible assets)
of the Company reduced by the Company's total liabilities and the redemption
value of the Series E and Series F preferred stock, divided by the pro forma
number of shares of Common Stock outstanding assuming conversion of all
outstanding shares of Class A Common Stock and convertible preferred stock.
After giving effect to the sale by the Company of shares of Common
Stock offered by the Company hereby (assuming an initial public offering price
of $ per share) and receipt of the net proceeds therefrom, the net tangible
book value of the Company at June 30, 1996 would have been approximately
, or $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares in this
offering. The following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........ $
Pro forma net tangible book value per share as of
June 30, 1996..................................... $
Increase per share attributable to new investors.....
--------
Pro forma net tangible book value per share after
offering.............................................
--------
Dilution per share to new investors.................... $
========
</TABLE>

The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average consideration paid per share
by the existing stockholders and by the new investors:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)......... 1,687,034 % $18,773,700 % $ 11.13
New investors(1)................. $
------- --- -------- ---
Total.................. % $ %
======= === ======== ===
</TABLE>

- ---------------
(1) Sales by the Selling Stockholders in this offering will cause the number of
shares held by existing shareholders as of June 30, 1996 to be reduced to
shares or % of the total number of shares of Common Stock
outstanding after this offering, and will increase the number of shares held
by new investors to or % of the total number of shares of Common
Stock outstanding after this offering. See "Principal and Selling
Stockholders."

The foregoing table assumes no exercise after June 30, 1996 of options or
warrants to purchase shares of Common Stock outstanding at the date of this
Prospectus. As of June 30, 1996, there were options outstanding to purchase an
aggregate of 177,467 shares of Common Stock at a weighted average exercise price
of $18.89 per share, and warrants outstanding to purchase an aggregate of 53,864
shares of Common Stock at a weighted average exercise price of $9.29 per share.
To the extent that outstanding options or warrants are exercised, there will be
further dilution to new investors. See "Management -- Stock Option Plans." The
foregoing table also excludes 18,000 shares of Common Stock issuable upon
exercise of options that may be granted to an executive officer of the Company
upon achievement of certain performance goals prior to December 31, 1996. All of
such options will be exercisable at an exercise price of $20.00 per share and
will vest ratably over a four-year vesting period. See "Management -- Executive
Compensation."

16
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The selected consolidated financial information set forth below for the
years ended June 30, 1992 and 1993, and the selected consolidated balance sheet
data as of June 30, 1992, 1993 and 1994 is derived from audited financial
statements which are not included in this Prospectus. The selected consolidated
financial information set forth below for each of the years ended June 30, 1994
(except as stated above), 1995 and 1996 is derived from audited consolidated
financial statements of the Company, which are included elsewhere in this
Prospectus. The selected consolidated financial information of the Company is
qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues.............................. $ 9,414 $ 17,269 $ 25,830 $ 41,547 $57,012
Total expenses........................ 13,879 21,527 31,846 52,279 62,259
------- -------- -------- -------- -------
Net loss.............................. $(4,465) $ (4,258) $ (6,016) $(10,732) $(5,247)
======= ======== ======== ======== =======
Pro forma net loss per share.......... $ (2.94)
=======
Pro forma weighted average common and
common equivalent shares
outstanding......................... 1,839
=======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............. $ 463 $ 1,017 $ 2,566 $ 5,323 $ 4,312
Working capital (deficit)............. (2,910) (2,205) (8,345) (8,148) (10,561)
Total assets.......................... 5,146 5,789 9,521 11,396 19,715
Long-term obligations................. 2,863 4,338 3,731 8,065 1,089
Redeemable preferred stock............ 4,573 5,216 6,096 10,926 20,487
Stockholders' equity (deficit)........ (8,841) (12,737) (18,627) (30,367) (36,332)
</TABLE>

17
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus.

OVERVIEW

MemberWorks addresses the needs of organizations seeking to leverage the
expertise of an outside provider in offering membership service programs. The
Company was founded in 1989 and had approximately 1.5 million members as of June
30, 1996. Membership service programs offer selected products and services from
a variety of vendors intended to enhance the existing relationships between
businesses and consumers. MemberWorks offers these programs to increasingly
sophisticated consumers seeking economy, efficiency and convenience in their
selection of products and services. The membership programs which the Company
offers address such broad lifestyle needs as health and dental, travel,
entertainment, sports, personal finance and computers and software. The
Company's programs are marketed to credit card holders through arrangements with
its client organizations, including banks, retailers, major oil companies and
other credit card issuers. Such organizations include Household Credit Services,
Capital One Financial Corp. ("Capital One"), Sears, Shell Oil Company ("Shell")
and Texaco Credit Card Services ("Texaco").

The Company divides its memberships into two categories, individual and
wholesale. Individual memberships consist of members who pay fees directly to
the Company. The Company pays the marketing costs to solicit individual members,
primarily using direct marketing techniques and customer lists provided by
client organizations. In the case of wholesale memberships, the Company sells
the membership service program to its client organization. The organization then
either re-sells the program to its customers or provides the program to them as
a benefit. In either wholesale case, the client is responsible for paying
periodic membership fees to the Company and incurs substantially all marketing
costs to solicit members. To date, substantially all of the Company's revenues
have been from individual memberships.

The Company derives its revenues principally from annually renewable
membership fees. The annual membership fees for the Company's programs are
generally billed to subscribers via their credit card accounts and remitted to
the Company by a credit card processor. Upon receipt, the Company then pays
royalties to its client. In certain cases, membership fees are remitted to the
Company by the credit card issuer client, less royalties due the client. Annual
memberships are renewed automatically and continue in effect unless canceled by
the member. Revenues are presented net of expected cancellations.

The Company receives full payment of annual fees at or near the beginning
of the applicable period, but recognizes revenue with respect to the payment
ratably over the membership period. Similarly, the costs associated with
soliciting each member (such as marketing, royalties and printing and mailing of
membership materials) are amortized ratably over the same period.

18
<PAGE> 20

losses since its inception. The Company expects these net losses to continue at
least through its current fiscal year.

During December 1994, the Company discontinued its domestic discount coupon
book business and recorded a charge of $659,000 to operations, primarily to
write off unamortized goodwill of $166,000 and other assets of $461,000.
Effective June 30, 1995, the Company returned its domestic discount coupon book
operations, cash of $175,000 and net fixed assets of $14,000 to the former owner
of the business in exchange for the shares of Common Stock issued in the
original exchange. Fiscal 1995 consolidated operating results include revenues
of $556,000 and operating losses of $1.6 million, including the $659,000 charge
discussed above, attributable to the discontinued business.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items on
the Company's consolidated statements of operations as a percentage of revenues:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.............................................. 100.0% 100.0% 100.0%
Expenses:
Operating.......................................... 20.7 23.4 20.4
Marketing.......................................... 78.2 78.9 67.4
General and administrative......................... 21.6 21.4 20.9
Interest expense, net.............................. 2.8 2.1 0.5
----- ----- -----
Total expenses........................................ 123.3 125.8 109.2
----- ----- -----
Net loss.............................................. (23.3)% (25.8)% (9.2)%
===== ===== =====
</TABLE>

YEARS ENDED JUNE 30, 1996 AND 1995

Revenues. Revenues increased 37.2% to $57.0 million in 1996 from $41.5
million in 1995 due to an increase in the Company's membership base and an
increase in the weighted average program fee. The Company's membership base
increased to 1.5 million members at June 30, 1996 from 1.1 million members at
June 30, 1995. The increase in the Company's membership base was due to an
increase in the members enrolled in existing programs and the introduction in
1996 of three new programs. The increase in the weighted average program fee was
due to an increase in the percentage of members enrolled in programs with higher
fees and an increase in the initial and renewal fees for certain programs.

Revenue attributable to members solicited through Sears, Capital One and
Associates Credit Card Services, Inc. represented 35.2%, 10.5% and 15.6%,
respectively, of total revenues in 1996 and 41.0%, 9.0% and 16.1%, respectively,
of total revenues in 1995. Termination of any of these key relationships could
have a material adverse effect on the future revenue from existing programs of
which such client's customers are members and on the Company's ability to
further market new or existing programs through such clients.

Operating Expenses. Operating expenses consist of costs incurred in
servicing the Company's membership base, including personnel, telephone and
computer processing costs, as well as expenses associated with the production
and distribution of membership information kits. Operating expenses increased
19.8% to $11.6 million in 1996 from $9.7 million in 1995. The increase was due
principally to additional costs incurred to support the growth in the membership
base, partially offset by the absence of costs associated with the Company's
discount coupon business, which was discontinued in 1995. As a percentage of
revenues, operating expenses decreased to 20.4% in 1996 from 23.4% in 1995.
Excluding expenses associated with the discontinued discount coupon business,
operating expenses as a

19
<PAGE> 21

percentage of revenues in 1995 would have been 20.7%. The decrease as a
percentage of revenues primarily resulted from increased efficiencies in the
Company's membership services operations. The Company commenced operations at
its new membership service facility in the quarter ended June 30, 1996 and,
primarily as a result, the Company expects operating expenses to increase as a
percentage of revenues in 1997.

Marketing Expenses. Marketing expenses consist of fees to telemarketers to
solicit potential members, royalties to clients, direct mail costs and other
solicitation expenses. Marketing expenses increased 17.1% to $38.4 million in
1996 from $32.8 million in 1995. The increase was due primarily to increased
telemarketing costs and increased royalty expense as a result of a larger
membership base. As a percentage of revenues, marketing expenses decreased to
67.4% in 1996 from 78.9% in 1995. The decrease was due to lower per member
telemarketing costs, as well as the favorable effect of an increase in the
weighted average program fee and an increase in renewal revenues as a percentage
of total revenues.

Membership solicitation costs consist of marketing costs and, to a lesser
extent, costs associated with the production and distribution of membership
information kits, and are amortized ratably over the membership period.
Membership solicitation costs increased 17.1% to $47.0 million in 1996 from
$40.1 million in 1995 primarily due to increased marketing efforts.

General and Administrative Expenses. General and administrative expenses
consist of personnel and facilities expenses associated with the Company's
executive, sales, marketing, finance, product and account management functions.
General and administrative expenses increased 34.1% to $11.9 million in 1996
from $8.9 million in 1995. The increase was the result of hiring additional
personnel at all levels and the related increase in facilities costs, partially
offset by the absence of costs associated with the Company's discount coupon
business, which was discontinued in 1995. As a percentage of revenues, general
and administrative expenses decreased to 20.9% in 1996 from 21.4% in 1995.
Excluding general and administrative expenses associated with the discontinued
discount coupon business, general and administrative expenses increased as a
percentage of revenues to 20.9% in 1996 from 18.7% in 1995. The increase as a
percentage of revenues was primarily a result of hiring additional personnel in
the second half of fiscal 1996 and a related increase in facilities costs. The
Company expects general and administrative expenses will continue to increase as
a percentage of revenues in 1997 as the Company incurs full year expenses
associated with these costs.

Interest Expense, Net. Interest expense, net is primarily composed of
interest income from cash and cash equivalents, offset by financing charges
relating to notes payable, equipment leases and other debt. Interest expense,
net decreased to $310,000 in 1996 from $893,000 in 1995 as the result of lower
borrowings by the Company in 1996. The Company generally invests in short-term,
investment-grade, interest bearing securities. The amount of interest income
fluctuates based upon the amount of funds available for investment and
prevailing interest rates.

Provision for Income Taxes. The Company made no provision for income taxes
for the years ended June 30, 1996 and 1995 due to the net operating losses
incurred during those years. As of June 30, 1996, the Company had accumulated
net operating loss carry forwards of $17.7 million.

YEARS ENDED JUNE 30, 1995 AND 1994

Revenues. Revenues increased 60.8% to $41.5 million in 1995 from $25.8
million in 1994 due to an increase in the Company's membership base and an
increase in the weighted average program fee. The Company's membership base
increased to 1.1 million members at June 30, 1995 from 820,000 members at June
30, 1994. The increase in the Company's membership base was due to an increase
in the members enrolled in existing programs and the continued roll-out of a new
program introduced in 1994. The increase in the weighted average program fee was
due to an increase in the percentage of members enrolled in programs with higher
fees and an increase in the initial and renewal fees for certain programs.

20
<PAGE> 22

Revenue attributable to members solicited through Sears, Capital One and
Associates represented 41.0%, 9.0% and 16.1%, respectively, of total revenues in
1995 and 55.4%, 5.5% and 7.4%, respectively, of total revenues in 1994.

Operating Expenses. Operating expenses increased 81.2% to $9.7 million in
1995 from $5.4 million in 1994. The increase was due principally to additional
costs incurred to support the growth in the membership base. As a percentage of
revenues, operating expenses increased to 23.4% in 1995 from 20.7% in 1994.
Excluding the one-time write-off of $659,000 in costs in 1995 related to the
discontinuation of the Company's discount coupon business, operating expenses as
a percentage of revenues increased to 21.8% in 1995 from 20.7% in 1994. The
increase as a percentage of revenues primarily resulted from decreased
efficiency experienced in membership services operations which was necessary to
support the Company's rapid revenue growth.

Marketing Expenses. Marketing expenses increased 62.5% to $32.8 million in
1995 from $20.2 million in 1994. The increase was due primarily to increased
telemarketing costs and increased royalty expense as a result of a larger
membership base. As a percentage of revenues, marketing expenses increased to
78.9% in 1995 from 78.2% in 1994. The increase as a percentage of revenues was
primarily due to higher per member telemarketing costs, partially offset by the
favorable effect of an increase in the weighted average program fee and an
increase in renewal revenues as a percentage of total revenues.

Membership solicitation costs increased 40.3% to $40.1 million in 1995 from
$28.6 million in 1994 primarily due to increased marketing efforts.

General and Administrative Expenses. General and administrative expenses
increased 58.9% to $8.9 million in 1995 from $5.6 million in 1994. The increase
was primarily the result of hiring additional personnel at all levels and the
related increase in facilities costs. As a percentage of revenues, general and
administrative expenses decreased to 21.4% in 1995 from 21.6% in 1994.

Interest Expense, Net. Interest expense, net increased to $893,000 in 1995
from $712,000 in 1994 as a result of higher borrowings by the Company in 1995.

Provision for Income Taxes. The Company made no provision for income taxes
for the years ended June 30, 1995 and 1994 due to the net operating losses
incurred during those years.

SELECTED QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited quarterly consolidated
statements of operations data for each of the eight quarters in the period ended
June 30, 1996 and the percentage of the Company's revenues represented by each
item in the respective quarter. In the opinion of the Company's management, this
unaudited information has been prepared on a basis consistent with the audited
Consolidated Financial Statements appearing elsewhere in this Prospectus and
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth therein when read in
conjunction with the Consolidated Financial Statements and related Notes
thereto. The operating results for any quarter are not necessarily indicative of
results for any future period.

21
<PAGE> 23

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------------
FISCAL YEAR 1995 FISCAL YEAR 1996
------------------------------------------------ ------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
--------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.................. $ 8,988 $ 9,884 $10,948 $11,727 $12,679 $14,089 $14,778 $15,466
------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Operating............... 2,119 3,024 2,126 2,433 2,488 2,893 2,962 3,280
Marketing............... 7,409 7,948 8,571 8,871 9,127 9,626 9,579 10,078
General and
administrative........ 2,129 2,542 2,083 2,131 2,060 3,229 3,090 3,537
Interest expense
(income), net......... 181 237 232 243 300 (18 ) 3 25
------- ------- ------- ------- ------- ------- ------- -------
Total expenses............ 11,838 13,751 13,012 13,678 13,975 15,730 15,634 16,920
------- ------- ------- ------- ------- ------- ------- -------
Net loss.................. $(2,850) $(3,867 ) $(2,064 ) $(1,951 ) $(1,296) $(1,641 ) $ (856 ) $(1,454 )
======= ======= ======= ======= ======= ======= ======= =======
PERCENTAGE OF TOTAL REVENUES:
Revenues.................. 100.0% 100.0 % 100.0 % 100.0 % 100.0% 100.0 % 100.0 % 100.0 %
--------- -------- -------- -------- --------- -------- -------- --------
Expenses:
Operating............... 23.6 30.6 19.4 20.7 19.6 20.5 20.0 21.2
Marketing............... 82.4 80.4 78.3 75.6 72.0 68.3 64.8 65.2
General and
administrative........ 23.7 25.7 19.0 18.2 16.2 22.9 20.9 22.9
Interest expense
(income), net......... 2.0 2.4 2.2 2.1 2.4 (0.1 ) 0.1 0.1
--------- -------- -------- -------- --------- -------- -------- --------
Total expenses............ 131.7 139.1 118.9 116.6 110.2 111.6 105.8 109.4
--------- -------- -------- -------- --------- -------- -------- --------
Net loss.................. (31.7)% (39.1 )% (18.9 )% (16.6 )% (10.2)% (11.6 )% (5.8 )% (9.4 )%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

The Company's quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly from
quarter to quarter in the future. Factors which affect the Company's financial
results include: the timing and cancellation of client orders; the Company's
ability to introduce new programs on a timely basis; the introduction of
programs by the Company's competitors; market acceptance of the Company's and
its clients' programs; the timing of investments in program development;
personnel changes; the demand for membership programs generally; the mix of
programs offered by the Company; unanticipated service interruptions; increased
costs associated with expansion of operations; availability of vendors to
support offered programs; the rate of renewal by existing members of programs;
the level of enthusiasm for health and fitness, travel, entertainment and
leisure activities, and other lifestyle elements underlying the Company's
programs; and competitive pressures on selling prices. Many of these factors are
beyond the Company's control. Because the Company determines its expenditure
levels in advance of each quarter, the Company's ability to reduce costs quickly
in response to any revenue shortfall is limited, and thus operating results
would be adversely affected if projected sales for a given quarter are not
achieved. The Company incurs significant start-up costs in advance of the
offering of a new program, including costs associated with hiring and training
additional personnel, program development and distributing membership kits. In
addition, any delay in the offering of the program, by the Company, its clients
or otherwise, or slower than anticipated consumer acceptance of such program,
could increase the Company's cost of revenues in a given period. There also can
be no assurance that future acquisitions, if any, by the Company will not have
an adverse effect upon the Company's results operations, particularly in
quarters immediately following consummation of such transactions, while the
operations of the acquired business are being integrated into the Company's
operations.

22
<PAGE> 24

price and the trading price of the Company's Common Stock on the date of the
grant. The Company's agreement to grant such options terminates on December 31,
1996.

The Company believes that its quarterly revenues, expenses and operating
results are likely to vary significantly in the future, that period to period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance. It
is also likely that in some future quarter the Company's operating results will
be below the expectations of public market analysts and investors, which, in
turn, could have a severe adverse affect on the price of the Company's Common
Stock.

The Company's revenue has increased in each of the quarters presented
above. These increases have resulted primarily from an increase in the Company's
overall membership base. Operating expenses have varied quarter to quarter due
primarily to personnel expenses and other costs associated with providing
services for new members or anticipated new members. Operating expenses in the
quarter ended December 31, 1994 were relatively high as compared to other
quarters primarily due to the discontinuance in 1995 of the Company's domestic
discount coupon book business. Marketing expenses have generally increased in
each quarter due to increased marketing efforts and increasing royalties
associated with an expanding membership base. General and administrative
expenses have varied quarter to quarter due primarily to the hiring of
additional personnel, particularly in the last two quarters of fiscal 1996, and
facilities costs for physical expansion needed to support the Company's growth.
General and administrative expenses were lower in the quarters ended March 31,
June 30 and September 30, 1995 as compared to prior quarters primarily as a
result of the absence of general and administrative expenses associated with the
Company's discount coupon business which was discontinued in the quarter ended
December 31, 1994. General and administrative expenses in the quarter ended
December 31, 1995 were higher primarily due to higher legal, employee recruiting
and employee bonus expenses.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has funded operations primarily through
private sales of securities. Total net proceeds from the sale of stock, warrants
and notes through June 30, 1996 was $25.0 million. In addition, the Company has
a $3.0 million bank line of credit. The line of credit bears interest at 1.5%
per annum plus the higher of the base commercial lending rate for the bank or
the Federal Funds Rate plus 0.5% per annum and expires in February 1997. At June
30, 1996, $10,000 was outstanding under the line of credit.

Net cash provided by operating activities was $1,000 in 1996, net cash used
by operating activities was $3.5 million in 1995 and net cash provided by
operating activities was $600,000 in 1994. These results were attributable to
the Company's strategy to use substantially all of its available cash to fund
costs required to increase its membership base. The Company's capital
expenditures for 1996, 1995 and 1994 were $1.7 million, $500,000 and $700,000,
respectively. These expenditures were for acquisition of fixed assets required
to support the Company's growth over the period from 1994 to 1996.

Accounts receivable includes $3.6 million of unbilled receivables as of
June 30, 1996 (none at June 30, 1995), which were billed and collected
subsequent to the balance sheet date, and arise in certain instances when the
Company elects to bill subsequent to, rather than upon, acceptance of
membership. The Company had cash and cash equivalents of $4.3 million as of June
30, 1996.

The development and marketing of the Company's programs requires
significant expenditures, and the Company must incur costs to market programs to
each potential member, regardless of whether that individual actually becomes a
paying member. The Company's capital base is smaller than that of many of its
competitors, and there can be no assurance that the Company's cash resources
will be able to sustain its business, particularly if it experiences a reduction
in revenues for a prolonged period or if it faces substantial unexpected capital
requirements. To the extent that such cash resources are insufficient to fund
the Company's activities, additional funds will be required. There can be no

23
<PAGE> 25

assurance that additional financing will be available on reasonable terms or at
all. If additional capital is raised through the sale of additional equity or
convertible debt securities, dilution to the Company's stockholders would occur.

The Company believes that the net proceeds from this offering, together
with its cash balances following completion of the offering, funds generated
from operations, and borrowings available under the Company's bank credit
agreement, will be sufficient to meets its capital requirements for at least the
next 18 months.

RECENTLY ISSUED ACCOUNTING STANDARDS

In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." The Company
adopted SFAS No. 121, with no effect on operations, in fiscal 1996.

The Company accounts for stock option grants in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." In fiscal 1997, the Company intends to adopt the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."

24
<PAGE> 26

BUSINESS

The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated on these forward-looking statements as a
result of certain factors, including those set forth under "Risk factors" and
elsewhere in this Prospectus.

MemberWorks is a leading designer and provider of innovative membership
service programs. The Company addresses the needs of organizations seeking to
leverage the expertise of an outside provider in offering these programs.
MemberWorks offers its programs to increasingly sophisticated consumers seeking
economy, efficiency and convenience in their purchase of products and services.
For participating vendors, the programs provide the opportunity to reach a large
number of demographically attractive members at minimal incremental marketing
cost. The Company's programs are marketed to credit card holders through
arrangements with its client organizations including banks, retailers, major oil
companies and other credit card issuers. Such organizations include Household
Credit Services, Capital One, Sears, Shell and Texaco.

INDUSTRY BACKGROUND

Businesses which sell services and products to consumers have substantially
increased the use of direct marketing techniques to reach their customers. The
estimated total consumer sales as a result of direct marketing in the United
States were approximately $600 billion in 1995. Membership service programs are
one of the fastest growing areas of direct marketing. Membership service
programs, if designed, marketed and managed effectively, can be of substantial
value to the consumers who become members of such programs, to the businesses
which market to consumers and to the client organizations, such as credit card
issuers, banks, insurance companies and others, which offer the programs to
their customers.

Increasingly sophisticated consumers, such as dual income couples and
professionals, are faced with a growing number of products and services that are
advertised and offered through media ranging from network television to
traditional print media to the Internet. In addition, these consumers have
limited time in which to make informed and efficient purchasing decisions. A
well-designed membership service program provides value by allowing consumers to
make purchases more efficiently, conveniently and knowledgeably through access
to discounted products and services, information services and other types of
assistance.

Businesses are seeking more cost-effective and efficient methods to reach
their customers than through the confusing array of traditional mass marketing
channels. In addition, businesses also are seeking to reach new customers,
strengthen relationships with existing customers and generate new, predictable
revenues, including royalties.

Historically, a substantial number of the businesses which utilize
membership service programs have been issuers of credit cards. More recently,
however, other businesses, including retailers, resort operators, banks,
insurance companies and non-profit organizations have also begun to offer
service programs. In many cases, these businesses lack the core competency to
successfully design, market and manage membership programs. As a result, these
businesses seek to outsource to companies which are able to apply advanced
database systems to capture, process and store consumer and market information,
are able to use their experience to provide effective programs, and are able to
realize economies of scale. In addition, businesses seeking to implement
membership service programs demand that the provider of those programs have the
expertise to continue to introduce innovative new programs and that the provider
have such resources as extensive vendor networks and experienced management
teams, in order to market programs quickly and successfully.

25
<PAGE> 27

THE MEMBERWORKS SOLUTION

MemberWorks designs and manages innovative membership programs providing
substantial benefits to member consumers, those organizations offering the
programs and vendors whose products and services are offered through the
programs. The Company addresses the needs of organizations seeking to leverage
the expertise of an outside provider in offering membership service programs. In
return for providing the Company with customer lists, the Company's clients
receive royalty payments typically ranging between 15% and 20% of all membership
fees. Clients also benefit because the programs are designed and managed to
strengthen the relationship between clients and their customers. In addition,
MemberWorks markets these programs of products and services to increasingly
sophisticated consumers seeking economy, efficiency and convenience in their
selection of products and services. Members save time by telephonically
purchasing goods and services and obtaining useful information. Members also
benefit because the vendors agree to allow discounts for products and services
not generally available to non-members. MemberWorks offers participating vendors
the opportunity to reach a large number of demographically attractive members at
minimal incremental marketing cost.

The Company maximizes its marketing effort by utilizing a proprietary
database management system to analyze the demographics of customer lists
provided by its clients in order to target specific consumers. MemberWorks is
able to introduce new programs, as well as improve existing programs, through
telemarketing rather than direct mail or other methods, thereby providing
clients with a rapid, inexpensive means to test and introduce new concepts.

MemberWorks leverages its substantial base of approximately 40 client
organizations and approximately 1.5 million members to decrease its costs and to
pass economic benefits on to its clients and members. The Company's broad
membership base allows MemberWorks to render substantial discounts on its
vendors' products and services. Economies of scale also permit the Company to
maintain approximately 200 member service representatives on a 24 hour a day,
seven day a week basis. These representatives ensure that members receive
high-quality service and help build consumer loyalty with the Company's client
organizations.

STRATEGY

The Company's objective is to become the leading provider of innovative
membership programs. Key elements of the Company's strategy are as follows:

Continue to Develop Innovative Service Programs for Broad Markets. The
Company intends to emphasize the development and rapid introduction of
innovative programs which address the lifestyle needs of large numbers of
people. The Company believes that this strategy will position it to further
penetrate its core membership market, both through existing clients and through
new clients who will find the Company's new and innovative programs to be
valuable to their own customers. For example, the Company believes that its Home
PC Link program, which provides consumers with valuable information regarding,
and purchasing access to, computer hardware, software and advisory services, is
the first such program offered. The Company believes that its health, sports and
financial programs also were the first of their kind when introduced.

Expand and Develop Distribution Channels. The Company will continue to
expand existing distribution channels and to seek new ones, including large and
small banks, retailers, oil companies, insurance companies, interactive computer
services and others. To date, the primary clients offering the Company's
membership service programs have been issuers of credit cards. The Company
believes that this distribution channel will continue to provide substantial
opportunities and, therefore, intends to continue to devote significant
resources to selling its membership service programs through credit card
issuers. As part of this strategy, the Company intends to continue to develop
service programs which can be easily modified to address the needs of a
particular channel of distribution.

26
<PAGE> 28

Maintain and Build a Recurring Revenue Base. The Company seeks to reach
large numbers of members who will renew their membership regularly. The
percentage of the Company's revenues from renewing members increased from 35.9%
in fiscal 1994 to approximately 41.4% in fiscal 1996.

Offer Premium Quality Services. The Company intends to continue investing
significantly in its membership services system. For example, the Company has
developed a proprietary computer interface between its members, clients and
vendors which focuses on directing members to appropriate vendors of products
and services or the Company's membership services representatives for
assistance. Members can access the system 24 hours a day, 7 days a week. In
addition, the Company recently significantly expanded its membership service
capacity by opening its second membership service facility in Houston, Texas.
The Company also maintains and monitors relationships with over 50 vendors to
assure that those vendors are providing high quality products and services in
order to enhance the relationship between the consumer and the Company's client
offering the service program.

Develop and Use Innovative Technical Solutions. The Company intends to
continue its practice of developing and improving proprietary software designed
to coordinate with telemarketing vendors and to accelerate the delivery of new
member information kits and membership billings. Currently, the Company, through
its sophisticated membership database management system, can model and analyze
client lists to identify likely members. In addition, the Company's strategy
includes investing in state-of-the-art technology in other key areas of its
business, such as sophisticated call routing equipment for the Company's
membership service centers and advanced modeling techniques for use with the
customer databases provided to the Company by its clients.

Leverage and Develop Multiple Vendor Partners. The Company intends to
continue its practice of developing strong relationships with a wide variety of
vendors who provide services at substantial discounts, rather than providing
those services internally. The Company believes that its strengths are in
designing new service programs, marketing those service programs to consumers
and providing a high quality, member-friendly interface between the members and
the service providers. The Company outsources these products and services from
vendors instead of developing the infrastructure to integrate vertically for
each new program, thereby preserving program flexibility. As a result, the
Company is able to respond to and quickly develop new programs that address the
changing needs of its clients.

Pursue International Opportunities. The Company intends to seek
international clients, particularly in Canada, Mexico and Europe, in the near
future in order to further expand its client base. MemberWorks believes that,
for the same reasons that membership service programs are growing rapidly in the
United States, there is significant demand for such programs in foreign markets.

MEMBERSHIP SERVICE PROGRAMS

The Company's eight membership service programs, which had approximately
1.5 million members as of June 30, 1996, offer unique and valuable services,
information and savings opportunities. The service programs are marketed under
the name of the program on behalf of the client and are designed and developed
to capitalize on the client's existing relationship with its customers or other
constituents. In general, membership fees, which may be payable monthly,
quarterly or annually depending on the program, ranged from approximately $40
per year to approximately $95 per year

27
<PAGE> 29

during fiscal 1996. The Company can create customized service programs for
clients based on elements of its standard programs. Currently, the Company
markets the following eight programs:

<TABLE>
<CAPTION>
TYPE OF SERVICE
PROGRAM SERVICEMARK OR REGISTERED TRADEMARK
<S> <C>
Health HealthTrends
Dental Countrywide Dental Program
Dental and Health Countrywide Dental and Health Program
Travel Travel Arrangements
Entertainment Connections, Your source for entertainment values
Sports Official Sports Connection
Financial MoneyMaster
Computers and
Software Home PC Link
</TABLE>

In general, members subscribe for renewable one-year memberships in the
Company's programs. When consumers agree to enroll in a program, they generally
receive a trial membership. During this time, the member may use the program's
services without obligation, as outlined in a membership brochure received by
mail along with a membership card and membership identification number. The
brochure outlines in detail the benefits which the service offers and contains
toll free numbers which may be called to access service benefits and
information. In the event that a consumer elects not to participate in the
service, he or she can call a toll free number during the trial period to cancel
the service without charge. If the membership is not canceled during the trial
period, the consumer is charged the annual membership fee. In the event that the
member does not cancel the membership after the initial membership term, he or
she generally receives a renewal kit in the mail in advance of each membership
year and is charged for the succeeding year's membership fee. During the course
of an initial annual membership term or renewal term, a member is free to cancel
a membership in the program, generally for a complete refund of the membership
fee for that period.

The Company offers its service programs to consumers through clients, such
as credit card issuers, who have an existing relationship with those consumers.
The client provides the Company with lists of consumers which the Company inputs
into its database management system to model, analyze and identify likely
members. The Company pays the client an annual royalty for initial and renewal
membership fees received by the Company from consumers provided to it by the
client. The royalties paid to clients by the Company typically range between 15%
and 20% of initial and renewal membership fees.

The Company has developed a consultative product development process
coordinating the efforts of its sales and marketing group with those of its
client management group in order to anticipate client needs for new product
offerings. The Company's senior management works with both of these groups to
develop and refine new program concepts and then to introduce the new program.
An important factor in the Company's ability to develop innovative programs is
its emphasis on telemarketing, which allows it to obtain and analyze market
trend information quickly. The Company believes this method of product
development has allowed it to respond quickly and effectively to market demand
for new programs, as evidenced by the recent introduction of Home PC Link.

The Company believes that it was the first membership company to introduce
aggregated discount services in the areas of health, sports, financial and
personal computer programs. The Company also believes that all of its programs
are innovative with respect to the variety and quality of particular services,
discounts and other features which those programs offer. By bundling and
reconfiguring various features of its standard programs, the Company can
customize a program to the particular needs and demands of its clients.

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<PAGE> 30

The Company's standard programs contain the following features:

HealthTrends

HealthTrends is a unique membership program for the health conscious
individual or family, providing convenient information and substantial savings
on quality health and personal care services and maintenance.

Benefits include:

- Substantial discounts on brand name eyewear and contact lenses
- Savings on prescription drugs, quality vitamins and personal care
products
- A Physicians Directory
- Quality brand name hearing aids at significant discounts
- Choice of an annual subscription to a popular health magazine, such as
Prevention or Walking, or a health reference source book
- A health risk appraisal service and a health reference library

Countrywide Dental Program

The Countrywide Dental Program ("CDP") consists of a network of independent
dentists in 45 states who have agreed to accept a reduced fee schedule for
subscribers in the program. CDP is not an insurance plan, but can be used with
any dental insurance program to reduce a member's insurance co-payments.

Benefits include:

- Annual oral exams and bitewing x-rays at minimal or no cost
- A discount ranging from 20% to 30% below rates offered to non-members.

Countrywide Dental and Health Program

The Countrywide Dental and Health Program offers a combination of benefits
from the Company's Countrywide Dental Program and HealthTrends services. This
combined service provides members and their families dental services at special
discounted rates in addition to substantial discounts on eyewear,
pharmaceuticals and hearing aids.

Travel Arrangements

Travel Arrangements is a comprehensive discount travel program that offers
substantial savings and convenience on a broad range of business, leisure, and
vacation travel services.

Benefits include:

- Guaranteed lowest airfares
- Discounts of up to 50% at select hotels nationwide
- Automatic 5% credit card rebates on qualified travel
- Exclusive discounts on travel booked through a full-service travel
agency
- Discounts on car rentals from national agencies
- Personalized travel planning services
- Discounts on travel accessories
- Complimentary memberships to hotel and car rental priority clubs
- 24-Hour message service center in the contiguous 48 States

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<PAGE> 31

Connections, Your source for entertainment values

Connections, Your source for entertainment values is designed to provide
savings to members on a broad range of entertainment and leisure time activities
and contains a shopping service for substantial savings on a wide array of
merchandise.

Benefits include:

- Guaranteed lowest prices on over 50,000 brand-name entertainment
products such as stereo equipment and televisions
- Member only discounts on compact discs, movies, videos, and books
- Discounts of up to 50% off the regular room rate at thousands of
hotels nationwide
- Discount admission to major amusement and theme parks and major
attractions nationwide
- Choice of an annual subscription to an entertainment magazine or a
movie reference guide
- Access to a toll-free activities hotline where members can learn about
local events or events in an area they plan to visit
- Discounts on movie theater tickets at major national cinemas, such as
AMC, Loews Cineplex Odeon and General Cinema
- Transmedia restaurant discount card

Official Sports Connection

Official Sports Connection provides discounts on all types of sports and
athletic merchandise, apparel, and services.

Benefits include:

- Discounts on sports merchandise and apparel through major retail
stores and popular sports catalogs
- Savings on autographs, collectibles, personalized team scoreboards,
and videos
- Discounts on full-service sports event travel packages and premium
tickets to sports events
- Discounts of up to 50% off greens fees at participating golf courses,
resorts, and driving ranges worldwide
- Access to a toll-free sports event hotline
- Choice of an annual subscription to a popular sports magazine or
sports reference guide such as Football Digest, Inside Sports or
Fodor's USA Today's Complete Four Sport Stadium Guide

MoneyMaster

MoneyMaster helps members plan for and manage their personal finances,
taxes, insurance, and retirement planning. This service complements and can
integrate some of the benefits currently offered by the Company's financial
institution clients.

Benefits include:

- Discounts on tax preparation fees and an electronic filing service
- Complimentary appraisal and discounts on competitively priced
mortgages
- Do-it-yourself retirement planning, will and estate planning kits with
easy to understand guidelines
- Choice of a complimentary annual subscription to a personal finance
magazine such as Kiplinger's Personal Finance, Your Money or Worth, or
a personal finance service reference guide
- Reference library with articles and forms on financial topics
including budgeting, credit management and investing

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<PAGE> 32

Home PC Link

Home PC Link is the Company's newest program offering, introduced in August
1996. It offers a wide range of assistance to the first time computer purchaser
as well as to existing users seeking information on upgrading their systems and
enhancements.

Benefits include:

- Personal Computer ("PC") configuration and discount mail order service
- PC registration and software upgrade service
- PC tech support service
- Product information and advisory service
- Internet access kit
- Shareware sampler, a CD-based catalog of software available for free
and for purchase
- Computer magazine and reference materials, including Family PC,
Computer Life, or MacUser

WHOLESALE PROGRAMS

In addition to marketing its programs directly to consumers through lists
provided by credit card issuers and other businesses and organizations, the
Company has begun to provide membership service programs on a wholesale basis.
Typically, the Company works with a wholesale client to incorporate elements
from one or more of its standard service programs in the design of a custom
program for the client. The client will then provide the membership in the
customized format to its customers as a value-added feature. The client pays the
Company the membership fees for the customers who receive the service program.
Because wholesale programs substantially eliminate any cost for the Company to
acquire new members, which results in substantially higher profit margins for
the Company, the Company usually will agree to provide membership in the service
program for periodic fees which are less than the Company's standard fees for
the program.

MEMBER SERVICE

The Company believes that providing high quality service to its members is
extremely important in order to encourage memberships and to strengthen the
affinity of those members for the client which offered the service program.
Currently, the Company maintains two call centers, in Omaha, Nebraska and
Houston, Texas, with a total of approximately 200 membership service
representatives. The Company's service centers are available to members, toll
free, 24 hours a day, seven days a week. All new membership service
representatives are required to complete a two-week classroom training course
before beginning to take calls and attend on-the-job training thereafter.
Through both its training programs, its systems and its software, the Company
seeks to provide members with friendly, rapid and effective answers to
questions. The Company also works closely with its clients' customer service
staffs to ensure that their representatives are knowledgable in matters relating
to membership service programs offered by the Company.

TECHNOLOGY

The Company has invested substantially in advanced management information
systems to allow it to operate its business more efficiently and productively.
Accordingly, the Company has developed proprietary software that is designed to
accept its clients' customer databases for review, analysis and modeling in
order to identify likely members. The Company receives new member information
from telemarketers on a daily basis, and the system routes that data to other
Company facilities for member fulfillment and allows the Company to mail member
information kits to new members very rapidly. The system also receives
confirmation of billing data from the Company's merchant processors on a regular
basis, permitting the Company to update the status of each member, including
member profile information.

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In providing quality service to its members, the Company's management
information system interacts with the Company's advanced call routing system to
prepare the Company's membership service representatives to better serve members
by displaying a member's profile prior to receiving the call. The Company's
telecommunications systems also monitor the performance quality of its
membership service representatives and other aspects of its business through
sophisticated reporting capabilities. In addition, the Company's marketing
experts use both the Company's proprietary systems and advanced systems from
outside vendors to review, analyze and model the demographics of lists of
prospective members supplied by clients, in order to determine which customers
are most likely to respond to an offer and retain their membership.

FULFILLMENT

In most cases the products and services offered to members through the
Company's programs are provided directly to the members by independent vendors.
The Company evaluates and engages only those vendors which can cost-effectively
deliver high quality products and services. Vendors generally benefit by gaining
significant volume demand with minimal associated marketing expense.
Accordingly, vendors generally quote a discount price to gain access and
marketing exposure to the Company's membership base. The Company receives no
material payments from these vendors for rendering services to the Company's
members and, in certain cases, the Company pays its vendors a fee based on the
volume of members in the Company's program or based on other agreed upon
factors.

The Company believes that the establishment of its vendor network can be
leveraged and represents a valuable corporate asset in that it can be used by
clients in a number of different distribution channels. For example, the Company
has developed and maintains a national network of in excess of 6,000 independent
dentists practicing in 45 states. The dentists have agreed to provide to Company
members dental services at considerable discounts, ranging from 20% to 30% below
rates offered to non-members. The Company believes that there is opportunity to
engage other users for the dental network and to increase its revenues from this
source with marginal associated incremental cost.

The Company depends on independent vendors to provide most program products
and services to members and on telemarketers to market its programs to
prospective members. The vendors and telemarketers operate pursuant to
agreements with the Company that may be terminated by the vendor or telemarketer
with limited prior notice. There can be no assurance that, in the event a vendor
or telemarketer ceases operations, or terminates, breaches or chooses not to
renew its agreement with the Company, a replacement vendor or telemarketer could
be retained on a timely basis, if at all. In addition, vendors and telemarketers
are independent contractors and the level and quality of services provided is
outside the control of the Company. Any service interruptions, delays or quality
problems could result in customer dissatisfaction and membership cancellations,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

SALES AND MARKETING

The Company solicits members for its programs primarily by direct marketing
methods, including telemarketing, which it outsources to third party
contractors. To a lesser extent the Company uses direct mail, either as a solo
piece mailed at its own expense or at its client's expense. Some of the
Company's individual memberships are available at retail stores and on-line to
interactive computer users through the World Wide Web. In fiscal 1996,
approximately 3.3 million membership kits were mailed, and approximately 22
million telephone calls were made.

The Company primarily offers its programs to consumers listed in databases
provided to it by clients. The Company's proprietary software and systems permit
it to accept this information from a client in electronic form. Marketing
specialists at MemberWorks are then able to review, analyze and model the
information on the database in order to design and implement an effective
telemarketing program. In addition, the Company has recently begun to sell
service programs on a wholesale basis.

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<PAGE> 34

Under those programs, the Company does not pay for the marketing costs to
solicit memberships. Instead, the client offering the memberships is responsible
for marketing, usually with the assistance of the Company. In some cases, the
client may provide wholesale memberships to its customer free of charge and pay
the periodic membership fee to the Company for each customer membership. In
other cases, the client may charge a reduced fee to its customer.

The Company's sales strategy is to establish and maintain long-term
relationships with those clients who offer its programs. The Company employs a
consultative sales process to understand and define client needs and to
determine how those needs can be addressed by the membership service programs
which the Company offers. MemberWorks seeks to build upon its existing customer
relationships by integrating and cross-selling its different membership service
programs. The term of the sales cycle for a new service program varies and can
be six months or more if the client is new to the Company. The Company's client
sales force currently consists of five executives and seven sales
representatives and support staff.

The Company markets and services its programs primarily telephonically, and
accordingly, its business is highly dependent on telephone service provided by
various local and long distance telephone companies. Any significant
interruption in telephone services could adversely affect the Company.
Additionally, limitations on the ability of telephone companies to provide the
Company with increased capacity that may be required in the future, if any,
could adversely affect the Company's business, financial condition and results
of operations. Rate increases imposed by these telephone companies will increase
the Company's operating expenses and could materially adversely affect its
business, financial condition and results of operations.

DISTRIBUTION

Currently, MemberWorks distributes its programs almost exclusively through
credit card issuers. The Company arranges with client financial institutions,
retailers, oil companies and other credit card issuers to market membership
programs to such clients' individual account holders and customers. Clients
generally receive royalties on initial and renewal memberships typically ranging
between 15% and 20% of annual membership fees. The Company's contracts with
these clients typically grant the Company the right to continue providing
membership services directly to such clients' individual account holders even if
the client terminates the contract, provided that the client continues to
receive its commission. Currently, the Company has 36 credit card issuer clients
to whom it pays royalties, including 10 of the top 20 issuers of bank credit
cards, four of the top five issuers of oil company credit cards and a leading
issuer of retail company credit cards.

The Company is also actively developing new distribution channels.
Recently, for example, the Company entered into an agreement to offer its
membership service programs through marketing programs at retail stores. In
addition, the Company has entered into a new arrangement with one of its credit
card issuer clients whose call centers receive numerous inbound calls from
cardholders. If the inbound caller meets certain criteria, the client's service
representative is instructed by the Company to offer the Company's membership
service programs to the caller. Access and information about several of the
Company's membership service programs are also available through home pages on
the World Wide Web.

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the Company generally has the right to continue its relationship with the
client's customers that have become program members for a specified period to
substantially the same extent as prior to the termination, but may not resolicit
those members upon such member's cancellation or non-renewal of the member's
membership. Approximately 75% of the revenue attributable to Sears for the year
ended June 30, 1996 was generated pursuant to a contract which also provides
that, upon termination of the agreement for default, Sears may prohibit the
Company from renewing memberships and otherwise cause the Company to terminate
its relationship with existing members. Events that constitute default include
events outside the control of the Company, including acts and omissions by the
Company's third-party vendors. There can be no assurance that one or more of the
Company's key or other clients will not terminate its relationship with the
Company or that clients will provide additional customer lists to the Company
for use in further marketing new or existing membership programs.

Approximately 25% of the revenue attributable to Sears for the year ended
June 30, 1996 was generated pursuant to a contract which grants Sears the
option, exercisable at any time, to assume the obligations of the Company under
a specified membership program in exchange for a fee or commission per member.
The agreement provides that the fee or commission shall be negotiated by the
Company and Sears, or otherwise subjected to binding arbitration. There can be
no assurance that, upon exercise of such option, the Company would receive, as a
result of negotiation, arbitration or otherwise, revenue or net income
commensurate with the amount which the Company would receive if the option were
not exercised. Failure to receive a commensurate amount, and the loss of the
ability to market to the members of the program following exercise of the
option, could have a material adverse effect on the Company's business,
financial condition and results of operations.

GOVERNMENT REGULATION

The primary means which the Company uses to market its programs is
telemarketing. The telemarketing industry has become subject to an increasing
amount of Federal and state regulation as well as general public scrutiny in the
past several years. The Federal Telephone Consumer Protection Act of 1991 limits
the hours during which telemarketers may call consumers and prohibits the use of
automated telephone dialing equipment to call certain telephone numbers. The
Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 and
Federal Trade Commission ("FTC") regulations promulgated thereunder, prohibit
deceptive, unfair or abusive practices in telemarketing sales. Both the FTC and
state attorneys general have authority to prevent telemarketing activities that
constitute "unfair or deceptive acts or practices." Additionally, some states
have enacted laws and others are considering enacting laws targeted directly at
telemarketing practices, and there can be no assurance that any such laws, if
enacted, will not adversely affect or limit the Company's current or future
operations. Compliance with these regulations is generally the responsibility of
the Company, and the Company could be subject to a variety of enforcement or
private actions for any failure to comply with such regulations. The Company's
provision of membership programs requires the Company to comply with certain
state regulations, changes in which could materially increase the Company's
operating costs associated with complying with such regulations. The risk of
noncompliance by the Company with any rules and regulations enforced by a
Federal or state consumer protection authority may subject the Company or its
management to fines or various forms of civil or criminal prosecution, any of
which could materially adversely affect the Company's business, financial
condition and results of operations. Also, the media often publicizes perceived
non-compliance with consumer protection regulations and violations of notions of
fair dealing with consumers, and the membership programs industry is susceptible
to peremptory charges by the media of regulatory noncompliance and unfair
dealing.

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COMPETITION

Many of the Company's current and prospective competitors, including CUC,
have substantially larger customer bases and greater financial and other
resources than the Company. There can be no assurance that the Company's current
or potential competitors will not provide programs comparable or superior to
those provided by the Company at lower membership prices or adapt more quickly
than the Company to evolving industry trends or changing market requirements. In
addition, alliances among competitors may emerge and rapidly acquire significant
market share. Increased competition may result in price reductions, reduced
gross margins and loss of market share, any of which could materially adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to compete effectively
against current and future competitors.

The Company believes that the principal competitive factors in the
membership services industry include the ability to identify, develop and offer
innovative service programs, the quality and breadth of service programs
offered, price and marketing expertise. The Company believes that its ability to
compete also depends in part on a number of competitive factors outside its
control, including the ability to hire and retain employees, the development by
others of service programs that are competitive with the Company's service
programs, the price at which others offer comparable service programs and the
extent of the Company's competitors' responsiveness to customer needs.

Providers of membership programs compete for client marketing budget
dollars with other marketing activities and, in particular, other forms of
direct marketing activities, such as direct mail. In recent years, there have
been significant advances in new forms of direct marketing, such as the
development of interactive shopping and data collection through television, the
Internet and other media. Many industry experts predict that electronic
interactive commerce, such as shopping and information exchange through the
World Wide Web, will proliferate significantly in the foreseeable

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future. To the extent such proliferation occurs, it could have a material
adverse effect on the demand for membership programs. Furthermore, as the
telemarketing industry continues to grow, the effectiveness of telemarketing,
which is the Company's major means of marketing its programs, as a direct
marketing tool may decrease as a result of increased consumer resistance to
telemarketing in general.

EMPLOYEES

As of June 30, 1996, the Company employed 349 persons on a full-time basis
and 47 on a part-time basis. None of the Company's employees are represented by
a labor union. The Company believes that its employee relations are good.

FACILITIES

The Company leases space in Stamford, Connecticut, Omaha, Nebraska and
Houston, Texas. The Stamford office serves as the Company's headquarters. The
Omaha and Houston locations are primarily call centers for membership services
representatives, operations and telemarketing personnel. The Omaha location is
also the Company's main computer and telecommunications systems center and
contains member fulfillment and warehouse facilities.

A summary of key information with respect to the Company's leased
facilities is as follows:

<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE LEASE EXPIRATION
------------------------------------------------ -------------- ------------------
<S> <C> <C>
Stamford, CT.................................... 18,650 March 14, 2006
Omaha, NE....................................... 19,800 June 30, 2000
Omaha, NE....................................... 11,000 December 31, 1997
Omaha, NE....................................... 16,400 December 31, 2000
Houston, TX..................................... 26,000 July 31, 2006
</TABLE>

LEGAL PROCEEDINGS

From time to time, the Company may be involved in litigation or in
settlement proceedings relating to claims arising out of its operations in the
normal course of business. Except as described below, the Company is not
currently a party to any legal proceedings, the adverse outcome of which,
individually or in the aggregate, could have a material adverse affect on the
Company's business, financial conditions and results of operations.

On June 29, 1995, Thomas J. St. Denis, a co-founder of the Company, filed a
complaint against the Company, Gary A. Johnson and Steven H. Levenherz, who are
executive officers of the Company, in Stamford, Connecticut Superior Court,
alleging various claims arising out of his termination on October 3, 1994 as
Executive Vice President and Chief Operating Officer of the Company. Mr. St.
Denis alleges wrongful termination, breach of fiduciary duty, fraudulent
inducement and certain other claims arising out of alleged accounting
irregularities in fiscal 1994. The complaint claims an unspecified amount of
compensatory and punitive damages and certain other costs. The Company has moved
to strike the complaint, and its motion is being considered by the court. If the
motion to strike is not allowed, the Company intends to contest the claims
alleged in the complaint vigorously, and to assert counterclaims against Mr. St.
Denis. Prolonged litigation arising from this complaint or an adverse
determination could have a material adverse effect on the Company's business,
financial condition and results of operations.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their respective
ages as of June 30, 1996, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ------------------------------------------------
<S> <C> <C>
Gary A. Johnson............. 41 President and Chief Executive Officer, Director
Dennis P. Walker............ 51 Executive Vice President, Director
James B. Duffy.............. 42 Senior Vice President and Chief Financial
Officer
David Schachne.............. 35 Senior Vice President -- Marketing/Operations
Steven H. Levenherz......... 52 Senior Vice President -- Administration/Law
Stephen J. Clearman......... 45 Director
Alec L. Ellison............. 33 Director
Michael R. O'Brien.......... 53 Director
Marc S. Tesler.............. 50 Director
</TABLE>

Gary A. Johnson, a co-founder of the Company, has served as President and
Chief Executive Officer and a Director of the Company since its inception. From
1987 to 1989, Mr. Johnson founded and served as President of American Target
Group Marketing, a marketer of membership services for magazine publishers. From
1983 to 1987, Mr. Johnson was Vice President of New Product Development and
Marketing for CUC, a membership program services marketing firm. From 1981 to
1983, Mr. Johnson was a Marketing Director of the Marketing Consulting Division
of General Electric. Mr. Johnson received a B.S. from Tufts University and an
M.B.A. from Harvard Business School.

Dennis P. Walker, a co-founder of the Company, has served as Executive Vice
President and a Director of the Company since its inception. Prior to founding
MemberWorks, Mr. Walker founded and served as President of Walker Enterprises, a
direct marketing and credit card merchandising business from 1978 to 1988. Mr.
Walker received a B.A. from the University of Nebraska.

James B. Duffy joined the Company as Senior Vice President and Chief
Financial Officer in June 1996. Prior to joining the Company, Mr. Duffy served
in various senior financial management positions, most recently as Senior Vice
President, Business Planning, at Merck Medco Managed Care, Inc., a prescription
benefit management company, from 1986 to November 1995. Mr. Duffy received a
B.B.A. from Pace University.

David Schachne joined the Company as Senior Vice
President -- Marketing/Operations in 1990. Prior to joining the Company, Mr.
Schachne was Vice President of Sleep Technologies, Inc., a manufacturer and
wholesaler of home furnishing products. Mr. Schachne received a B.A. from the
State University of New York, Albany and his M.B.A. from Harvard Business
School.

Steven H. Levenherz, Senior Vice President -- Administration/Law, joined
the Company in May 1993 and, through June 1996, served as Chief Financial
Officer. Prior to joining the Company, Mr. Levenherz was an independent
consultant in financial and mergers and acquisitions matters from 1992 through
1993 and, from 1990 to 1992, he served as Chief Financial Officer at Phoenix
Partners, a merchant banking firm. From 1987 to 1990 Mr. Levenherz served as
Senior Vice President of Financial Planning at Horsehead Industries, Inc., a
leveraged buy-out company. Mr. Levenherz received a B.B.A. from the Baruch
School of the City College of New York and a J.D. from the University of North
Carolina, Chapel Hill.

Stephen J. Clearman has been a Director of the Company since 1989. Since
1984, Mr. Clearman has been a general partner of Geocapital Partners, a venture
fund he co-founded. Mr. Clearman received a B.A. from Haverford College, an M.S.
from Columbia University and a J.D. from Harvard Law School. Mr. Clearman is
also a director of Expert Software, Inc. and Restor Industries, Inc.

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Alec L. Ellison has been a Director of the Company since 1989. Mr. Ellison
has served as Managing Director of Broadview Associates LLC, an investment bank,
since 1988. Prior to 1988, Mr. Ellison was affiliated with the Technology and
Emerging Growth Group of Morgan Stanley & Co. Incorporated, an investment
banking firm. Mr. Ellison holds a B.A. from Yale University and an M.B.A from
Harvard Business School, where he was a Baker Scholar.

Michael R. O'Brien has been a Director of the Company since June 1996. Mr.
O'Brien founded Catalina Marketing, Inc. ("Catalina"), a direct marketing
company, in 1983, and served as Catalina's President until 1989 and as its
Chairman of the Board and Chief Executive Officer until 1992. Since 1992, Mr.
O'Brien has been Chairman Emeritus of, and a consultant to, Catalina. Prior to
founding Catalina, Mr. O'Brien was President of TRIM, Inc., a marketing research
and information company specializing in the utilization of scanner data.
Previously, he held various sales management positions with several consumer
product manufacturers, including the Liggett Group, Inc. Mr. O'Brien received a
B.A. from the University of Kansas.

Marc S. Tesler has been a Director of the Company since January 1996. Since
July 1995, he has been a member of the general partner of Technology Crossover
Ventures, L.P., a private partnership specializing in information technology
investments. From 1982 to June 1995, Mr. Tesler served in various positions at
Chancellor Capital Management, an investment management firm, most recently as
head of its Alternative Asset Management Group. Mr. Tesler received his B.S.
from the University of Massachusetts and his M.B.A. from New York University.

The Company is party to a Stockholders' Agreement dated December 28, 1990,
as amended, with certain of its stockholders, including certain of its executive
officers and entities affiliated with certain of its directors, pursuant to
which such stockholders agreed, subject to certain exceptions, to vote all
securities of the Company owned by them to elect as directors of the Company (i)
one person nominated by Chancellor Capital Management, Inc. ("Chancellor"), (ii)
one person nominated by Geocapital II, L.P. ("Geocapital"), (iii) Messrs.
Johnson, St. Denis and Walker (the "Founders"), and (iv) an independent director
designated by Chancellor, Geocapital and the Founders. The Stockholders'
Agreement will terminate by its terms upon the closing of this offering.

Following this offering, the Board of Directors will be divided into three
classes, and each director will serve for a staggered three-year term. The Board
will consist of two Class I Directors (Messrs. Tesler and Ellison), two Class II
Directors (Messrs. Clearman and O'Brien) and two Class III Directors (Messrs.
Johnson and Walker). At each annual meeting of stockholders, a class of
directors will be elected for a three-year term to succeed the directors or
director of the same class whose terms are then expiring. The terms of the Class
I Directors, Class II Directors and Class III Directors expire upon the election
and qualification of successor directors at the annual meeting of stockholders
held during the calendar years 1997, 1998 and 1999, respectively. To the extent
there is an increase in the number of directors, additional directorships
resulting therefrom will be distributed among the three classes so that, as
nearly as possible, each class will consist of an equal numbers of directors.

Each officer serves at the discretion of the Board of Directors. The
Company does not have any existing employment agreements with any executive
officer. There are no family relationships among any of the directors and
executive officers of the Company.

BOARD COMMITTEES

The Board of Directors has a Compensation Committee, currently composed of
Messrs. Clearman Ellison and Tesler which makes recommendations concerning
salaries and incentive compensation for employees of and consultants to the
Company and administers and grants stock options pursuant to the Company's stock
option plans. The Board of Directors also has an Audit Committee, currently
composed of Messrs. Clearman, O'Brien and Tesler, which reviews the results and
scope of the audit and other services provided by the Company's independent
public accountant.

38
<PAGE> 40

DIRECTOR COMPENSATION

The Company's Directors do not receive any compensation for their services
on the Board of Directors or any committee thereof and are not reimbursed for
expenses incurred in connection with their attendance at Board or committee
meetings. However, non-employee directors have received options to purchase
shares of Common Stock pursuant to the 1995 Non-Employee Director Stock Option
Plan. See "-- Stock Plans."

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Restated Certificate of Incorporation (the "Charter")
contains certain provisions permitted under the Delaware General Corporation Law
("DGCL") relating to the liability of directors. These provisions eliminate a
director's liability for monetary damages for a breach of fiduciary duty, except
in certain circumstances involving wrongful acts, such as the breach of a
director's duty of loyalty, acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, unlawful payments or
dividends or unlawful stock repurchases or redemptions or any transaction from
which the director derived an improper personal benefit. As a result, the
Company and its stockholders may be unable to obtain monetary damages from a
director for breach of duty of care. Although stockholders may continue to seek
injunctive or other equitable relief for an alleged breach of fiduciary duty by
a director, stockholders may not have any effective remedy against the
challenged conduct if equitable remedies are not available. The Charter also
contains provisions indemnifying the directors and officers of the Company to
the fullest extent permitted by the DGCL. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.

The Company intends to obtain officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act.

There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any threatened litigation that may result in
claims for indemnification by any director, officer, employee or other agent,
other than the lawsuit filed by Thomas J. St. Denis against the Company and two
of its executive officers. The Company has undertaken to defend the two
executive officers in this litigation. See "Business -- Legal Proceedings."

39
<PAGE> 41

EXECUTIVE COMPENSATION

Summary of Cash and Other Compensation

The following table sets forth the compensation earned for the fiscal year
ended June 30, 1996 by the Company's Chief Executive Officer and three
additional executive officers (together with the Chief Executive Officer, the
"Named Executive Officers"), each of whom earned aggregate compensation for such
year in excess of $100,000.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- -------------------------------------------------------- -------- ------- ------------
<S> <C> <C> <C>
Gary A. Johnson......................................... $203,881 $51,550 15,000
President and Chief Executive Officer
Dennis P. Walker........................................ 197,802 40,378 5,000(1)
Executive Vice President
David Schachne.......................................... 149,025 36,625 2,000
Senior Vice President -- Marketing/Operations
Steven H. Levenherz..................................... 160,485 22,088 3,000
Senior Vice President -- Administration/Law
</TABLE>

- ---------------
(1) Mr. Walker entered into an agreement with the Company whereby the Company is
required to grant options to purchase up to 20,000 shares of Common Stock to
Mr. Walker for achievement of certain performance goals. Specifically, the
Company will grant an option to purchase 2,000 shares of Common Stock for
each new client, from a selected list of ten prospective large clients, he
obtains for the Company prior to December 31, 1996. These options become
exercisable over a four-year period, one quarter of such options vesting
each 12 months commencing on the last day of the first 12-month period after
the date of grant, at an exercise price of $20.00 per share. In April 1996,
Mr. Walker was granted an option to purchase 2,000 shares of Common Stock
pursuant to this agreement.

Option Grants

The following table sets forth certain information concerning grants of
stock options made during fiscal 1996 to each of the Named Executive Officers.
No stock appreciation rights were granted to the Named Executive Officers during
such year.

40
<PAGE> 42

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR SHARE(3) DATE 5% 10%
- ------------------------ ---------- ---------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary A. Johnson......... 15,000 20.4% $ 20.00 7/31/05 $188,670 $478,110
Dennis P. Walker........ 3,000 4.1% 20.00 7/31/05 37,734 95,622
2,000(4) 2.7% 20.00 4/30/06 57,734 115,622
David Schachne.......... 2,000 2.7% 20.00 7/31/03 19,100 45,744
Steven H. Levenherz..... 3,000 4.1% 20.00 7/31/03 28,650 68,616
</TABLE>

- ---------------
(1) The option referenced in footnote (4) and options granted under the 1995
Executive Officers' Stock Option Plan (the "1995 Plan") have a term of ten
years, and options granted prior to December 31, 1995 under the Amended 1990
Stock Option Plan (the "1990 Plan") have a term of eight years. These
options are subject to earlier termination in certain events related to
termination of employment. All such options become exercisable over a
four-year period, one-quarter of such options vesting each 12 months
commencing on the last day of the first 12-month period after the date of
grant.

(2) In accordance with the rules of the Commission, the potential realizable
values for such options shown in the table are reported net of the option
exercise price and are based on assumed rates of stock price appreciation of
5% and 10% compounded annually from the date the respective options were
granted (based on the fair market value of the Common Stock on the date of
the grant as determined by the Board of Directors) to their expiration date.
These assumed rates of appreciation do not represent the Company's
estimation or projection of the appreciation of shares of Common Stock of
the Company.

(3) All options, other than the option referenced in footnote (4), were granted
at an exercise price equal to the fair market value as determined by the
Board of Directors of the Company on the date of grant.

(4) This option was granted pursuant to an agreement with the Company, whereby
the Company will grant Mr. Walker an option to purchase 2,000 shares of
Common Stock for each new client, from a selected list of certain
prospective large clients, he obtains for the Company prior to December 31,
1996. This option has an exercise price of $20.00 per share. See footnote
(1) to the table appearing in "-- Summary of Cash and Other Compensation."

41
<PAGE> 43

Option Exercises and Holdings

The following table sets forth certain information concerning the number
and value of unexercised stock options held as of June 30, 1996 by each of the
Named Executive Officers. No options were exercised by the Named Executive
Officers in fiscal 1996, and no stock appreciation rights were exercised or were
outstanding during and at the end of fiscal 1996.

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END(1) AT FISCAL YEAR END(2)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gary A. Johnson............................... -- 15,000 $ -- $ 150,000
Dennis P. Walker(3)........................... -- 5,000 -- 50,000
David Schachne................................ 9,000 6,500 172,275 92,885
Steven H. Levenherz........................... 15,126 8,041 282,554 124,166
</TABLE>

- ------------
(1) All options granted become exercisable over a four-year period, one-quarter
of such options vesting each 12 months commencing on the last day of the
first 12-month period after the date of grant.

(2) There was no public trading market for the Common Stock as of June 30, 1996.
Accordingly, these values have been calculated on the basis of the fair
market value of the Company's Common Stock of $30.00 at June 30, 1996, as
determined by the Company's Board of Directors, minus the applicable per
share exercise price.

(3) Of these shares, 2,000 are subject to an option which was granted pursuant
to an agreement with the Company, whereby the Company will grant Mr. Walker
an option to purchase 2,000 shares of Common Stock for each new client, from
a selected list of certain prospective large clients, he obtains for the
Company prior to December 31, 1996. This option has an exercise price of
$20.00 per share. See footnote (1) to the table appearing in "-- Summary of
Cash and Other Compensation."

STOCK PLANS

Amended 1990 Stock Option Plan

The Company's Amended 1990 Employee Incentive Stock Option Plan ("Amended
1990 Stock Option Plan") was adopted by the Board of Directors and approved by
the Company's stockholders in August 1990. The Amended 1990 Stock Option Plan
provides for the grant of (i) "incentive stock options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
employees and officers of the Company, and (ii) non-qualified stock options to
employees, consultants, directors and officers of the Company. Up to 180,000
shares of Common Stock are authorized for issuance under the Amended 1990 Stock
Option Plan. On August 13, 1996, the Board of Directors voted that, effective
upon the closing of this offering, no further options may be granted or issued
under the Amended 1990 Stock Option Plan.

Options granted under the Amended 1990 Stock Option Plan are not
transferable by the optionholder except by will or by laws of descent and
distribution. Generally, no incentive stock option may be exercised by an
optionee under the Amended 1990 Stock Option Plan following termination of
employment. Options granted under the Amended 1990 Stock Option Plan expire not
more than ten years after the date of grant, except that options granted on or
before December 31, 1995 expire on the eighth anniversary of the date of grant.
Options granted under the Amended 1990 Stock Option Plan generally vest 25% on
the one-year anniversary of the date of grant, and an additional 25% each year
thereafter.

42
<PAGE> 44

As of June 30, 1996, options to purchase a total of 122,467 shares of
Common Stock at a weighted average exercise price of $15.53 per share were
outstanding under the Amended 1990 Stock Option Plan (of which options to
purchase 52,525 shares were exercisable as of such date), and options to
purchase 11,723 shares had been exercised at a weighted average exercise price
of $6.50 per share.

1995 Executive Officers' Stock Option Plan

In August 1995, the Company's Board of Directors approved the 1995 Stock
Option Plan (the "Executive Officers' Plan"), which provides for the grant of
options to purchase up to an aggregate of 50,000 Shares of Common Stock of the
Company to executive officers of the Company. The Executive Officers' Plan is
administered by the Compensation Committee of the Board of Directors.

Under the Executive Officers' Plan, each executive officer of the Company
is eligible to receive an option to purchase shares of Common Stock. The
exercise price per share for all options granted under the Executive Officers'
Plan must equal the fair market value of the Common Stock on the date of grant.
The Executive Officers' Plan does not provide for any specific period over which
granted options vest. The term of each option is ten years from the date of
grant. In addition, the Executive Officers' Plan authorizes the Compensation
Committee to grant additional options to the Company's executive officers and to
determine the terms applicable to such options. Options may not be assigned or
transferred except by will or by the laws of descent and distribution and are
exercisable to the extent vested only while the optionee is serving as an
executive officer of the Company or within one year after the optionee ceases to
serve as an executive officer of the Company. Options to purchase 35,000 shares
have been granted to date under the Executive Officers' Plan.

1995 Non-Employee Directors' Stock Option Plan

In August 1995, the Company's Board of Directors adopted the 1995
Non-Employee Director Stock Option Plan (the "Director Plan"), which provides
for the grant of options to purchase a maximum of 25,000 shares of Common Stock
of the Company to non-employee directors of the Company. The Director Plan is
administered by the Compensation Committee of the Board of Directors.

Under the Director Plan, each director of the Company who is not also an
employee or officer of the Company is eligible to receive an option to purchase
shares of Common Stock on the date such person is first elected to the Board of
Directors. The exercise price per share for all options granted under the
Director Plan will be equal to the fair market value of the Common Stock on the
date of grant. The options granted to a director are exercisable in four equal
annual installments, beginning on the first anniversary of the grant date,
provided that the optionee remains a director at such time. The term of each
option is ten years from the date of grant. In addition, the Director Plan
authorizes the Compensation Committee to grant additional options to
non-employee directors and to determine the terms applicable to such options.
Options may not be assigned or transferred except by will or by the laws of
descent and distribution and are exercisable to the extent vested only while the
optionee is serving as a director of the Company and within one year after the
optionee ceases to serve as a director of the Company. Options to purchase
20,000 shares have been granted to date under the Director Plan.

1996 Stock Option Plan

The Company's 1996 Stock Option Plan (the "1996 Stock Option Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in August 1996, and becomes effective upon the closing of this offering.
No options have been granted under the 1996 Stock Option Plan. The 1996 Stock
Option Plan authorizes the issuance of up to a total of 250,000 shares of Common
Stock pursuant to the grant to employees of "incentive stock options" within the
meaning of the Code, and the grant of non-qualified stock options to employees,
consultants, officers or directors of the Company.

43
<PAGE> 45

The 1996 Stock Option Plan is administered by the Compensation Committee of
the Board of Directors, which has the authority to select the optionees and
determine the terms of the options granted, including (i) the number of shares
subject to each option, (ii) option exercise terms, (iii) the exercise price of
the option, (which in the case of an incentive stock option cannot be less than
the fair market value of the Common Stock on the date of grant), (iv) the
duration of the option, and (v) the time, manner and form of payment upon
exercise of an option. An option is not transferable by the optionholder except
by will or by laws of descent and distribution. Generally, no incentive stock
option may be exercised by an optionee more than three months following
termination of employment, unless termination is due to death or disability, in
which case the option is exercisable for a maximum of one year after such
termination.

1996 Employee Stock Purchase Plan

The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in August 1996, and becomes effective upon the closing of this offering.
The Purchase Plan authorizes the issuance of up to a total of 50,000 shares of
Common Stock to participating employees.

All employees of the Company, including directors of the Company who are
employees, and who have been employed for more than 12 months are eligible to
participate in the Purchase Plan. Employees who would immediately after the
grant own 5% or more of the total combined voting power or value of the stock of
the Company or any subsidiary are not eligible to participate.

On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount to be deducted by the Company from
such pay during the Offering Period. On the last day of the Offering Period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the Purchase
Plan, the option price is an amount equal to 85% of the fair market value per
share of the Common Stock on either the first day or the last day of the
Offering Period, whichever is lower. An employee may purchase, in any one
Offering Period, a number of shares the aggregate purchase price of which is up
to 10% of the employee's compensation for the immediately preceding six month
period divided by 85% of the market value of a share of Common Stock on the
commencement date of the Offering Period. The Compensation Committee may, in its
discretion, choose an Offering Period of 12 months or less for each of the
Offerings and choose a different Offering Period for each Offering.

If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when such employee ceases employment for any reason, except
that upon termination of employment because of death, the employee's beneficiary
has certain rights to elect to exercise the option to purchase the shares which
the accumulated payroll deductions in the participant's account would purchase
at the date of death.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 1996, all decisions relating to executive compensation were
made by the Compensation Committee, of which Messrs. Clearman and Ellison were
members. Neither of these individuals has served at any time as an officer or
employee of the Company. For a description of the transactions between the
Company and members of the Compensation Committee and entities affiliated with
such members, see "Certain Transactions." No executive officer of the Company
serves as a member of the Board of Directors or Compensation Committee of any
entity which has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.

44
<PAGE> 46

CERTAIN TRANSACTIONS

Since June 30, 1993, the Company has issued and sold, in private placement
transactions, shares of Class A Common Stock and Preferred Stock and warrants to
purchase Common Stock to the Company's executive officers, directors and
principal stockholders as follows:

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF SHARES OF CLASS A
SERIES F SERIES H CLASS A COMMON STOCK
INVESTOR(1) PREFERRED STOCK(2) PREFERRED STOCK(3) COMMON STOCK(2) WARRANTS
- -------------------------------- ------------------ ------------------ --------------- ------------
<S> <C> <C> <C> <C>
Geocapital II, L.P. (4)......... 4,794 -- 4,794 975(5)
Marc S. Tesler(6)............... -- 73,189 -- 3,789(7)
Entities Affiliated with
Chancellor.................... 20,071 75,433 20,071 7,988(8)
Entities Affiliated with Abbott
Capital....................... 13,493 -- 13,493 2,744(9)
</TABLE>

- ---------------

(1) Shares held by all affiliated persons and entities have been aggregated. See
"Principal and Selling Stockholders" for more detail on shares held by these
purchasers.

(2) On March 30, 1994 the Company sold a total of 38,358 shares of Series F
Preferred Stock and 38,358 shares of Class A Common Stock for an aggregate
purchase price of $1 million. The shares of Series F Preferred Stock will be
redeemed by the Company upon closing this offering at $26.07 per share, plus
(i) accrued and unpaid dividends thereon and (ii) a 6% redemption premium,
if applicable. Approximately $24,700, $103,500 and $69,600 of dividends have
accrued as of June 30, 1996 on shares of Series F Preferred Stock owned by
Geocapital, and entities advised by Chancellor Capital Management Inc. and
Abbott Capital Management, L.P., respectively.

(3) The per share purchase price for Series H Preferred Stock was $40.99.

(4) Stephen J. Clearman, a general partner of Geocapital II, L.P., is a director
of the Company. Alec L. Ellison, a Managing Director of Broadview Associates
LLC, which is an affiliate of Geocapital II, L.P., is a director of the
Company.

(5) These warrants have an exercise price of $25.64 per share.

(6) Reflects shares owned by Technology Crossover Ventures, L.P. and Technology
Crossover Ventures, C.V. (together, "Technology Crossover Ventures"). Marc
S. Tesler, an affiliate of Technology Crossover Ventures, is a director of
the Company.

(7) These warrants have an exercise price of $.01 per share.

(8) Of the 7,988 warrants, 4,082 are exercisable at $25.64 per share and 3,906
are exercisable at $.01 per share.

(9) These warrants have an exercise price of $25.64 per share.

On December 31, 1990, the Company issued promissory notes to two of its
founders, Gary A. Johnson and Thomas St. Denis, both in the amount of $133,333
and bearing interest payable monthly at the rate of 12% percent per annum. The
notes mature and all outstanding principal is payable in full on February 28,
1997. Currently, the Company's credit agreement with a third-party lender
requires that the entire principal amount of the notes remain outstanding.

For a description of option grants to certain executive officers of the
Company, see "Management -- Executive Compensation."

The Company believes that the terms of the foregoing transactions were no
less favorable to the Company than could have been obtained from unaffiliated
third parties. The Company intends to adopt a policy, effective following the
consummation of this offering, that all material transactions between the
Company and its officers, directors and other affiliates must (i) be approved by
a majority of the members of the Company's Board of Directors and by a majority
of the disinterested members of the Company's Board of Directors, and (ii) be on
terms that are no less favorable to the Company than could be obtained from
unaffiliated third parties. In addition, this policy will require that any loans
by the Company to its officers, directors or other affiliates be for bona fide
business purposes only.

45
<PAGE> 47

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of June 30, 1996, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the Company's directors and Named
Executive Officers, (iii) each of the Selling Stockholders and (iv) all
directors and executive officers as a group.

<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OF OFFERING(1)
------------------- SHARES ----------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------------- ------- ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
Chancellor Capital Management, Inc.(2)........... 261,684 15.4%
1166 Avenue of the Americas
New York, NY 10036
Geocapital II, L.P.(3)........................... 386,035 22.9%
One Bridge Plaza
Fort Lee, NJ 07024
Gary A. Johnson(4)............................... 228,750 13.5%
Thomas St. Denis................................. 225,000 13.3%
Dennis P. Walker(5).............................. 225,750 13.4%
Abbott Capital Management, L.P.(6)............... 122,582 7.3%
1330 Avenue of the Americas, Suite 2800
New York, NY 10019
Stephen J. Clearman(3)(7)........................ 386,035 22.9%
Alec L. Ellison(3)(8)............................ 386,035 22.9%
Marc S. Tesler(9)................................ 76,978 4.6%
Steven H. Levenherz(10).......................... 15,876 *
David Schachne(11)............................... 16,250 1.0%
Other Selling Stockholders
All executive officers and directors, as a group
(9 persons)(3)(4)(5)(7)(8)(9)(10)(11)............ 949,639 55.1%
</TABLE>

- ------------
* Less than 1%.

(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, shares of Common Stock subject to options
or warrants exercisable within 60 days after June 30, 1996 are deemed to be
outstanding for computing the percentage of the person or entity holding
such options or warrants but are not deemed outstanding for computing
percentage of any other person or entity. The inclusion herein of such
shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of such shares. Unless
otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity.

(2) Chancellor Capital Management, Inc. ("Chancellor") is the investment
manager for various fiduciary client accounts, with full voting and
investment, including dispositive, powers. Such client accounts and their
respective share ownership are as follows: Howe & Co. as nominee for
Northern Trust as trustee of Burnett Pension Trust; Howe & Co. as nominee
for Northern Trust as trustee of Burnett Profit Sharing Trust; Focus & Co.;
Focus & Co. for the benefit of Baxter Healthcare Corp.; Hank & Co. for the
account of Citiventures Private Participation Ltd. II; Pitt & Co. for the
account of GTE Pension Plan; and Parag Saxena. Each of the accounts owns
3,865; 5,055; 6,608; 4,862; 187,537; 45,460; and 309 shares of Common
Stock, respectively. Also includes

46
<PAGE> 48

an aggregate of 7,988 shares of Common Stock issuable upon the exercise of
outstanding warrants held by such accounts that are presently exercisable.

(3) Consists of 367,270 and 17,790 shares of Common Stock and 929 and 46 shares
issuable upon the exercise of presently exercisable warrants held of record
by Geocapital II, L.P. and Bernard Goldstein, respectively, both of which
are part of an affiliated group of entities and individuals referred to,
collectively, as Geocapital.

(4) Includes 3,750 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after June 30, 1996.
Includes 7,500 shares held in trust for the benefit of Mr. Johnson's
children; Mr. Johnson disclaims beneficial ownership of such shares.

(5) Includes 750 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after June 30, 1996.
Includes an aggregate of 25,000 shares held in trust for the benefit of Mr.
Walker's children; Mr. Walker disclaims beneficial ownership of such
shares.

(6) Includes 2,744 shares issuable upon the exercise of warrants presently
exercisable.

(7) Mr. Clearman is a general partner of Geocapital II, L.P., and as such may
be deemed to be the beneficial owner of shares held by Geocapital. Mr.
Clearman disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest in Geocapital.

(8) Mr. Ellison is a Managing Director of Broadview Associates LLC, an
affiliate of Geocapital II, L.P., and as such may be deemed to be the
beneficial owner of shares held by Geocapital. Mr. Ellison disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest in Geocapital.

(9) Consists of an aggregate of 73,189 shares of Common Stock and 3,789 shares
issuable upon the exercise of warrants held of record by Technology
Crossover Ventures, L.P. and Technology Crossover Ventures, C.V., of which
Mr. Tesler is an affiliate. As a result, Mr. Tesler may be deemed to be the
beneficial owner of such shares. Mr. Tesler disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest in such
entities.

(10) Represents 15,876 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after June 30, 1996.

(11) Includes 11,750 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after June 30, 1996.

47
<PAGE> 49

DESCRIPTION OF CAPITAL STOCK

Upon the closing of the offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.01 par value per
share, and 1,000,000 shares of Preferred Stock, $0.01 par value per share.

COMMON STOCK

As of June 30, 1996 there were 1,687,034 shares of Common Stock and
Preferred Stock convertible into Common Stock outstanding held by 39
stockholders of record. Based upon the number of shares outstanding as of June
30, 1996, assuming no exercise after June 30, 1996 of outstanding stock options
and warrants and giving effect to the issuance of the shares of Common
Stock offered by the Company hereby, there will be shares of Common Stock
outstanding upon the closing of this offering. Holders of Common Stock are
entitled to one vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding Preferred Stock. Upon
the liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future.

WARRANTS

As of June 30, 1996, the Company had issued warrants to purchase an
aggregate of 53,864 shares of Class A Common Stock with the following per share
exercise prices: 7,801 at $25.64; 20,337 at $14.75; and 25,726 at $0.01. These
warrants expire at various dates between March 1999 and August 2000.

PREFERRED STOCK

The Board of Directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to issue such shares of Preferred
Stock in one or more series. Each such series of Preferred Stock shall have such
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the Board of Directors. The Company has
no present plans to issue any shares of Preferred Stock. It is not possible to
state the effect of the authorization and issuance of any series of Preferred
Stock upon the rights of holders of Common Stock until the Board of Directors
determines the specific terms, rights and preferences of such a series of
Preferred Stock. However, such effects might include, among other things,
restricting dividends on the Common Stock, diluting the voting power of the
Common Stock or impairing the liquidation rights of such shares without further
action by holders of Common Stock. In addition, under certain circumstances, the
issuance of Preferred Stock may render more difficult or tend to discourage a
merger, tender offer or proxy contest, the assumption of control by a holder of
a large block of the Company's securities or the removal of incumbent
management, which could thereby depress the market price of the Company's Common
Stock.

48
<PAGE> 50

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.

The Company's Restated Certificate of Incorporation (the "Charter")
provides for the division of the Board of Directors into three classes as nearly
equal in size as possible with staggered three-year terms. See
"Management -- Executive Officers and Directors." In addition, the Charter
provides that directors may be removed only for cause by the affirmative vote of
the holders of two-thirds of the shares of capital stock of the corporation
entitled to vote. Under the Charter, any vacancy on the Board of Directors,
however occurring, including a vacancy resulting from an enlargement of the
Board, may only be filled by vote of a majority of the directors then in office.
The classification of the Board of Directors and the limitations on the removal
of directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.

The Charter also provides that after the closing of this Offering, any
action required or permitted to be taken by the stockholders of the Company at
an annual meeting or special meeting of stockholders may only be taken if it is
properly brought before such meeting and may not be taken by written action in
lieu of a meeting. The Charter further provides that special meetings of the
stockholders may only be called by the Chairman of the Board of Directors, the
Chief Executive Officer or, if none, the President of the Company or by the
Board of Directors. Under the Restated By-laws, in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Company's
Common Stock, because such person or entity, even if it acquired a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only at
a duly called stockholders meeting, and not by written consent.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Charter requires the affirmative vote of
the holders of at least 75% of the shares of capital stock of the Company issued
and outstanding and entitled to vote to amend or repeal any of the foregoing
Charter provisions. The Restated By-laws also may be amended or repealed by a
majority vote of the Board of Directors subject to any limitations set forth in
the Restated By-laws. The 75% stockholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any series Preferred Stock that might be outstanding at the time any such
amendments are submitted to stockholders.

REGISTRATION RIGHTS

Following this offering, the holders (the "Holders") of approximately
shares of Common Stock and warrants to purchase approximately
shares of Common Stock or their assignees (collectively, the
"Registrable Securities"), will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. Under the terms of an
agreement between the

49
<PAGE> 51

Company and the Holders, in the event the Company intends to register any of its
securities under the Securities Act the Holders shall be entitled to include
Registrable Securities in such registration. However, the managing underwriter
of any such offering may, under certain circumstances, exclude some or all of
such registrable Securities from such registration. The Holders also are
entitled, subject to certain conditions and limitations, to demand the Company
to register some or all of their Registrable Securities under the Securities
Act, provided that such demand may not be exercised more than once in any
twelve-month period or more than twice in the aggregate. The Company is
generally required to bear the expenses of all such registrations, except
underwriting discounts and commissions. If the Holders, by exercising their
demand registration rights, cause a large number of securities to be registered
and sold in the public market, such sales could have an adverse effect on the
market price for the Company's Common Stock. Moreover, if the Company were to
include in a Company initiated registration shares held by the Holders pursuant
to exercise of their piggyback registration rights, such sales may have an
adverse effect on the Company's ability to raise additional capital.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

50
<PAGE> 52

SHARES ELIGIBLE FOR FUTURE SALE

Upon closing of this offering, based upon the number of shares outstanding
at June 30, 1996 and assuming no exercise after June 30, 1996 of outstanding
stock options or warrants, there will be shares of Common Stock of the
Company outstanding. Of these shares, the shares offered hereby will
be freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates") described below. The remaining
shares of Common Stock are deemed "restricted securities" as that term
is defined in Rule 144. Of the restricted securities, shares of Common
Stock are subject to certain lock-up agreements (the "Lock-Up Agreements"). See
"Underwriting."

Approximately shares of Common Stock, which are not subject to
Lock-Up Agreements, will be eligible for sale in the public market in accordance
with Rule 144 or Rule 701 under the Securities Act beginning 90 days after the
date of this Prospectus. Upon expiration of the Lock-Up Agreements 181 days
after the date of this Prospectus, approximately additional shares of
Common Stock will be available for sale in the public market, subject to the
provisions of Rule 144 under the Securities Act. In addition, upon expiration of
Lock-Up Agreements, an additional shares subject to stock options
outstanding, if exercised, will be eligible for sale pursuant to Rule 701 unless
sold pursuant to an effective registration statement under the Securities Act.
As of June 30, 1996 there were outstanding warrants to purchase 53,864 shares of
Common Stock. These warrants contain net exercise provisions. Accordingly, any
shares issued upon net exercise will be eligible for sale immediately upon
expiration of lock-up agreements pursuant to Rule 144.

In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least two
years from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately shares immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least three years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of
the Company for at least three months prior to the sale is entitled to sell the
shares immediately without compliance with the foregoing requirements under Rule
144.

Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted under
the Amended 1990 Stock Option Plan, the Executive Officers' Plan and the
Director Plan) are also restricted securities and, beginning 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
may be sold by stockholders other than Affiliates of the Company subject only to
the manner of sale provisions of Rule 144 and by Affiliates under Rule 144
without compliance with its two-year holding period requirement.

The Company intends to file registration statements on Form S-8 under the
Act to register approximately 555,000 shares of Common Stock issuable under the
Amended 1990 Stock Option Plan, the Executive Officers' Plan, the Director Plan,
the 1996 Stock Option Plan and the Purchase Plan. The registration statements
are expected to be filed shortly after the effective date of the Registration
Statement of which this Prospectus is a part and will be effective upon filing.
Shares issued upon the exercise of stock options after the effective date of the
Form S-8 registration statements will be eligible

51
<PAGE> 53

for resale in the public market without restriction, subject to Rule 144
limitations applicable to Affiliates and the Lock-Up Agreements noted above.

Prior to the offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of the Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities. In addition, after this offering, the holders of
approximately shares of Common Stock and warrants to purchase an
aggregate of shares of Common Stock will be entitled to certain demand
and piggyback rights with respect to registration of such shares under the
Securities Act. Registration of such shares under the Securities Act would
result in such shares becoming freely tradeable without restriction under the
Securities Act (except for shares purchased by Affiliates) immediately upon the
effectiveness of such registration. See "Description of Capital
Stock -- Registration Rights." If such holders, by exercising their demand
registration rights, cause a large number of securities to be registered and
sold in the public market, such sales could have an adverse effect on the market
securities to be registered and sold in the public market, such sales could have
an adverse effect on the market price for the Company's Common Stock. If the
Company were to include shares in a Company-initiated registration pursuant to
the exercise of piggyback registration rights, sales of such shares may have an
adverse effect on the Company's ability to raise additional capital.

52
<PAGE> 54

UNDERWRITING

The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Hambrecht & Quist LLC and PaineWebber
Incorporated (the "Representatives"), have severally agreed with the Company and
the Selling Stockholders, subject to the terms and conditions of the
Underwriting Agreement, to purchase the numbers of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
Robertson, Stephens & Company LLC.................................
Hambrecht & Quist LLC.............................................
PaineWebber Incorporated..........................................

---------
Total...................................................
=========
</TABLE>

The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallowed to other
dealers. After the initial public offering, the offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such reduction
shall change the amount of proceeds to be received by the Company as set forth
on the cover page of this Prospectus.

The Selling Stockholders have granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to additional shares of Common Stock, at the same price
per share as the Company and Selling Stockholders will receive for the
shares that the Underwriters have agreed to purchase. To the extent
that the Underwriters exercise this option, each of the Underwriters will have a
firm commitment to purchase approximately the same percentage of such additional
shares that the number of shares of Common Stock to be purchased by it shown in
the above table represents as a percentage of the shares offered
hereby. If purchased, such additional shares will be sold by the Underwriters on
the same terms as those on which the shares are being sold.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.

Each officer and director of the Company, and certain other persons that
beneficially own or have dispositive power over substantially all of the shares
of the Company's Common Stock, have agreed with the Representatives for a period
of 180 days after the date of this Prospectus (the "Lock-Up Period"), subject to
certain exceptions, not of offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock, or
any securities convertible into or exchangeable for shares of Common Stock now
owned or hereafter acquired directly by such holders or with respect to which
they have or hereafter acquire the power of disposition, without the prior
written consent of Robertson, Stephens & Company LLC. Robertson, Stephens &
Company LLC may, in its sole discretion and at any time without notice, release
all or any portion of the securities subject to lock-up agreements. In addition,
the Company has agreed that during the Lock-Up Period, the Company will not,
without prior written consent of Robertson, Stephens & Company LLC, subject to
certain exceptions, issue, sell, contract to sell, or otherwise dispose of, any
shares of Common Stock, any

53
<PAGE> 55

options or warrants to purchase any shares of Common Stock or any securities
convertible into, exercisable for or exchangeable for shares of Common Stock
other than the Company's sales of shares in this offering, the issuance of
Common Stock upon the exercise of outstanding options and the Company's issuance
of options and stock under the Amended 1990 Stock Option Plan, the 1995
Executive Officers' Stock Option Plan and the 1995 Non-Employee Directors' Stock
Option Plan.

Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock is being determined through negotiations among the Company, the
Selling Stockholders and the Representatives. Among the factors considered in
such negotiations are prevailing market conditions, certain financial
information of the Company, market valuations of other companies that the
Company and the Representatives believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant.

The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.

Certain venture funds affiliated with Robertson, Stephens & Company LLC
beneficially owned 81,311 shares of Common Stock and warrants to purchase 316
shares of Common Stock as of June 30, 1996.

LEGAL MATTERS

The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Hale and Dorr, Boston, Massachusetts. Certain
legal matters in connection with the offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.

EXPERTS

The Consolidated Financial Statements of the Company as of June 30, 1996
and 1995, and for each of the three years in the period ended June 30, 1996
included in this Prospectus, have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all amendments,
exhibits, schedules and supplements thereto) on Form S-1 under the Securities
Act with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission, to
which Registration Statement reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the
Company is required to file electronic versions of these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

54
<PAGE> 56

MEMBERWORKS INCORPORATED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1995.............................. F-3
Consolidated Statements of Operations for each of the years in the three-year period
ended June 30, 1996................................................................. F-4
Consolidated Statements of Stockholders' Equity for each of the years in the
three-year period ended June 30, 1996............................................... F-5
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended June 30, 1996................................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 57

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
MemberWorks Incorporated

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
MemberWorks Incorporated and its subsidiaries at June 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

Price Waterhouse LLP
Stamford, Connecticut
July 25, 1996, except as to Note 15
which is as of August 15, 1996

F-2
<PAGE> 58

MEMBERWORKS INCORPORATED

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1996
-------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 5,323 $ 4,312
Accounts receivable................................. 1,365 6,439
Membership solicitations in process................. 2,252 3,474
Prepaid membership materials........................ 332 1,065
Prepaid expenses.................................... 90 204
-------- --------
Total current assets........................ 9,362 15,494
Fixed assets, net..................................... 1,782 3,261
Other assets.......................................... 252 960
-------- --------
$ 11,396 $ 19,715
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................... $ 297 $ 675 PRO
Current maturities of capital lease obligations..... 205 316 FORMA AT
Accounts payable.................................... 7,879 10,433 JUNE 30,
Accrued liabilities................................. 9,129 14,631 1996
-------- --------
Total current liabilities................... 17,510 26,055 (UNAUDITED)
Deferred membership income, net....................... 5,262 8,416 (NOTE 16)
Long-term capital lease obligations................... 392 456
----------
Notes payable......................................... 7,673 633
-------- --------
Total liabilities........................... 30,837 35,560
Redeemable preferred stock............................ 10,926 20,487 $ --
-------- --------
Total liabilities and redeemable preferred
stock..................................... 41,763 56,047
-------- --------
Commitments and contingencies (Note 8)
Stockholders' equity:
Class A common stock, $.01 par value -- 1,779,175
shares (1,464,191 shares in 1995) authorized;
777,621 shares issued and outstanding............ 8 8 --
Class B common stock, $.01 par value -- 2,058,318
shares (1,600,334 shares in 1995) authorized;
35,866 shares (35,816 shares in 1995) issued and
outstanding...................................... -- -- 17
Capital in excess of par value...................... 1,737 2,253 20,782
Accumulated deficit................................. (31,839) (38,320) (38,857)
Treasury stock, 24,143 shares at cost............... (273) (273) (273)
-------- -------- -----------
Total stockholders' equity (deficit)........ (30,367) (36,332) $(18,331)
=========
-------- --------
$ 11,396 $ 19,715
======== ========
</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.

F-3
<PAGE> 59

MEMBERWORKS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Revenues
Membership fees................................................ $25,830 $ 41,547 $57,012
Expenses
Operating...................................................... 5,354 9,702 11,623
Marketing...................................................... 20,188 32,799 38,410
General and administrative..................................... 5,592 8,885 11,916
Interest expense, net.......................................... 712 893 310
------- -------- -------
Total expenses................................................... 31,846 52,279 62,259
------- -------- -------
Loss before income taxes......................................... (6,016) (10,732) (5,247)
Provision for income taxes....................................... -- -- --
------- -------- -------
Net loss......................................................... $(6,016) $(10,732) $(5,247)
======= ======== =======
Unaudited pro forma net loss per share........................... $ (2.94)
=======
Unaudited pro forma weighted average shares outstanding.......... 1,839
=======
</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.

F-4
<PAGE> 60

MEMBERWORKS INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------
CLASS A CLASS B CAPITAL IN
----------------- ---------------- EXCESS OF ACCUMULATED TREASURY
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT STOCK TOTAL
--------- ------ ------- ------ ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -- June 30,
1993................... 739,263 $8 24,705 $ -- $1,074 $ (13,819) $(12,737)
For the year ended June
30, 1994:
Issuance of common
stock.................. 38,358 -- 500 -- 514 514
Preferred stock:
Accretion of
discount............ (90) (90)
Accretion to redemption
value............... (193) (193)
Accumulated dividends.. (105) (105)
Net loss................. (6,016) (6,016)
--
------- ------ --- ------ -------- ---- --------
Balance -- June 30,
1994................... 777,621 8 25,205 -- 1,588 (20,223) (18,627)
For the year ended June
30, 1995:
Issuance of common
stock.................. 10,611 -- 65 65
Issuance of warrants..... -- --
Acquisition of treasury
stock.................. 84 $ (273) (189)
Preferred stock:
Accretion of
discount............ (163) (163)
Accretion to redemption
value............... (297) (297)
Accumulated dividends.. (424) (424)
Net loss................. (10,732) (10,732)
--
------- ------ --- ------ -------- ---- --------
Balance -- June 30,
1995................... 777,621 8 35,816 -- 1,737 (31,839) (273) (30,367)
For the year ended June
30, 1996:
Issuance of common
stock.................. 50 -- 1 1
Issuance of warrants..... 515 515
Preferred stock:
Accretion of
discount............ (219) (219)
Accretion to redemption
value............... (648) (648)
Accumulated dividends.. (367) (367)
Net loss............... (5,247) (5,247)
--
------- ------ --- ------ -------- ---- --------
Balance -- June 30,
1996................... 777,621 $8 35,866 $ -- $2,253 $ (38,320) $ (273) $(36,332)
======= == ====== === ====== ======== ==== ========
</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.

F-5
<PAGE> 61

MEMBERWORKS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................. $ (6,016) $(10,732) $ (5,247)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Membership solicitation costs......................... (28,600) (40,120) (46,979)
Amortization of membership solicitation costs......... 22,053 36,092 43,097
Deferred membership fees.............................. 6,866 6,569 7,036
Depreciation and amortization......................... 337 536 708
Loss on sale of fixed assets.......................... -- -- 38
Write-off of discontinued product line assets......... -- 659 --
Share of joint venture's losses....................... 28 52 51
Write-off of deferred debt issuance costs............. -- -- 103
Preferred stock redemption cost....................... -- -- 315
Change in assets and liabilities affecting operating cash
flows:
Accounts receivable...................................... 71 659 (5,074)
Membership solicitations in process...................... (1,199) (58) (1,222)
Prepaid membership materials............................. (139) 30 (733)
Prepaid expenses......................................... (73) 20 (114)
Other assets............................................. (323) (40) (252)
Accounts payable......................................... 3,653 476 2,729
Accrued liabilities...................................... 3,980 2,381 5,545
-------- -------- --------
Net cash provided by (used in) operating activities........ 638 (3,476) 1
-------- -------- --------
INVESTING ACTIVITIES
Acquisition of fixed assets.............................. (744) (519) (1,740)
Deposit on equipment..................................... -- -- (539)
Proceeds from sale of fixed assets....................... -- -- 15
Investment in and advances to joint venture.............. (31) (98) (48)
-------- -------- --------
Net cash used in investing activities...................... (775) (617) (2,312)
-------- -------- --------
FINANCING ACTIVITIES
Net proceeds from issuance of stock and warrants......... 1,005 4,012 12,887
Redemption of preferred stock............................ -- -- (4,000)
Purchase of treasury stock............................... -- -- (175)
Preferred stock dividends................................ -- -- (402)
Proceeds from issuance of notes payable.................. 1,000 6,860 502
Debt issuance costs...................................... -- (273) (117)
Payments of notes payable................................ (206) (3,603) (7,164)
Payments of capital lease obligations.................... (113) (146) (231)
-------- -------- --------
Net cash provided by financing activities.................. 1,686 6,850 1,300
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 1,549 2,757 (1,011)
Cash and cash equivalents at beginning of year............. 1,017 2,566 5,323
-------- -------- --------
Cash and cash equivalents at end of year................... $ 2,566 $ 5,323 $ 4,312
======== ======== ========
</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.

F-6
<PAGE> 62

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- NATURE OF BUSINESS

MemberWorks Incorporated (the "Company") is a leading provider of
innovative membership service programs. The Company addresses the needs of
organizations seeking to leverage the expertise of an outside provider in
offering membership service programs. Membership service programs offer selected
products and services from a variety of vendors intended to enhance the existing
relationships between businesses and consumers.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation -- consolidation

The consolidated financial statements include the Company and its wholly
owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated.

Use of estimates

The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management of the Company
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.

Fair value of financial instruments and concentration of credit risk

All current assets and liabilities are carried at cost, which approximates
fair value because of the short-term maturity of those instruments. The recorded
amounts of the Company's long-term debt also approximate fair value. See Note 10
for disclosure of the estimated fair value of the redeemable preferred stock.

Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable from
financial and other card holder based institutions (clients of the Company)
whose card holders constitute the Company's membership base. These entities
include major banks, financial institutions, large oil companies and retailers
located in the United States.

Fixed assets

Fixed assets and capital leases are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization are calculated
using the straight-line method over the lesser of the estimated productive lives
of the assets or the terms of the related leases, and range from three to ten
years. Maintenance and repair expenditures are charged to operations as
incurred.

Revenue recognition

Membership fees are billed through clients of the Company to credit card
holders. Deferred membership fees are recorded, net of estimated cancellations,
when the trial period has elapsed. Deferred membership fees are amortized as
membership fees on a straight-line basis, over the remainder of the membership
period, generally twelve months.

Accounts receivable includes $3,624,000 of unbilled receivables as of June
30, 1996 (none at June 30, 1995), which were billed and collected subsequent to
the balance sheet date, and arise in certain instances when the Company elects
to bill subsequent to, rather than upon, acceptance of membership.

F-7
<PAGE> 63

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Membership service programs sponsored by three clients of the Company
accounted for 35.2%, 15.6% and 10.5%, respectively, of membership fees for the
fiscal year ended June 30, 1996.

Membership solicitation costs

In accordance with the provisions of Statement of Position 93-7, "Reporting
on Advertising Costs," membership solicitation costs are deferred and charged to
operations as membership fees are recognized. Membership solicitation costs
relate directly to membership solicitations (direct response advertising costs),
and include telemarketing costs, royalties paid to clients, kits, printing,
postage and mailings. Membership solicitation costs are amortized ratably over
the corresponding period in which revenues are recognized. Membership
solicitation costs incurred to obtain a new member generally are less than the
initial membership fee. However, if membership solicitation costs were to exceed
the membership fee, an adjustment would be made to the extent of any impairment.

Included in current assets in the accompanying consolidated balance sheets
at June 30, 1996 and 1995 are costs pertaining to membership solicitation
programs that were in process at year-end. These costs are accumulated over a
one month solicitation period and are transferred to deferred membership
solicitation costs when the membership begins.

Earnings per Share

Unaudited pro forma net loss per share is determined by dividing net loss,
after adding back preferred stock dividends paid, by the weighted average number
of shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents include stock options, warrants and preferred
stock which will be converted into common stock upon the closing of the initial
public offering of the Company's common stock.

The weighted average number of shares has been adjusted to reflect as
outstanding all common stock and common stock equivalents issued during the
twelve-month period preceding the anticipated initial public offering of the
Company's common stock using the treasury stock method, as well as the number of
shares which would be necessary in order to redeem Series E and F preferred
stock.

Cash and cash equivalents

The Company considers highly liquid investment instruments with terms of
three months or less at the time of acquisition to be cash equivalents.

Income taxes

Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. The effect of
adopting FAS 109 was immaterial.

Impairment of long-lived assets

In 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (FAS 121). The Company adopted FAS 121, with no effect on
operations, in fiscal 1996.

F-8
<PAGE> 64

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Stock-based compensation

The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Under the Company's current plans, options may be granted at not less than the
fair market value on the date of grant and therefore no compensation expense is
recognized for the stock options granted, except as noted in Note 12. In fiscal
1997, the Company intends to adopt the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."

NOTE 3 -- DEFERRED MEMBERSHIP INCOME, NET

Deferred membership income, net as of June 30 is comprised of the following
(in thousands):

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred membership fees....................................... $ 23,592 $ 30,628
Deferred membership solicitation costs......................... (18,330) (22,212)
------ --------
Deferred membership income, net................................ $ 5,262 $ 8,416
====== ========
</TABLE>

Amortization of deferred membership solicitation costs amounted to
$22,053,000, $36,092,000 and $43,097,000 for the years ended June 30, 1994, 1995
and 1996, respectively. Allowance for membership cancellations set forth in the
accompanying consolidated balance sheets as of June 30, 1995 and 1996 were
$6,765,000 and $10,117,000, respectively.

Deferred membership income, net is classified as a non-current liability as
working capital will not be required as the amount represents deferred future
income.

NOTE 4 -- IMPAQ

On May 18, 1992, the Company issued 24,143 shares of Class B common stock
valued at $273,000 in exchange for the net assets of IMPAQ Publishing
Corporation. During December 1994, the Company discontinued Impaq's domestic
discount coupon book business and recorded a charge of $659,000 to operations,
primarily to write off unamortized goodwill of $166,000 and other assets of
$461,000. Effective June 30, 1995, the Company returned Impaq's domestic
discount coupon book operations, cash of $175,000 and net fixed assets of
$14,000 to Impaq's former owner in exchange for the aforementioned originally
issued shares of Class B common stock. There was no gain or loss on this
transaction.

Fiscal 1994 and 1995 consolidated results include Impaq revenues of
$333,000 and $556,000 and operating losses of $643,000 and $1,639,000
respectively, including in 1995 the $659,000 charge discussed above.

NOTE 5 -- JOINT VENTURE

On November 1, 1993, the Company and a United Kingdom (UK) venture partner
completed the formation of R.S.V.P. Publishing Ltd. (R.S.V.P.), a corporate
joint venture based in the UK. The business of R.S.V.P. is to develop and market
a coupon book program and other enhancement services in the UK, Europe and
elsewhere. The financial position and results of operations of the venture are
immaterial.

The Company's net investment in and advances to the venture of $177,000
have been reduced to $46,000 as of June 30, 1996 by its recorded share of the
venture's losses under the equity method of accounting of $28,000, $52,000,
$51,000 for the years ended June 30, 1994, 1995, 1996, respectively.

F-9
<PAGE> 65

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 -- FIXED ASSETS

Fixed assets are comprised of the following (in thousands):

<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Computer and office equipment............................. $2,447 $ 3,955
Furniture and fixtures.................................... 267 709
Leasehold improvements.................................... 11 113
------- ------
2,725 4,777
Accumulated depreciation and amortization................. (943) (1,516)
------- ------
$1,782 $ 3,261
======= ======
</TABLE>

NOTE 7 -- NOTES PAYABLE

Notes payable are summarized as follows (in thousands):

<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Bank Credit Agreement...................................... $6,850 $ 10
Stockholder notes payable.................................. 267 267
Equipment term loans....................................... 853 1,031
------ ------
7,970 1,308
Less current maturities.................................... 297 675
------ ------
Long-term notes payable.................................... $7,673 $ 633
====== ======
</TABLE>

On September 9, 1994, the Company entered into a $7,000,000 Bank Credit
Agreement extending to February 28, 1997. In conjunction with the Bank Credit
Agreement, the Company issued a warrant to acquire 20,000 shares of Class A
common stock at an exercise price of $15.00 per share, subject to adjustment for
dilution. The warrant is exercisable at any time prior to December 31, 1999. The
Company amended the Bank Credit Agreement as of September 28, 1995 and paid down
the outstanding balance to $10,000 with a portion of the proceeds from issuance
of Series H convertible preferred stock. Interest on borrowings under the Bank
Credit Agreement was at the bank's prime rate plus 3.5%, and there was a 1.0%
per annum commitment fee on the total facility.

Effective April 9, 1996, the Bank Credit Agreement was amended and restated
to allow borrowings up to $3,000,000 through February 28, 1997. Borrowings under
the amended and restated facility accrue interest at 1.5% per annum plus the
higher of the base commercial lending rate for the bank or the Federal Funds
Rate plus 0.5% per annum. A commitment fee is charged based on the total
facility at the rate of 1% per annum. The credit agreement is secured by all of
the Company's assets, including the stock of its subsidiaries. In addition, the
founders of the Company have guaranteed the borrowings under the credit
agreement and have pledged their stock ownership in the Company as collateral.

The Company has 12.0% notes totaling $267,000 payable to two Class A common
stockholders. Pursuant to the terms of the Bank Credit Agreement, the
stockholder notes are subordinate to the Bank Credit Agreement and their
maturity was extended to February 28, 1997.

The Company has several equipment term loans extending to September 2001,
secured by certain computer equipment. Interest is at rates of 7.5% to 11.6%,
and principal is repayable monthly. The aggregate amount of payments related to
the equipment term loans is $398,000 in 1997, $436,000 in 1998, $190,000 in
1999, $5,000 in 2000 and $2,000 in 2001.

F-10
<PAGE> 66

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On March 30, 1994, the Company issued $1,000,000 of 10% convertible notes
due September 30, 1994 with warrants attached. The warrants are exercisable at
any time prior to March 30, 1999, and allow the holders to acquire up to 7,672
shares of Class A common stock based on an exercise price of $26.07, subject to
adjustment for dilution. The notes were paid on the due date.

Interest expense in 1994, 1995 and 1996, as shown in the statement of
operations, is net of interest income of $10,000, $125,000 and $305,000,
respectively.

NOTE 8 -- COMMITMENTS AND CONTINGENCIES

The Company operates in leased facilities. Management expects that leases
currently in effect will be renewed or replaced by other leases of a similar
nature and term. Rent expense under operating leases was $409,000, $491,000, and
$733,000 for the fiscal years ended June 30, 1994, 1995 and 1996, respectively.

During 1994, 1995 and 1996, the Company entered into capital leases of
certain computer equipment totaling $110,000, $68,000 and $406,000,
respectively, of capitalized cost. Lease amortization for the years ended June
30, 1994, 1995 and 1996 was $171,000, $163,000 and $194,000, respectively, and
is included in depreciation and amortization expense.

The future minimum lease payments under capital leases (including present
value of net minimum lease payments) and operating leases as of June 30, 1996
are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------------------------------------------------------------- ------- ---------
<S> <C> <C>
1997............................................................. $ 316 $ 936
1998............................................................. 316 988
1999............................................................. 197 952
2000............................................................. 56 947
2001............................................................. 9 631
Thereafter....................................................... -- 3,140
------- ---------
Total minimum lease payments..................................... 894 $ 7,594
========
Less -- Amount representing interest............................. 122
-------
Present value of net minimum lease payments including current
maturities of $316 with interest rates ranging from 6.9% to
10.4%.......................................................... $ 772
=====
</TABLE>

The Company deposited $539,000 on certain telephone equipment which has a
purchase price of $725,000. The deposit is included in other assets at June 30,
1996. The equipment is installed at the Company's facilities and, upon
acceptance by the Company, a lease will be executed and the deposit refunded by
the lessor.

In June 1995, a co-founder of the Company filed a complaint against the
Company and certain of its executive officers alleging various claims arising
out of his termination in October 1994 as Executive Vice President and Chief
Operating Officer of the Company. The former officer alleges wrongful
termination, breach of fiduciary duty, fraudulent inducement and certain other
claims arising out of alleged accounting irregularities in fiscal 1994. The
complaint claims an unspecified amount of compensatory and punitive damages and
certain other costs. The Company has moved to strike the complaint, and the
Company's motion is being considered by the court. If the motion to strike the
complaint is not allowed, the Company intends to contest the claims alleged in
the complaint vigorously, and intends to assert counter claims. At present, it
is not possible to predict the ultimate outcome or the range of possible loss,
if any, resulting from the resolution of this matter.

F-11
<PAGE> 67

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- INCOME TAXES

There was no current or deferred provision for income taxes for the years
ended June 30, 1994, 1995 and 1996. No current provision was required because
tax losses were incurred in those years.

Deferred tax assets and liabilities result from differences in the basis of
assets and liabilities for tax and financial statement purposes. The tax effects
of the basis differences and net operating loss carryforwards, and the valuation
allowance established in accordance with FAS 109, are summarized below as of
June 30, 1995 and 1996 (in thousands):

<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Allowance for membership cancellations.......................... $ 2,304 $ 3,361
Deferred membership income, net................................. 14 713
Other deferred tax assets....................................... 435 562
Benefit of net operating loss carryforward...................... 6,947 6,963
-------- -------
Total deferred tax assets............................. 9,700 11,599
Less: Valuation allowance....................................... (9,700) (11,599)
-------- -------
Net deferred tax asset................................ $ -- $ --
======== =======
</TABLE>

The valuation allowance for deferred tax assets as of July 1, 1994 was
$6,003,000. The net change in the valuation allowance for the years ended June
30, 1995 and 1996 were increases of $3,697,000 and $1,899,000, respectively.

At June 30, 1996, the Company had federal net operating loss carryforwards
of $17,705,000. The Company's ability to use these losses to offset future
taxable income would be subject to limitations under the Internal Revenue Code
if certain changes in the Company's ownership occur. The tax basis net operating
loss carry forwards expire as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
--------------------------------------------------- -------
<S> <C>
2005............................................... $ 1,950
2006............................................... 2,673
2007............................................... 2,702
2008............................................... 1,757
2009............................................... 3,176
2010............................................... 5,009
2011............................................... 438
-------
$17,705
=======
</TABLE>

The Company also has state net operating loss carryforwards expiring at
various dates through June 30, 2001 available to reduce future state taxable
income.

F-12
<PAGE> 68

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- REDEEMABLE PREFERRED STOCK

The following table presents the authorized and outstanding shares of
preferred stock which must be redeemed other than at the Company's option, and
recorded values as of June 30, 1996 and 1995 (in thousands except share data):

<TABLE>
<CAPTION>
AT JUNE 30, 1996 RECORDED VALUES
------------------------ GROSS AT JUNE 30,
FISCAL YEAR AUTHORIZED OUTSTANDING PROCEEDS -----------------
ISSUE OF ISSUANCE SHARES SHARES RECEIVED 1995 1996
--------------------------- ----------- ---------- ----------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Series A................... 1990 225,000 225,000 $ 750 $ 1,208 $ 1,490
Series B................... 1991 218,818 218,818 $ 2,000 2,173 2,422
Series C................... 1992 88,339 88,339 $ 1,000 1,029 1,117
Series D................... 1992 48,383 48,383 $ 750 750 780
Series E................... 1993 42,178 42,178 $ 1,000 877 1,072
Series F................... 1994 38,358 38,358 $ 1,000 684 877
Series G................... 1995 -- -- $ 4,000 4,205 --
Series H................... 1996 317,150 317,150 $ 13,000 -- 12,729
------- -------
$10,926 $20,487
======= =======
</TABLE>

Series A, B, C, D and H preferred stock are convertible at any time into
Class A common stock at a conversion price per share (subject to adjustment for
dilution) of $3.33, $9.14, $11.32, $15.50 and $40.99, respectively, and
automatically convert into Class B common stock at the then effective conversion
price in the event of a qualified public offering.

These series of preferred stock are redeemable at the holder's option, on
or after July 31, 2001, at a redemption value equal to the greater of the then
fair market value or the conversion price per share. The Series A, B, C, D and H
preferred stock were recorded at fair value at the date of issuance. The
difference between recorded fair value and redemption value in the year 2001 is
being accreted using the interest method. The fair value of the Company's Class
B common stock, which value was greater than the conversion price per share for
the Series A, B, C, and D preferred stock at June 30, 1996 and 1995, is
accordingly being used as the redemption value for purposes of calculating
accretion.

As discussed in Note 12, warrants to acquire 10,000 shares of Class A
common stock at $0.01 per share were issued in conjunction with the issuance of
Series H preferred stock. As a result, the recorded value of the Series H
preferred stock was $12,800,000, reflecting a $200,000 discount attributable to
the warrants, which is being accreted through the exercise date using the
interest method. Additionally, the Company paid $114,000 of issuance costs in
connection with this offering, which was recorded as a reduction in net
proceeds, and is being accreted to the redemption date.

The holders of Series A, B, C, D and H preferred stock are entitled to vote
(on a common stock equivalent basis) on all matters submitted to the
stockholders.

Series E and F shares are mandatorily redeemable on April 30, 1998 and
April 30, 1999, respectively, at $23.71 and $26.07 per share, respectively, plus
all accumulated and unpaid dividends. The Company may be required to redeem all
or any portion of Series E and F upon change in ownership or in the event of a
qualified public offering at the redemption value per share plus all accumulated
and unpaid dividends. If redeemed at the option of the Company, the redemption
premium on Series E and F is 4% and 6%, respectively, through April 30, 1997 and
declines annually thereafter by 2% through the respective mandatory redemption
date. These series of preferred stock accrue dividends at a rate of 8% per
annum, compounded daily. At June 30, 1996 accumulated and unpaid dividends were
$288,000 and $198,000 on Series E and F preferred stock, respectively.

F-13
<PAGE> 69

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As further discussed in Note 11, Class A common stock was issued in
conjunction with the issuance of the Series E and F preferred stock. As a
result, the Series E and F redeemable preferred stock was recorded at discounts
of $522,000 and $491,000, respectively. The discounts recognized are being
accreted through the required redemption dates using the interest method.

On September 28, 1994, the Company issued 40,000 of new Series G preferred
stock with attached warrants to acquire 40,000 shares of Class A common stock
for a total of $4,000,000. Preferred dividends on Series G preferred stock is 8%
per annum, payable quarterly in kind.

On August 3, 1995, the Company redeemed 40,000 shares of issued and
outstanding Series G preferred stock and redeemed attached warrants to acquire
40,000 shares of Class A common stock of the Company issued September 28, 1994
for $4,000,000, and also paid the investor a preferred dividend in the amount of
$402,000. Additionally, the Company substituted 15,726 warrants to acquire Class
A common stock, exercisable at $0.01 per share, in exchange for the 40,000
warrants previously redeemed. As a result the substituted warrants issued were
accounted for at fair value of $315,000 and recorded as a charge to operations
as a cost of redeeming the preferred stock.

Upon liquidation, dissolution or winding up of the Company, the holders of
Series E and F preferred stock are entitled to receive the applicable
liquidation value plus all accrued and unpaid dividends, prior to any
distribution to holders of Series A, B, C, D or H preferred stock or common
stock. Holders of Series A, B, C, D and H preferred are entitled to receive the
applicable liquidation value plus accrued, declared and unpaid dividends, if
any. If, in the event of liquidation, dissolution or winding up of the Company,
the Company's assets to be distributed among the holders of Series A, B, C, D,
and H preferred were insufficient, then the assets would be distributed ratably
to such holders based upon the aggregate applicable amounts that are owed.

The holders of Series A, B, C, D and H preferred stock are entitled to
receive non-cumulative dividends if and when declared by the Company's Board of
Directors, subject to the prior and superior rights of Series E and F preferred
stock. The Company may not pay or declare a dividend to the holders of these
Series if at the time of or immediately following the dividend the Company has
failed to pay the full amount of dividends accrued on the Series E and F
preferred stock or to declare any dividend or make any distribution upon any
common stock.

The redemption requirements for all issues of redeemable preferred stock
for the five years following June 30, 1996 are as follows: $0 in 1997,
$1,491,000 in 1998, $1,503,000 in 1999, and $0 in 2000 and 2001.

The recorded value of the Company's redeemable preferred stock at June 30,
1996 was $20,487,000. In accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosure About Fair Market Value of
Financial Instruments," the Company estimates that fair value of the redeemable
preferred stock at June 30, 1996 was approximately $23,500,000. Estimated fair
value at June 30, 1996 was calculated based on the higher of the redemption
value of the redeemable preferred stock or the then fair value of the Company's
common stock, plus accumulated dividends, discounted to present value at an
appropriate rate of interest. This estimate is not necessarily indicative of the
amount the holders could realize in a current market exchange.

NOTE 11 -- COMMON STOCK

Class A common stock and Class B common stock are entitled to one vote per
share on all matters voted on by the stockholders. Shares of Class A common
stock are convertible on a share for share basis into shares of Class B common
stock at the option of the holder and automatically convert upon the closing of
a qualified public offering. Class A common stock has preference rights over
Class B common stock in case of a liquidation, dissolution or winding up of the
Company.

F-14
<PAGE> 70

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Dividends may be declared on Class A and B common stock subject to the
prior and superior rights of the preferred stock. The Company's Board of
Directors may not declare or pay a dividend to the holders of Class A or B
common stock, other than in the form of shares of common stock, unless the Board
simultaneously declares a dividend payable to the holders of Series A, B, C, D
and H preferred stock at the same rate (on an as-converted basis).

In March 1994, 38,358 shares of Class A common stock were issued for
proceeds of $384, an amount equal to par value. These shares were issued in
connection with the Series F preferred stock offerings, and have been recorded
at fair value of $508,000 (see Note 10).

In May 1993, 42,178 shares of Class A common stock were issued for proceeds
of $422, an amount equal to par value. These shares were issued in connection
with the Series E preferred stock offerings, and have been recorded at fair
value of $478,000 (see Note 10).

NOTE 12 -- STOCK OPTIONS AND WARRANTS

Under the Amended 1990 Employee Incentive Stock Option Plan, the Board is
authorized to grant 180,000 incentive stock options, entitling certain employees
and officers to acquire shares of Class B common stock at a price per share
equal to fair market value at the date of grant. Options become exercisable over
a four year period and expire at the earlier of termination of employment or
eight years from date of grant (ten years for grants after December 31, 1995).
As of June 30, 1996 there were 45,810 options available for grant.

During 1996, the Board of Directors and stockholders of the Company
approved the adoption of the 1995 Executive Officers' Stock Option Plan and the
1995 Non-Employee Directors' Stock Option Plan under which the Board is
authorized to grant 50,000 and 25,000 options, respectively, to acquire shares
of Class B common stock at a price per share equal to or greater than fair
market value at the date of grant. Under the Executive Officers' Stock Option
Plan, the Board can determine the date on which options vest and become
exercisable. Options become exercisable over a four year period under the
Non-Employee Directors' Stock Option Plan. As of June 30, 1996 there were 15,000
and 5,000 shares available for grant under the Executive Officers' Stock Option
Plan and the Non-Employee Directors' Stock Option Plan, respectively.

F-15
<PAGE> 71

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Information with respect to shares under option under the plans is as
follows:

<TABLE>
<CAPTION>
OPTION PRICE
PER SHARE OUTSTANDING EXERCISABLE
--------------- ----------- -----------
<S> <C> <C> <C>
Balance -- June 30, 1993........................... $3.33 - $11.32 61,167 11,937
Granted.......................................... $13.25 26,450
Became exercisable............................... $3.33 - $11.32 15,292
Exercised........................................ $11.32 (500) (500)
Canceled......................................... $11.32 - $13.25 (2,750) (250)
--------------- ----------- -----------
Balance -- June 30, 1994........................... $3.33 - $13.25 84,367 26,479
Granted.......................................... $15.00 30,500
Became exercisable............................... $3.33 - $13.25 19,405
Exercised........................................ $3.33 - $13.25 (10,611) (10,611)
Canceled......................................... $9.14 - $15.00 (13,739) (865)
--------------- ----------- -----------
Balance -- June 30, 1995........................... $3.33 - $15.00 90,517 34,408
Granted.......................................... $20.00 - $30.00 93,700
Became exercisable............................... $9.14 - $20.00 19,442
Exercised........................................ $15.00 (50) (50)
Canceled......................................... $13.25 - $20.00 (6,700) (1,275)
--------------- ----------- -----------
Balance -- June 30, 1996........................... $3.33 - $30.00 177,467 52,525
============== ========= =========
</TABLE>

On March 30, 1994, a warrant was issued to acquire 7,672 shares of Class A
common stock at an exercise price of $26.07 per share, subject to adjustment for
dilution when issued. The warrant is exercisable at any time prior to March 30,
1999.

On September 9, 1994, the Company issued a warrant in conjunction with the
Bank Credit Agreement to acquire 20,000 shares of Class A common stock at an
exercise price of $15.00 per share, subject to adjustment for dilution when
issued. The warrant is exercisable at any time prior to December 31, 1999.

As discussed in Note 10, warrants to acquire 10,000 shares of Class A
common stock were issued in conjunction with the Series H preferred stock
offering. Each warrant is exercisable at $0.01 per share for a period of five
years from the issuance date. The warrants have been recorded at a fair value of
$200,000.

The Company has an agreement with an executive officer, whereby the Company
is required to grant options to purchase up to 20,000 shares of Class B common
stock to the executive for achievement of certain performance goals.
Specifically, the Company will grant an option to purchase 2,000 shares of Class
B common stock for each new client, from a selected list of certain prospective
large clients, he obtains for the Company prior to December 31, 1996. These
options have a stated exercise price of $20.00 per share and vest ratably over a
four year period from date of grant. In 1996, the executive was granted an
option to purchase 2,000 shares of Class B common stock pursuant to this
agreement. Compensation expense in 1996 related to this grant was $3,000,
measured based on the excess of the fair value of the common stock of the
Company on the date of grant over the grant price. Compensation charges related
to future grants, if any, will be measured in the same manner and recognized
over the vesting period.

F-16
<PAGE> 72

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 -- EMPLOYEE BENEFIT PLAN

Effective April 1, 1996 the Company adopted a 401(k) profit sharing plan.
Employees of the Company are eligible to contribute to the plan once they have
completed one year of service and attained age 18. Employees may contribute up
to 15% of their compensation subject to certain limitations. The Company may
elect to make matching contributions or profit sharing contributions to the
plan. There were no Company contributions made for the year ended June 30, 1996.

NOTE 14 -- STATEMENT OF CASH FLOWS (IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................... $728 $896 $493
==== ==== ====
Cash paid during the period for income taxes................ $ -- $ -- $ 45
==== ==== ====
Supplemental schedule of noncash investing and financing
activities:
Capital lease obligation related to acquisition of fixed
assets................................................... $110 $ 68 $406
==== ==== ====
Dividends accumulated on Series E, F and G preferred
stock.................................................... $105 $424 $212
==== ==== ====
Accretion of discount on Series E, F, G and H preferred
stock.................................................... $ 90 $163 $219
==== ==== ====
Accretion to redemption value on Series A, B, C, and D
preferred stock.......................................... $193 $297 $648
==== ==== ====
Issuance of warrants........................................ $ -- $ -- $200
==== ==== ====
</TABLE>

NOTE 15 -- SUBSEQUENT EVENTS

On July 1, 1996, the Company granted 43,075 employee stock options with an
exercise price of $30.00 per share.

On August 13, 1996, the Board of Directors approved a corporate name change
from CardMember Publishing Corporation to MemberWorks Incorporated.

On August 15, 1996, the Company amended its certificate of incorporation to
increase the authorized number of shares of stock to 41,000,000. A total of
32,000,000 shares were designated as Common Stock, par value $0.01, 8,000,000
shares were designated as Class A common stock, par value $0.01 and 1,000,000
shares were designated as Preferred Stock, par value $0.01.

On August 13, 1996, the Board of Directors authorized the automatic
reclassification and conversion of Class A common stock into Common Stock upon
the closing of the Company's initial public offering and the elimination of
Class A common stock.

On August 13, 1996, the Board of Directors authorized the automatic
reclassification and conversion of Class B common stock into Common Stock.

On August 13, 1996, the Board of Directors authorized the officers of the
Company to negotiate the terms of a proposed public offering of Common Stock of
the Company. In addition, the officers were authorized and directed to cause to
be prepared, executed and filed with the Securities and Exchange Commission (the
"Commission"), under the Securities Act of 1933, as amended, a Registration
Statement on Form S-1, including a preliminary prospectus included therein and
all exhibits thereto and any amendments or supplements thereto, relating to the
registration.

F-17
<PAGE> 73

MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On August 13, 1996, the Company adopted an employee stock purchase plan
(the "1996 Employee Stock Purchase Plan"). The plan will be implemented with an
initial offering period commencing on the effective date of the offering. The
plan permits eligible employees to purchase Common Stock through payroll
deductions, which may not exceed 15% of an employee's compensation, at a price
equal to 85% of the price of the Common Stock of the Company reported by Nasdaq
at the commencement date of the Offering Period.

On August 13, 1996, the Board of Directors approved the Company's 1996
Stock Option Plan (the "1996 Stock Option Plan"), which becomes effective upon
the closing of the Company's initial public offering. The 1996 Stock Option Plan
authorizes the issuance of shares of Common Stock pursuant to the grant to
employees of incentive stock options and the grant of non-qualified stock
options to employees, consultants, officers or directors of the Company.

The aggregate number of shares of Common Stock of the Company reserved for
both the 1996 Employee Stock Purchase Plan and the 1996 Stock Option Plan is
300,000.

On August 13, 1996, the Board of Directors approved an amendment to the
Company's 1990 Employee Incentive Stock Option Plan ("Amended 1990 Stock Option
Plan"). The Amended 1990 Stock Option Plan provides for the grant of "incentive
stock options" to employees and officers of the Company and non-qualified stock
options to employees, consultants, directors and officers of the Company. The
Company is authorized to grant up to 180,000 shares under the Amended 1990 Stock
Option Plan. The Board of Directors also voted that no further options may be
granted under the Amended 1990 Stock Option Plan effective upon the closing of
the initial public offering.

NOTE 16 -- PRO FORMA STOCKHOLDERS' EQUITY DATA AS OF JUNE 30, 1996 (UNAUDITED)

The accompanying pro forma stockholders' equity data as of June 30, 1996
gives effect to the automatic conversion of all Series A, B, C, D and H
convertible preferred stock into Common Stock and the redemption of Series E and
F redeemable preferred stock for approximately $2,500,000 from application of a
portion of the proceeds of the Company's initial public offering described in
Note 15.

F-18
<PAGE> 74

MEMBERWORKS SERVICE PROGRAMS AND DISTRIBUTION CHANNELS

Large Retail Oil Small Vacation Retail New
Banks Cards Cards Banks Owners Stores Interactive Direct Channels
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Health x x x x T

Dental x x x T x T

Dental & Health x x x T x x T

Travel x x X X x T

Entertainment X X X X X X T

Sports X X X X X T

Financial X X X X T

Computers and Software X X T

New Service T T T T

</TABLE>

X = Programs in place.
T = Testing of products that may or may not be offered to consumers.

<PAGE> 75

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.

<TABLE>
<S> <C>
SEC Registration Fee................................................... $ 20,690
NASD Filing Fee........................................................ 6,500
Nasdaq National Market Listing Fee..................................... 6,500
Blue Sky Fees and Expenses............................................. 20,000
Transfer Agent and Registrar Fees...................................... 10,000
Accounting Fees and Expenses........................................... 275,000
Legal Fees and Expenses................................................ 275,000
Printing and Mailing Expenses.......................................... 150,000
Miscellaneous.......................................................... 136,310
----------
Total........................................................ $ 900,000
=========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article Eighth of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.

Article Ninth of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a Director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.

Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for

II-1
<PAGE> 76

indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.

Article Ninth of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.

Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.

Under the Underwriting Agreement, the Underwriters are obligated, under
certain circumstances, to indemnify directors and officers of the Registrant
against certain liabilities, including liabilities under the Securities Act.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1
hereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On March 30, 1994, the Registrant sold an aggregate of 38,358 shares of
Class A Common Stock and 38,358 shares of Series F Preferred Stock to accredited
investors for an aggregate purchase price of $1 million pursuant to Regulation D
of the Commission promulgated under the Securities Act ("Regulation D"). On
September 28, 1994, the Registrant sold an aggregate of 40,000 shares of Series
G Preferred Stock and warrants to acquire the same number of shares of Class A
Common Stock to accredited investors for an aggregate purchase price of $4
million pursuant to Regulation D. Effective August 3, 1995, all 40,000 shares of
Series G Preferred Stock and warrants acquired were redeemed by the Registrant
for an aggregate redemption amount of $4,000,400, plus a preferred dividend of
$401,611. Additionally, the Registrant substituted 15,726 warrants to acquire
Class A Common Stock, exercisable at $0.01 per share, for the warrants redeemed
by the Registrant. On August 3, August 15 and August 21, 1995, the Registrant
sold an aggregate of 317,150 shares of Series H Convertible Preferred Stock to
accredited investors for an aggregate purchase price of $12,999,979 pursuant to
Regulation D.

On March 30, 1994, the Registrant issued a warrant to acquire 7,672 shares
of Class A Common Stock at an exercise of $26.07 per share, subject to
adjustment for dilution. On September 9, 1994, the Company issued a warrant in
conjunction with the Bank Credit Agreement to acquire 20,000 shares of Class A
Common Stock at an exercise price of $15.00 per share, subject to adjustment for
dilution when issued. The warrant is exercisable at any time prior to December
31, 1999. In connection with the redemption of 40,000 shares of Series G
Preferred Stock and attached warrants to acquire 40,000 shares of Series A
Preferred Stock, the Registrant issued warrants to acquire 15,726 shares of
Class A Common Stock, exercisable at $0.01 per share.

II-2
<PAGE> 77

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
*1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant, as amended.
*3.2 Restated Certificate of Incorporation of the Registrant, to be filed upon closing
of this offering.
3.3 Restated By-laws of the Registrant.
*4 Specimen Certificate for shares of Common Stock, $0.01 par value, of the
Registrant.
*5 Opinion of Hale and Dorr with respect to the validity of the securities being
offered.
*10.1 Amended 1990 Employee Incentive Stock Option Plan.
10.2 1995 Executive Officers' Stock Option Plan.
10.3 1995 Non-Employee Directors' Stock Option Plan.
*10.4 1996 Stock Option Plan.
*10.5 1996 Employee Stock Purchase Plan.
10.6 401(k) Profit Sharing Plan of the Registrant, dated April 1, 1996.
10.7 Term Lease Master Agreement between IBM Credit Corporation and the Registrant,
dated as of November 26, 1991.
10.8 Master Lease Agreement between Bankers Leasing Association, Inc. and the
Registrant, dated as of May 7, 1996.
*10.9 Promissory Note between Thomas St. Denis and the Registrant, dated December 31,
1990.
*10.10 Promissory Note between Gary Johnson and the Registrant, dated December 31, 1990.
*11 Computation of unaudited pro forma net loss per share.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Hale and Dorr (included in Exhibit 5).
23.2 Consent of Price Waterhouse LLP.
24 Power of Attorney (included on page II-5).
27 Financial Data Schedule.
</TABLE>

- ---------------
* To be filed by amendment.

(B) FINANCIAL STATEMENT SCHEDULES

Schedule II -- Valuation and Qualifying Accounts

All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Restated Certificate of
Incorporation and Amended and Restated By-laws of the Registrant and the laws of
the State of Delaware, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities

II-3
<PAGE> 78

being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 79

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on this 21st day of August, 1996.

MemberWorks Incorporated

By: /s/ GARY A. JOHNSON

--------------------------------------
Gary A. Johnson
President, Chief Executive Officer and
Director

POWER OF ATTORNEY AND SIGNATURES

We, the undersigned officers and directors of MemberWorks Incorporated,
hereby severally constitute and appoint Gary A. Johnson, James B. Duffy and
Steven H. Levenherz, and each of them singly, our true and lawful attorneys with
full power to them, and each of them singly, to sign for us and in our names in
the capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and posteffective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable MemberWorks Incorporated to comply with the provisions of
the Securities Act of 1933, as amended, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Registration
Statement and any and all amendments thereto or to any subsequent Registration
Statement for the same offering which may be filed under Rule 462(b).

Pursuant to the requirements of the Securities act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- ---------------
<C> <S> <C>
/s/ GARY A. JOHNSON President and Chief Executive Officer August 21, 1996
- ------------------------------------- (Principal Executive Officer)
Gary A. Johnson
/s/ DENNIS P. WALKER Executive Vice President and Director August 21, 1996
- -------------------------------------
Dennis P. Walker
/s/ JAMES B. DUFFY Chief Financial Officer (Principal August 21, 1996
- ------------------------------------- Financial and Accounting Officer)
James B. Duffy
/s/ STEPHEN J. CLEARMAN Director August 21, 1996
- -------------------------------------
Stephen J. Clearman
/s/ ALEC L. ELLISON Director August 21, 1996
- -------------------------------------
Alec L. Ellison
/s/ MICHAEL R. O'BRIEN Director August 21, 1996
- -------------------------------------
Michael R. O'Brien
/s/ MARC S. TESLER Director August 21, 1996
- -------------------------------------
Marc S. Tesler
</TABLE>

II-5
<PAGE> 80

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN C
-----------------------------
COLUMN B ADDITIONS
---------- ----------------------------- COLUMN D COLUMN E
COLUMN A BALANCE AT CHARGED TO CHARGED TO ----------- -------------
- -------------------------------- BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES -- DESCRIBE -- DESCRIBE END OF PERIOD
- -------------------------------- ---------- ---------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1996:
Allowance for cancellations..... $6,765,000 $ 61,264,000(A) $57,912,000(B) $10,117,000
Valuation allowance for deferred
tax assets.................... 9,700,000 $1,899,000 11,599,000
YEAR ENDED JUNE 30, 1995:
Allowance for cancellations..... 5,101,000 46,667,000(A) 45,003,000(B) 6,765,000
Valuation allowance for deferred
tax assets.................... 6,003,000 3,697,000 9,700,000
YEAR ENDED JUNE 30, 1994:
Allowance for cancellations..... 2,650,000 29,753,000(A) 27,302,000(B) 5,101,000
Valuation allowance for deferred
tax assets.................... 4,235,000 1,768,000 6,003,000
</TABLE>

- ---------------
(A) Charged to balance sheet account "Deferred membership income, net"

(B) Charges for refunds upon membership cancellations.

S-1
<PAGE> 81

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
*1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant, as amended.
*3.2 Restated Certificate of Incorporation of the Registrant, to be filed upon closing
of this offering.
3.3 Restated By-laws of the Registrant.
*4 Specimen Certificate for shares of Common Stock, $ par value, of the
Registrant.
*5 Opinion of Hale and Dorr with respect to the validity of the securities being
offered.
*10.1 Amended 1990 Employee Incentive Stock Option Plan.
10.2 1995 Executive Officers' Stock Option Plan.
10.3 1995 Non-Employee Directors' Stock Option Plan.
*10.4 1996 Stock Option Plan.
*10.5 1996 Employee Stock Purchase Plan.
10.6 401(k) Profit Sharing Plan of the Registrant, dated April 1, 1996.
10.7 Term Lease Master Agreement between IBM Credit Corporation and the Registrant,
dated as of November 26, 1991.
10.8 Master Lease Agreement between Bankers Leasing Association, Inc. and the
Registrant, dated as of May 7, 1996.
*10.9 Promissory Note between Thomas St. Denis and the Registrant, dated December 31,
1990.
*10.10 Promissory Note between Gary Johnson and the Registrant, dated December 31, 1990.
*11 Computation of unaudited pro forma net loss per share.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Hale and Dorr (included in Exhibit 5).
23.2 Consent of Price Waterhouse LLP.
24 Power of Attorney (included on page II-5).
27 Financial Data Schedule.
</TABLE>

- ---------------
* To be filed by amendment.

<PAGE> 1
Exhibit 3.3
MEMBERWORKS INCORPORATED

RESTATED BY-LAWS

TABLE OF CONTENTS

ARTICLE 1 - Stockholders

1.1 Place of Meetings
1.2 Annual Meeting
1.3 Special Meetings
1.4 Notice of Meetings
1.5 Voting List
1.6 Quorum
1.7 Adjournments
1.8 Voting and Proxies
1.9 Action at Meeting
1.10 Action without Meeting

ARTICLE 2 - Directors

2.1 General Powers
2.2 Number; Election and Qualification
2.3 Enlargement of the Board
2.4 Tenure
2.5 Vacancies
2.6 Resignation
2.7 Regular Meetings
2.8 Special Meetings
2.9 Notice of Special Meetings
2.10 Meetings by Telephone Conference Calls
<PAGE> 2
2.11 Quorum
2.12 Action at Meeting
2.13 Action by Consent
2.14 Removal
2.15 Committees
2.16 Compensation of Directors

ARTICLE 3 - Officers
3.1 Enumeration
3.2 Election
3.3 Qualification
3.4 Tenure
3.5 Resignation and Removal
3.6 Vacancies
3.7 Chairman of the Board and Vice-Chairman of the Board
3.8 President
3.9 Vice Presidents
3.10 Secretary and Assistant Secretaries
3.11 Treasurer and Assistant Treasurers
3.12 Salaries

ARTICLE 4 - Capital Stock

4.1 Issuance of Stock
4.2 Certificates of Stock
4.3 Transfers
4.4 Lost, Stolen or Destroyed Certificates
4.5 Record Date

ARTICLE 5 - General Provisions

5.1 Fiscal Year
5.2 Corporate Seal
5.3 Waiver of Notice
5.4 Voting of Securities
5.5 Evidence of Authority
5.6 Certificate of Incorporation
5.7 Transactions with Interested Parties
5.8 Severability
5.9 Pronouns

ARTICLE 6 - Amendments

6.1 By the Board of Directors
6.2 By the Stockholders

<PAGE> 3
ARTICLE 1 - Stockholders

1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.

1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.

1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.

1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in
<PAGE> 4
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.

1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.

1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.

1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.

1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
<PAGE> 5
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.

1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a majority of the votes cast on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.

1.10 Action without Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.

ARTICLE 2 - Directors

2.1 General Powers. The business and affairs of the
<PAGE> 6
corporation shall be managed by or under the direction of a Board of Directors,
who may exercise all of the powers of the corporation except as otherwise
provided by law or the Certificate of Incorporation. In the event of a vacancy
in the Board of Directors, the remaining directors, except as otherwise provided
by law, may exercise the powers of the full Board until the vacancy is filled.

2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.

2.3 Enlargement of the Board. The number of directors may be increased
at any time and from time to time by the stockholders or by a majority of the
directors then in office.

2.4 Tenure. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.

2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
<PAGE> 7
2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.

2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.

2.8 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.

2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.

2.10 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at
<PAGE> 8
such meeting.

2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.

2.12 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.

2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.

2.14 Removal. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.

2.15 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as
<PAGE> 9
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members of the committee present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-laws for the Board of Directors.

2.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.

ARTICLE 3 - Officers

3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem
<PAGE> 10
appropriate.

3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.

3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.

3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.

3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.

Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.

Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.

3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is
<PAGE> 11
elected and qualified, or until his earlier death, resignation or removal.

3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.

3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.

3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.

3.10 Secretary and Assistant Secretaries. The Secretary shall
<PAGE> 12
perform such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.

Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.

In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.

3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.

The Assistant Treasurers shall perform such duties and possess such
powers as the
<PAGE> 13
Board of Directors, the President or the Treasurer may from time to time
prescribe. In he event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.

3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.

ARTICLE 4 - Capital Stock

4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.

4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.

Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation
<PAGE> 14
shall have conspicuously noted on the face or back of the certificate either the
full text of the restriction or a statement of the existence of such
restriction.

If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.

4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-laws.

4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board
<PAGE> 15
of Directors may prescribe, including the presentation of reasonable evidence of
such loss, theft or destruction and the giving of such indemnity as the Board of
Directors may require for the protection of the corporation or any transfer
agent or registrar.

4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 10 days after the date of adoption of a
record date for a written consent without a meeting, nor more than 60 days prior
to any other action to which such record date relates.

If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is properly delivered to the corporation. The record date
for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.

A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

ARTICLE 5 - General Provisions
<PAGE> 16
5.1 Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.

5.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.

5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.

5.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.

5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.

5.6 Certificate of Incorporation. All references in these By-laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.

5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a
<PAGE> 17
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or a committee of the Board of Directors which authorizes
the contract or transaction or solely because his or their votes are counted for
such purpose, if:

(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;

(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or

(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.

Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.

5.8 Severability. Any determination that any provision of these By-laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-laws.

Pronouns. All pronouns used in these By-laws shall be deemed to refer to
the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.

ARTICLE 6 - Amendments
<PAGE> 18
6.1 By the Board of Directors. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.

6.2 By the Stockholders. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.

<PAGE> 1
Exhibit 10.2

CARDMEMBER PUBLISHING CORPORATION

1995 EXECUTIVE OFFICERS' STOCK OPTION PLAN

A. Purpose and Scope.

The purposes of this Plan are to encourage stock ownership by key
executive officers of Cardmember Publishing Corporation (herein called the
"Company") and its Subsidiaries, to provide an incentive for such executive
officers to expand and improve the profits and prosperity of the Company and its
Subsidiaries, and to assist the Company and its Subsidiaries in attracting and
retaining key executive officers through the grant of Options to purchase shares
of the Company's common stock.

B. Definitions.

Unless otherwise required by the context:

1. "Board" shall mean the Board of Directors of the Company.

2. "Committee" shall mean the Compensation Committee, which is appointed
by the Board.

3. "Company" shall mean Cardmember Publishing Corporation, a Delaware
corporation.

4. "Code" shall mean the Internal Revenue Code of 1986, as amended.

5. "Option" shall mean a right to purchase Stock, granted pursuant to the
Plan.

6. "Option Price" shall mean the purchase price for Stock under an Option,
as determined in Section F below.

7. "Participant" shall mean an executive officer of the Company, or of any
Subsidiary of the Company, to whom an Option is granted under the Plan.

<PAGE> 2

8. "Plan" shall mean this Cardmember Publishing Corporation Executive
Officers' Stock Option Plan.

9. "Stock" shall mean the Class B Common Stock of the Company, par value
$.01.

10. "Subsidiary" shall mean a subsidiary corporation of the Company, as
defined in Sections 425(f) and 425(g) of the Code.

C. Stock to be Optioned.

Subject to the provisions of Section L of the Plan, the maximum number of
shares of Stock that maybe optioned or sold under the Plan is 50,000 shares.
Such shares may be treasury, or authorized, but unissued, shares of Stock of the
Company.

D. Administration.

The Plan shall be administered by the Committee. The Committee shall be
responsible to the Board for the operation of the Plan, and shall make
recommendations to the Board with respect to participation in the Plan by
employees of the Company and its Subsidiaries, and with respect to the extent of
that participation. The interpretation and construction of any provision of the
Plan by the Committee shall be final, unless otherwise determined by the Board.
No member of the Board or the Committee shall be liable for any action or
determination made by him in good faith.

E. Eligibility.

The Board, upon recommendation of the Committee, may grant Options to any
Executive Officer (including an employee who is a director or an officer) of the
Company or its Subsidiaries. Options may be awarded by the Board at any time and

- 2 -
<PAGE> 3

from time to time to new Participants, or to then Participants, or to a greater
or lesser number of Participants, and may include or exclude previous
Participants, as the Board, upon recommendation by the Committee shall
determine. Options granted at different times need not contain similar
provisions.

F. Option Price.

The purchase price for Stock under each Option shall be 100 percent of the
fair market value of the Stock at the time the Option is granted, but in no
event less than the par value of the Stock.

G. Terms and Conditions of Options.

Options granted pursuant to the Plan shall be authorized by the Board and
shall be evidenced by agreements in such form as the Board, upon recommendation
of the Committee, shall from time to time approve. Such agreements shall comply
with and be subject to the following terms and conditions:

1. Employment Agreement. The Board may, in its discretion, include in any
Option granted under the Plan a condition that the Participant shall agree to
remain in the employ of, and to render services to, the Company or any of its
Subsidiaries for a period of time (specified in the agreement) following the
date the Option is granted. No such agreement shall impose upon the Company or
any of its Subsidiaries, however, any obligation to employ the Participant for
any period of time.

2. Time and Method of Payment. The Option Price shall be paid in full in
cash at the time an Option is exercised under the Plan. Otherwise, an exercise
of any Option granted under the Plan shall be invalid and of no effect. Promptly
after the

- 3 -
<PAGE> 4

exercise of an Option and the payment of the full Option Price, the Participant
shall be entitled to the issuance of a stock certificate evidencing his
ownership of such a Stock. A Participant shall have none of the rights of a
stockholder with respect to such shares, until shares are issued to him, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.

3. Number of Shares. Each Option shall state the total number of shares of
Stock to which it pertains.

4. Option Period and Limitations on Exercise of Options. The Board may, in
its discretion, provide that an Option may not be exercised in whole or in part
for any period or periods of time specified in the Option agreement. Except as
provided in the Option Agreement, an Option may be exercised in whole in part at
any time during its term. No Option may be exercised after the expiration of ten
years from the date it is granted. No Option may be exercised for a fractional
share of Stock.

5. Stock Purchase Agreement. All shares of Common Stock issued pursuant to
the Plan shall be subject to the provisions of a certain Stock Purchase
Agreement to be approved by the Board which the Optionee shall execute as a
condition precedent to the Optionee's receipt of the stock covered by this Plan.

6. Restrictive Legend. All shares issued upon the exercise of the Option
shall bear the following legend: "The shares represented by this Certificate may
not be sold, transferred, pledged, hypothecated or otherwise disposed of (1)
unless they have first been registered under the Securities Act of 1933, as
amended, or unless, in the opinion of counsel for the Company, such registration
is not required; and (2) the

- 4 -
<PAGE> 5

shares represented by this Certificate are subject to the terms and conditions
of a Stock Purchase Agreement, dated as of ______________, 199_, by and among
the Company and the original holder of this Certificate. Copies of such
Agreement may be obtained at no cost by written request made by the Holder of
record of this Certificate to the Secretary of the Company."

7. Withholding. As a condition to the issuance of shares of Common Stock
of the Company under any Option, the Participant authorizes the Company to
withhold in accordance with applicable law from any regular cash compensation
payable to him any taxes required to be withheld by the Company under Federal,
State, or Local law as a result of his exercise of any Option. In the
alternative, as a condition to the issuance of shares of Common Stock of the
Company under any Option, the Participant agrees to remit to the Company at the
time of the exercise of any Option, any taxes required to be withheld by the
Company under Federal, State, or Local law as a result of the exercise of an
Option.

H. Termination of Employment

Except as provided in Section I below, if a Participant ceases to be
employed by the Company or any of its Subsidiaries, his Options shall terminate
one year after the date of ceasing to serve as an employee, but in no event
shall any Option be exercisable more than ten years from the date it was
granted. The Committee may cancel an Option during the one year period referred
to in this paragraph, if the Participant engages in employment or activities
contrary, in the opinion of the Committee, to the best interests of the Company
or any of its Subsidiaries. The Committee shall determine subject to applicable
law whether a leave of absence shall

- 5 -
<PAGE> 6

constitute a termination of employment. Any such determination of the Committee
shall be final and conclusive, unless overruled by the Board.

I. Rights in Event of Death

If a Participant dies while employed by the Company or any of its
Subsidiaries, or within three months after having retired with the consent of
the Company or any of its Subsidiaries, and without having fully exercised his
Options, the executors or administrators, or legatees or heirs, of his estate
shall have the right to exercise such Options for one year after the date of
death to the extent that such deceased Participant was entitled to exercise the
Options on the date of his death; provided, however, that in no event shall the
Options be exercisable more than ten years from the date they were granted.

J. No Obligations to Exercise Option.

The granting of an Option shall impose no obligation upon the Participant
to exercise such Option.

K. Nonassignability.

Options shall not be transferable other than by will or by the laws of
descent and distribution, and during a Participant's lifetime shall be
exercisable only by such Participant.

L. Effect of Change in Stock Subject to the Plan.

The aggregate number of shares of Stock available for Options under the
Plan, the shares subject to any Option, and the price per share, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock subsequent to the effective date of the Plan resulting from (1)
a subdivision or

- 6 -
<PAGE> 7

consolidation of shares or any other capital adjustment, (2) the payment of a
stock dividend, or (3) other increase or decrease in such shares effected
without receipt of consideration by the Company. If the Company shall be the
surviving corporation in any merger or consolidation, any Option shall pertain,
apply, and relate to the securities to which a holder of the number of shares of
Stock subject to the Option would have been entitled after the merger or
consolidation. Upon dissolution or liquidation of the Company, or upon a merger
or consolidation in which the Company is not the surviving corporation, all
Options outstanding under the Plan shall terminate; provided, however, that all
stock options granted to Participants prior to termination of the Plan shall
become 100 per cent vested and each Participant (and each other person entitled
under Section I to exercise an Option) shall have the right, immediately prior
to such dissolution or liquidation, or such merger or consolidation, to exercise
such Participant's Options in whole or in part.

M. Amendment and Termination.

The Board, by resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been granted. Neither the
Board nor the Committee may, without the consent of the holder of an Option,
alter or impair any Option previously granted under the Plan, except as
authorized herein. Unless sooner terminated, the Plan shall remain in effect for
a period of ten years from the date of the Plan's adoption by the Board.
Termination of the Plan shall not affect any Option previously granted.

- 7 -
<PAGE> 8

N. Agreement and Representation of Participant.

As a condition to the exercise of any portion of an Option, the Company
may require the person exercising such Option to represent and warrant at the
time of such exercise that any shares of Stock acquired at exercise are being
acquired only for investment and without any present intention to sell or
distribute such shares, if, in the opinion of counsel for the Company, such a
representation is required under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency.

O. Reservation of Shares of Stock.

The Company, during the term of this Plan, will at all times reserve and
keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the number
of shares of Stock that shall be sufficient to satisfy the requirements of this
Plan. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority deemed necessary by counsel for the Company for the
lawful issuance and sale of its Stock hereunder shall relieve the Company of any
liability in respect of the failure to issue or sell Stock as to which the
requisite authority has not been obtained.

P. Effective Date of Plan.

The Plan shall be effective from July 1, 1995 provided that it has been
approved by the stockholders of the Company on or before April 30, 1996.

- 8 -
<PAGE> 9

Q. Governing Law.

This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware without reference to
principles of conflict of laws, and shall be construed accordingly.

- 9 -

<PAGE> 1

Exhibit 10.3

CARDMEMBER PUBLISHING CORPORATION

1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

1. Purpose. The 1995 Non-Employee Director Stock Plan (the "Plan") is to benefit
Cardmember Publishing Corporation (the "Company") and its subsidiary
corporations by offering some of its non-employee directors an opportunity to
become owners of the Class B Common Stock $.01 par value, of the Company (the
"Stock") and is intended to advance the best interests of the Company by
increasing their proprietary interest in the success of the Company and its
subsidiary corporation.

2. Administration. The Plan shall be administered by the Board of Directors of
the Company (the "Board"). Subject to the terms of the Plan, the Board shall
have the power to construe the provisions of the Plan, or of options granted
hereunder (the "Options") or Stock issued hereunder, to determine all questions
arising thereunder, and to adopt and amend such rules and regulations for
administering the Plan as the Board deems desirable.

3. Available Shares. The total amount of the Stock with respect to which Options
may be granted under this Plan shall not exceed in the aggregate 25,000 shares;
provided, that the class and aggregate number of shares of Stock which may be
granted hereunder shall be subject to adjustment in accordance with the
provisions of Paragraph 17 hereof. Such shares of Stock may be treasury shares
or authorized but unissued shares of Stock. In the event that any outstanding
Option for any reason shall expire or is terminated or cancelled, the shares of
Stock allocable

<PAGE> 2

to the unexercised portion of such Option may again be subject to an Option or
Options under the Plan.

4. Authority to Grant Options and Stock. All Options granted under the Plan
shall be non-qualified stock options. No Options shall be granted under the Plan
subsequent to June 30, 2005. The only Options and Stock under the Plan which may
be granted are those which are granted after both adoption of the Plan by the
Board and approval thereof by the stockholders of the Company.

5. Eligibility for Stock Options and Stock. The individuals who shall be
eligible to receive Options under the Plan shall be certain non-employee
Directors of the Company who are designated by the Board as Eligible Directors
("Eligible Directors").

6. Option Grant Size and Grant Dates. Options to purchase shares of Stock shall
be granted to Eligible Directors as determined by the Board from time to time
during the term of this Plan.

7. Option Price; Fair Market Value. The price at which shares of Stock may be
purchased by an Eligible Director pursuant to an Option (the "Optionee") shall
be the fair market value of the shares of Stock on the date the Option is
granted as determined by the Board.

- 2 -
<PAGE> 3

8. Duration of Options. The term of each Option hereunder shall be ten years,
and no Option shall be exercisable after the expiration of ten years from the
date such Option is granted. An Option shall expire immediately following the
last day on which such Option is exercisable pursuant to this Paragraph 8.

9. Amount Exercisable.

(a) No Option shall be exercisable earlier than six months from the date
of grant.

(b) The Options shall become exercisable according to the following
schedule:

Period from Portion of Grant That
the Date the Becomes Exercisable
Option is Granted after Such Period
----------------- -----------------
<S> <C>
One year after grant ............ 25%
Two years after grant ........... 50%
Three years after grant ......... 75%
Four years after grant .......... 100%

</TABLE>

10. Exercise of Options. The Option shall be exercised by the delivery of
written notice to the Company setting forth the number of shares of Stock with
respect to which the Option is to be exercised, together with cash, wire
transfer, certified check, bank draft or postal or express money order payable
to the order of the Company (the "Acceptable Funds") for an amount equal to the
Option price of such shares of Stock. As promptly as practicable after receipt
of such written notification and payment, the Company shall deliver to the
Optionee certificates of the number of shares with respect to which such Option
has been so exercised, issued in the

- 3 -
<PAGE> 4

Optionee's name; provided, that such delivery shall be deemed effected for all
purposes when a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Optionee, at the
address specified pursuant to this Paragraph 10. The delivery of certificates
upon the exercise of Options is subject to the condition that the person
exercising such Option provide the Company with such information as the Company
might reasonably request pertaining to such exercise, sale or other disposition.

11. Restrictive Legend. All shares issued upon the exercise of the Option shall
bear the following legend: "The shares represented by this Certificate may not
be sold, transferred, pledged, hypothecated or otherwise disposed of (1) unless
they have first been registered under the Securities Act of 1933, as amended, or
unless, in the opinion of counsel for the Company, such registration is not
required; and (2) the shares represented by this Certificate are subject to the
terms and conditions of a Stock Purchase Agreement, dated as of _____________,
199_, by and among the Company and the original holder of this Certificate.
Copies of such Agreement may be obtained at no cost by written request made by
the Holder of record of this Certificate to the Secretary of the Company."

12. Transferability of Options. Options shall not be transferable by the
Optionee other than by will or under laws of descent and distribution, and shall
be exercisable, during the Optionee's lifetime, only by the Optionee or his
legal guardian or representative.

- 4 -
<PAGE> 5

13. Termination of Directorship of Optionee. If, before the date of expiration
of the Option, the Optionee shall cease to be a director of the Company, the
Option shall terminate on the earlier of such date of expiration or one year
after the date of ceasing to serve as a director. In such event, the Optionee
shall have the right prior to the termination of such Option to exercise the
Option to the extent to which he was entitled to exercise such Option
immediately prior to ceasing to serve as a director; however, in the event that
the Optionee has ceased to serve as director on or after attaining the age of
sixty-two (62) years, the Optionee shall be entitled to exercise all of such
Option (without regard to any limitations imposed pursuant to Paragraph 9(b)
hereof, but subject to Paragraph 9(a)). Upon the death of the Optionee, his
executors, administrators, or any person or persons to whom his Option may be
transferred by will or by the laws of descent and distribution, shall have the
right, at any time prior to the earlier of the date of expiration or one year
following the date of such death, to exercise the Option, in whole or in part
(without regard to any limitations imposed pursuant to Paragraph 9(b) hereof,
but subject to Paragraph 9(a)).

14. Requirements of Law. The Company shall not be required to issue any shares
under any Option if the issuance of such shares shall constitute a violation by
the Optionee or the Company of any provisions of any law or regulation of any
governmental authority.

- 5 -
<PAGE> 6

15. No Rights as Stockholder. No Optionee shall have rights as a Stockholder
with respect to shares covered by any Option until the date of issuance of stock
certificate of such shares; and except as otherwise provided in Paragraph 17
hereof, no adjustment for dividends, or otherwise, shall be made if the record
date thereof is prior to the date of issuance of such certificate.

16. No Employment or Nomination Obligation. The granting of any Options shall
not impose upon the Company or its stockholders any obligation to employ any
Optionee or to continue to nominate any Optionee for election as a director of
the Company.

17. Effect of Change in Stock Subject to the Plan. The aggregate number of
shares of Stock available for Options under the Plan, the shares subject to any
Option, and the price per share, shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of Stock subsequent to the
effective date of the Plan resulting from (1) a subdivision or consolidation of
shares or any other capital adjustment, (2) the payment of a stock dividend, or
(3) other increase or decrease in such shares effected without receipt of
consideration by the Company. If the Company shall be the surviving corporation
in any merger or consolidation, any Option shall pertain, apply, and relate to
the securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled after the merger or consolidation. Upon
dissolution or liquidation of the Company, or upon a merger or consolidation in
which the Company is not the surviving corporation, all

- 6 -
<PAGE> 7

Options outstanding under the Plan shall terminate; provided, however, that all
stock options granted to Directors prior to termination of this Plan shall
become 100 percent vested and each Optionee (and each other person entitled
under Paragraph 13 to exercise an Option) shall have the right, immediately
prior to such dissolution or liquidation, or such merger or consolidation, to
exercise such Optionee's Options in whole or in part.

18. Amendment and Termination. The Board, by resolution, may terminate, amend,
or revise the Plan with respect to any shares as to which Options have not been
granted. The Board may not, without the consent of the holder of an Option,
alter or impair any Option previously granted under the Plan, except as
authorized herein. Unless sooner terminated, the Plan shall remain in effect for
a period of ten years from the date of the Plan's adoption by the Board.
Termination of the Plan shall not affect any Option previously granted.

19. Written Agreement. Each Option granted hereunder or Stock issued hereunder
shall be embodied in a written agreement, which shall be subject to the terms
and conditions prescribed above and shall be signed by the Eligible Director and
by the President of the Company for and in the name and on behalf of the
Company.

20. Indemnification of Board. The Company shall indemnify each present and
future member of the Board against, and each member of the Board shall be
entitled

- 7 -
<PAGE> 8

without further act on his part to indemnity from the Company for, all expenses
(including the amount of judgments and the amount of approved settlements made
with a view to the curtailment of costs of litigation, other than amounts paid
to the Company itself) reasonably incurred by him in connection with or arising
out of any action, suit or proceeding in which he may be involved by reason of
his being or having been a member of the Board, whether or not he continues to
be such member of the Board at the time of incurring such expenses; provided,
however, that such indemnity shall not include any expenses incurred by any such
member of the Board (a) in respect of matters as to which he shall be finally
adjudged in any such action, suit or proceeding to have been guilty of gross
negligence or willful misconduct in the performance of his duty as such member
of the Board, or (b) in respect of any matter in which any settlement is
effected, to an amount in excess of the amount approved by the Company on the
advice of its legal counsel; and provided further, that no right of
indemnification under the provisions set forth herein shall be available to or
enforceable by any such member of the Board unless, within sixty (60) days after
institution of any such action, suit or proceeding, he shall have offered the
Company, in writing, the opportunity to handle and defend same at its own
expense. The foregoing right of indemnification shall inure to the benefit of
the heirs, executors or administrators of each such member of the Board and
shall be in addition to all other rights to which such member of the Board may
be entitled as a matter of law, contract, or otherwise.

- 8 -
<PAGE> 9

21. Adoption, Approval and Effective Date of Plan. The Plan shall be considered
adopted and shall become effective on the date the Plan is approved by the
stockholders of the Company.

22. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware, without
reference to principles of conflict of laws, and shall be construed accordingly.

- 9 -

<PAGE> 1
Exhibit 10.6

CardMember Publishing Corporation
401(k) Profit Sharing Plan

Effective Date: 04/01/1996

This document is a description of the Plan. It is intended that the language be
clear and understandable. The law governing plans is very complicated.
Consequently, the language in the law and the Plan is very technical and legal.
The government requires that the Plan document and this description contain much
of the same language. If this description says something different from what the
Plan says, the Plan must be followed. A copy of the Plan is available for
inspection by contacting the Plan Administrator, whose telephone number is on
the Plan Information Page.

Date Prepared: February 27, 1996

<PAGE> 2

CardMember Publishing Corporation
401(k) Profit Sharing Plan

TABLE OF CONTENTS

<TABLE>
<S> <C>
I. PLAN INFORMATION .................................................... 1

II. ELIGIBILITY REQUIREMENTS ............................................ 2

III. PLAN CONTRIBUTIONS .................................................. 3
Generally: .......................................................... 3
Elective Deferral Contributions: .................................... 3
Profit Sharing Contributions: ....................................... 3
Additional Contributions: ........................................... 4
Matching Contributions: ............................................. 4
Compensation: ....................................................... 4

IV. PLAN BENEFITS AND METHODS OF PAYMENTS
Distributions: ...................................................... 5
Hardship Distributions: ............................................. 5
Rollover Contributions: ............................................. 6
Payment of Your Distribution: ....................................... 6
Amount and Form of Payment of Your Distribution: .................... 7

V. PLAN ADMINISTRATION ................................................. 8
Plan Operation: ..................................................... 8
Plan Administrator: ................................................. 8
Trustee: ............................................................ 8
Investment of Plan Assets: .......................................... 8
Plan Insurance: ..................................................... 8

VI. LOSS OR DENIAL OF BENEFITS .......................................... 9
Vesting: ............................................................ 9
Break in Service: ................................................... 9
Beneficiary Designation: ............................................ 10

VII. TERMINATION OF THE PLAN ............................................. 11

VIII. YOUR RIGHTS UNDER ERISA ............................................. 12

LOAN ADDENDUM ............................................................. 13

</TABLE>

<PAGE> 3

CardMember Publishing Corporation
401(k) Profit Sharing Plan

I. PLAN INFORMATION.

Plan Name: CardMember Publishing Corporation
401(k) Profit Sharing Plan

Employer: CardMember Publishing Corporation

Address: 11165 Mill Valley Road
Omaha, NE 68154

Employer Identification Number
of Plan Sponsor: 06-1276882

Plan Serial Number: 001

Type of Plan: 401(k) Profit Sharing Plan

Normal Retirement Age: 65 with 5 participation years

Trustee(s): State Street Bank & Trust Company

Business Address: Two Heritage Drive
Quincy, MA 02171

Plan Administrator and Plan Sponsor: CardMember Publishing Corporation

Business Address: 11165 Mill Valley Road
Omaha, NE 68154

Phone Number: (402) 492-2565

Agent for service of legal process: Plan Administrator (see above)

Note: Service of legal process may be made upon a Plan Trustee or the Plan
Administrator.

Ending Date of Plan's Year: December 31

1
<PAGE> 4

CardMember Publishing Corporation
401(k) Profit Sharing Plan

II. ELIGIBILITY REQUIREMENTS.

Once you start work, the number of hours that you work during your first year of
employment is counted. If you work 1000 hours during that year, you will receive
a year of Service Credit for eligibility to participate in the Plan for that
year. If you fail to attain 1000 hours in your first year of employment, then
the number of hours you work in your second year of employment is counted to
determine if you have 1000 hours. If you do, you will receive a Year of Service
Credit for eligibility.

To be eligible to become a participant in the Plan, you must, as of these dates:
January 1, April 1, July 1, October 1.

1. have completed 1 Year(s) of Service.
2. have attained age 18.
3. not be covered by a collective bargaining agreement (i.e., not in a
union).
4. not be a nonresident alien and not earning any U.S. income.

- 2-
<PAGE> 5

CardMember Publishing Corporation
401(k) Profit Sharing Plan

III. PLAN CONTRIBUTIONS.

Once you have satisfied the eligibility requirements, you become a Participant
automatically.

Generally:

The amount of Contributions to the Plan is determined by the sum of Elective
Deferral Contributions, Profit Sharing Contributions, Matching Contributions,
Rollover Contributions, and additional contributions which may be made by the
employer during the year. These contributions are based on the profits of the
Company.

Your social security benefits are paid by the government and are in addition to
the benefits paid from the Plan. The existence of this Plan and the
contributions made to it will not affect your social security benefits in any
way.

Elective Deferral Contributions:

You may elect to reduce your salary and have the amount contributed to the
Trust. The amount may not be more than the lesser of:

1. 15% of your pay or,
2. $9500 as adjusted to reflect annual federal cost of living increases,
or
3. such lesser amount as determined by the discrimination tests for the
Plan.

You may choose to begin Elective Deferral Contributions on 1/1, 4/1, 7/1, 10/1.

Your election will be effective with the 1st pay period following the period in
which you make the election. Your election will remain in effect until modified
or terminated by you. You can modify your election effective 1/1, 4/1, 7/1,
10/1. You may terminate your deferrals at any time. Contact your Plan
Administrator for the deadline for making modification requests. Because it is a
Cash or Deferred Arrangement, this Plan must meet special tests which assure
that highly compensated employees do not make significantly more Elective
Deferral Contributions to the Plan than non-highly compensated employees. If,
under the test, the contributions of the highly compensated employees exceed the
amount permitted, the employer must either return some of the Elective Deferral
Contributions, or make additional contributions on behalf of certain
participants. The additional contributions will be treated as Elective Deferral
Contributions. You may not contribute more than $9500 (as adjusted under Federal
Law) to all 401(k) type plans to which you belong. You must apply to your Plan
Administrator in writing for a refund of any Elective Deferred Contribution by
03/01.

Profit Sharing Contributions:

The Employer may decide to make additional contributions which will be subject
to the "Vesting Schedule" shown in Section VI below. The Profit Sharing
Contribution will be allocated to your account in the ratio that your
compensation bears to the compensation of all participants. Forfeitures of this
contribution shall be allocated with the Profit Sharing Contribution.

- 3 -
<PAGE> 6

CardMember Publishing Corporation
401(k) Profit Sharing Plan

Additional Contributions:

The employer may make special contributions to enable the Elective Deferral
Contributions and Matching Contributions to pass discrimination tests required
under the Internal Revenue Code. These contributions are called Qualified
Non-Elective Contributions in the Plan Document and Adoption Agreement and will
be made in the manner required for the purpose of passing the tests.

Matching Contributions:

The Employer may make Matching Contributions to the Plan to all Participants who
have Elective Deferral Contributions. These contributions are subject to the
vesting schedule shown in Section VI below.

This contribution will be equal to a percentage of your Elective Deferral
Contribution and will be determined at the end of the plan year.

These contributions must meet special tests which assure that highly compensated
employees do not make significantly more Matching Contributions to the Plan than
non-highly compensated employees. If, under the test, contributions of the
highly compensated employees exceed the amount permitted, the employer must
reallocate some of the Matching Contribution, make additional contributions,
distribute some of the vested contributions, or hold the excess in the Plan and
use it as part of the employer's matching contribution for the next year.

Compensation:

All your contributions are based on the amount you are paid.

Your pay or earnings are the sum of your W-2 earnings and amounts deferred
through a salary deferral agreement under an IRC 401(k) Plan, through a
Cafeteria Plan under IRC 125, a SEP under 402(h), or through an annuity under
IRC 403(b).

The amount of your compensation which will be used for plan purposes will be
that paid to you during the Plan Year beginning each January 1 and ending each
December 31.

- 4 -
<PAGE> 7

CardMember Publishing Corporation
401(k) Profit Sharing Plan

IV. PLAN BENEFITS AND METHODS OF PAYMENTS.

Distributions:

You may elect to receive a distribution from the 401(k) Plan if you:

1. Separate from service,
2. Die, or
3. Become disabled.

Also, you may receive a distribution of your salary deferral contributions:

1. If the Plan terminates and there is no successor Plan, or
2. If the employer or most of his working assets are sold to another
unrelated company, or
3. If the employer sells its interest in a subsidiary to another
unrelated company, or
4. If you have a "financial hardship." (Note: Applicable to Salary
Deferral Contributions, as defined below, only.)

When you are ready to begin receiving your benefit, contact the Plan
Administrator. The Plan cannot compel you to take a distribution, unless your
benefit is less than $3,500, until the year following the year in which you
reach 70 1/2. If you have not separated from service or elected your benefit by
that time, it will automatically be paid to you. You may receive it in
installments or in a lump sum.

Hardship Distributions:

You may receive a distribution of Elective Deferrals (and earnings thereon
accrued as of December 31, 1988) in the event of hardship. The following is a
general explanation of the rules for such a distribution.

Contact the Plan Administrator for complete details and application. This is a
taxable distribution.

Hardship is defined as an immediate and heavy financial need where you lack
other available resources. You will need to receive your spouse's consent to the
distribution.

The following are the only financial needs considered immediate and heavy for
which you may receive a hardship distribution:

* incurred or necessary medical expenses of the Employee, the Employee's
spouse, children, or dependents;

* the purchase (excluding mortgage payments) of a principal residence
for the Employee;

* payment of tuition for the next 12 months of post-secondary education
for the Employee, the Employee's spouse, children or dependents;

* the prevention of eviction of the Employee from, or a foreclosure on
the mortgage of, the Employee's principal residence.

- 5 -
<PAGE> 8
CardMember Publishing Corporation
401(k) Profit Sharing Plan

In order to quality for a hardship distribution, you must first obtain all other
types of distributions and all nontaxable loans permitted under all plans
maintained by the Employer.

Your right to make Elective Deferrals will be suspended for twelve months after
the receipt of the hardship distribution.

The amount you may receive may not be in excess of the amount of an immediate
and heavy financial need, or the amount of your Elective Deferrals.

The amount of Elective Deferrals you will be allowed to make for the taxable
year immediately following the taxable year of the hardship distribution may not
be in excess of the applicable limit under Section 402(g) of the Code (the
$7,000 limit adjusted for cost of living) for that taxable year, less the amount
of your Elective Deferrals made in the taxable year of the hardship
distribution.

The determination of the existence of financial hardship, and the amount
required to be distributed to meet the need created by the hardship, shall be
made in a nondiscriminatory manner by the Plan Administrator according to the
written rules and regulations of the Plan.

To apply for a financial hardship distribution you must:

1. Complete an application for the Plan Administrator,

2. Provide proof to the Administrator of expenditures showing the amount
of the withdrawal needed, and

3. Provide proof to the Administrator, such as bank statements, showing
that there are no other financial resources available to meet the
expense.

Rollover Contributions:

You may apply to the Plan Administrator asking the Plan to receive a
contribution of a distribution to you from another qualified plan. If the Plan
accepts this money, it is called a Rollover Contribution. Under rules
established by the Plan Administrator, the Plan will not accept such a
contribution if the distribution to you was from a Defined Benefit Plan, or
other Plan to which IRC 417 spousal rights apply. Contact the Plan Administrator
about the rules and process for making this type of contribution.

Payment of Your Distribution:

Once you become eligible for a distribution and elect to receive it, the Trustee
will be instructed to pay it out. The amount of this distribution will be the
vested portion of your plan money.

It cannot be specified exactly how long it will take for you to receive this
distribution, for two reasons:

1. In the daily valuation system the Plan Administrator will generally
know the value of your account, however, the assets will need to be
liquidated in order for you to receive payment. This may take a period
of time. Some types of assets may take a longer period of time to
liquidate than others. Publicly traded stocks and mutual funds
generally are easily liquidated.

- 6 -
<PAGE> 9

CardMember Publishing Corporation
401(k) Profit Sharing Plan

2. After you leave, the Plan Administrator must calculate your exact
years of vesting, prepare a final statement of your account, prepare
an IRS form showing how it is taxable, and have a check prepared.

Of course, your employer is interested in paying benefits when due, but must do
so in an orderly course of business. For this reason, it is anticipated that any
distribution will take a reasonable length of time.

Amount and Form of Payment of Your Distribution:

The amount of your benefit in this Plan depends on the amount in your account
and the extent to which you are vested in that amount.

The other benefit forms available are: 1. Lump Sum, 2. Installment Payments.

You can defer paying taxes on all or a portion of your distribution by
requesting that the Plan transfer it directly to an Individual Retirement
Account or a Qualified Defined Contribution Plan. This is called a direct
rollover.

If you elect a direct rollover from this plan to your new plan or IRA, no money
will be withheld for payment of federal income taxes. At the time of your
distribution you will want to be sure to speak with the Plan Administrator as to
how you can accomplish a direct rollover.

If you do not elect to make a direct rollover to a Qualified Defined
Contribution Plan or IRA, the Employer will be required to withhold 20% of any
monies you receive to pay federal income taxes.

You may still receive your money and then decide to roll it over, as long as you
do so within 60 days of the date of payment. But the withholding will have
already occurred at the time of distribution and you will pay taxes on this
amount as well as any other amount you do not roll over. If you decide to roll
over the whole distribution including the amount that was withheld, you must
provide other money to replace the amount withheld. The withholding will be
credited against any income tax you owe for the year, and when you file your
income tax return, you may get a refund of the amount withheld.

If you are ever going to receive a distribution, be sure to review carefully the
Notice of Taxation of Distribution that you will receive from your Plan
Administrator.

If you keep all or a part of your distribution, then you must show the payment
as income on your tax return for that year. You or your tax preparer should
calculate the tax when you prepare the return.

If you have applied for and received a Hardship Distribution, the amount must be
reported by you as income in the year it was received. A Hardship Distribution
will always be given to you as a lump sum.

If you are under 59 1/2 when you receive a distribution, you will be liable for
an early distribution tax unless you roll the amount into an Individual
Retirement Account.

The Plan Administrator cannot give you legal or tax advice. You should rely on
your own personal tax advisor when the time comes to decide on how you wish to
take distribution and to determine the tax consequences of receiving a
distribution.

- 7 -
<PAGE> 10

CardMember Publishing Corporation
401(k) Profit Sharing Plan

V. PLAN ADMINISTRATION.

Plan Operation:

Your employer makes contributions to the Plan. These contributions can never go
back to the employer. The Trustee, each year, tells the Plan Administrator what
the trust is worth and the Plan Administrator then must divide the funds among
all of the plan participants accounts. The Plan Administrator may issue a
statement of his account to each participant. The Plan Administrator must give
the value of your account to you if you request it in writing.

Plan Administrator:

The plan is administered by the Plan Administrator, whose name is typed on the
Plan Information page. Your employer has appointed the Plan Administrator and
can change the Plan Administrator at any time. The Plan Administrator has the
sole and ultimate responsibility to interpret Plan provisions and determine Plan
Benefits, and is responsible for such things as keeping plan records and
reporting to government agencies.

Trustee:

Your plan is funded by a Trust. The name of the Trustee is typed on the Plan
Information page. Your employer has appointed the Trustee and can change the
Trustee at any time. The job of the Trustee is to safekeep the fund of money in
the Plan and to invest the money.

Investment of Plan Assets:

In your Plan each Participant has an Individual Investment Account. This account
will hold the Salary Deferral Contributions, additional contributions, Profit
Sharing

Contributions, and Matching Contributions allocable to the Participant.
Rollover Contributions will also be included.

You must direct the Trustee as to how your assets are to be invested. The
employer and Plan Administrator will select a series of mutual funds or pooled
investment accounts for you to invest in. You may direct the investment of your
account assets into any investment permitted by regulation and the policy of the
Plan. Note that the Plan Administrator, the Employer, and the Trustee will not
provide investment advice. You are totally responsible for any investment
selection which you make. Your Employer is not responsible for the financial
gains or losses to your account which result from your directions.

Plan Insurance:

You may have heard that the government provides insurance to pay pension
benefits if a Plan fails. This Plan is not eligible for such insurance because
contributions are made right into your own account. If the Plan terminates or
your employer goes out of business, you will be entitled to receive all the
benefits in your account at the time. This amount could be more or less than the
total amount of contributions made to your account depending on your investment
expenses.

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<PAGE> 11
VI. LOSS OR DENIAL OF BENEFITS.

You should be aware that some actions by you or the employer may result in a
loss or denial of benefits from your Plan.

Also, because a 401(k) Plan must pass special nondiscrimination tests, sometimes
your contributions will have to be returned to you as excess contributions which
the Plan cannot continue to hold. If the Plan returns contributions, you will
have to pay income taxes on them.

Vesting:

Your plan has a Vesting Schedule that establishes what percentage of your Profit
Sharing Contribution and your Matching Contribution is nonforfeitable if you
leave the employer.

If you leave the employer, then you get the percentage of the Matching and other
contributions in which you vest based on the following schedule. The remainder
of the Matching Contribution is then forfeited to the Plan to reduce future
employer contributions.

Forfeitures of Profit Sharing Contributions will be reallocated in the same
manner as current Profit Sharing Contributions.

The vesting schedule is based on Covered Years of Service. A Covered Year of
Service is any 12 month period ending on the plan year end during which you
worked for the employer at least 1000 hours.

Vesting Schedule

Covered Years
of Service:

Percentage of
Account Vested:
less than 1

0% 1 but less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less
than 5 60% 5 but less than 6 80% 6 or more 100%

If you have reached Normal Retirement Age, if you die, if you are totally and
permanently disabled, or if the Plan is terminated then your balance of these
funds becomes 100% vested. This means that you or your beneficiaries get the
entire value of your accounts. You are always 100% vested in your Elective
Deferral contributions to this Plan.

Break in Service:

Once you have become a participant in the Plan, you will remain a participant
until a year (which ends on December 31) passes, during which you did not work
500 hours. This is called a 1 year break in service. If you return before having
5 consecutive 1 year breaks in service, then you continue to participate in the
Plan as if you had never left the employer.

-9-
<PAGE> 12
Other circumstances which may cause either a reduction or denial of benefits:

A. If the employer amends the Plan to reduce future contributions, then
your account will not grow at the same rate.

B. If the employer terminates the Plan, then your account will have no
further contributions.

C. If your salary decreases, then your allocation of the contribution
will be less.

D. If the Plan investments do poorly, then your account balance will
decrease.

E. If you receive a loan from the Plan which you fail to repay, then your
account balance will be offset by the loan.

Beneficiary Designation:

If you die before benefits are distributed to you, the Trustee will pay out the
whole amount to the beneficiary you have set forth on the beneficiary
designation form on file with the Employer.

Make sure you keep this form current.

-10-

<PAGE> 13
VII. TERMINATION OF THE PLAN.

While the Plan is intended to be permanent, the employer reserves the right to
amend or terminate the Plan. If the Plan is terminated, you will immediately
become 100% vested in all your benefits in the Plan.

-11-
<PAGE> 14
VIII. YOUR RIGHTS UNDER ERISA.

As a participant in this plan you are entitled to certain rights and projections
under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA
provides that all plan participants shall be entitled to:

Examine, without charge, at the Plan Administrator's office and at other
specified locations all plan documents, including insurance contracts,
collective bargaining agreements and copies of all documents filed by the Plan
with the U.S. Department of Labor, such as detailed annual reports and Plan
descriptions.

Obtain copies of all plan documents and other plan information upon written
request to the Plan Administrator. The Administrator may make a reasonable
charge for the copies.

Receive a summary of the Plan's annual financial report. The Plan Administrator
is required by law to furnish each participant with a copy of this summary
annual report.

In addition to creating rights for plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit plan.
The people who operate your plan, called Fiduciaries of the Plan, have a duty to
do so prudently and in the interest of you and other plan participants and
beneficiaries. No one, including your employer, your union, or any other person,
may fire you or otherwise discriminate against you in any way to prevent you
from obtaining a pension benefit or exercising your rights under ERISA.

If your claim for a pension benefit is denied in whole or in part you must
receive a written explanation of the reason for the denial. You have the right
to have the Plan reviewed and reconsider your claim. Under ERISA, there are
steps you can take to enforce the above rights. For instance, if you request
materials from the Plan and do not receive them within 30 days, you may file
suit in a federal court. In such a case, the court may require the Plan
Administrator to provide the materials and pay you up to $100 a day until you
receive the materials, unless the materials were not sent because of reasons
beyond the control of the Administrator.

If you have a claim for benefits which is denied or ignored, in whole or in
part, you may file suit in a state or federal court. If it should happen that
the Plan fiduciaries misuse the Plan's money, or if you are discriminated
against for asserting your rights, you may seek assistance from the U.S.
Department of Labor, or you may file suit in Federal Court. The Court will
decide who pays Court Cost and Legal Fees. If you are successful the Court may
order the person you have sued to pay these costs and fees. If you lose, the
Court may order you to pay these costs and fees, for example, if it finds your
claim is frivolous.

The Plan Administrator has the sole and ultimate authority to define and
interpret plan language, terms and documentation.

If you have any questions about your plan, you should contact the Plan
Administrator.

If you have any questions about this statement or about your rights under ERISA,
you should contact the nearest area office of the U.S. Labor-Management Services

Administration, Department of Labor.

-12-
<PAGE> 15
You may apply for a loan under the Retirement Plan. This information sheet has
been prepared to give you some general information concerning these loans. You
may apply for a loan by obtaining a loan application form from your Plan
Administrator.

1. The maximum loan you may borrow may not exceed the lesser of 50% of your
vested interest in the Plan or $50,000 (reduced by the excess of the highest
loan balance held by you in the last 12 months, over the outstanding balance on
the date of the loan) less your current loan balance. The minimum loan you may
borrow will not be less than $1,000.00 (minimum may not exceed $1,000.00).

2. The interest rate will be the prevailing rate found by the Plan
Administrator. It will be the average of the rate used for similar personal loan
transactions used by several commercial banks in the general geographic area of
the Plan.

3. The maximum loan term is 5 years, unless you certify that you are going to
use it to purchase your primary residence. In that case, the maximum term for a
home loan is 30 years. A loan to purchase a primary residence is not a mortgage,
and does not permit you to take a deduction on your personal income taxes.

4. The loan will be fully amortized and secured by the vested balance of your
account in the Plan.

5. Loan amounts will first be taken from money attributed to rollovers, then
pro-rata from all other accounts until liquidated, until the loan amount
requested has been taken.

6. All loans must be fully amortized, principal and interest, and must be paid
through regular payroll deductions. Loan payments will be deposited to your plan
accounts in the reverse order to that in #5 according to current fund elections.

7. When you take a loan from the plan you will be pledging your account balance
to repay the entire balance of the loan if you should default.

8. You may prepay the total outstanding balance of your loan at any time. There
is no prepayment penalty. Partial prepayments are not allowed.

-13-

<PAGE> 16
9. Since payments are made by payroll deductions, default occurs when you no
longer are receiving a paycheck from the Company, and you fail to make payments.
If you are still an employee, but are on an unpaid leave of absence, you may
continue to make the regular payments by personal check. Default will occur if
you fail to send in your check. If you fail to make up the payments you owe,
default occurs. The amount outstanding will be deemed distributed to you as
income. However, the loan will continue to be held as an asset of the Plan.

10. If you terminate your employment with a remaining loan balance, or if you
otherwise default on your loan, the balance will be immediately due and payable.
If you do not pay off the loan, the outstanding amount will be deducted from
your account balance upon its distribution to you. The amount of the loan
balance would then be a taxable distribution from the Plan and may also be
subject to a 10% early distribution penalty if you are not at least 59 1/2. Your
employer will be required to withhold 20% of the amount of your loan in default
for payment of Federal Income Taxes. This withholding will be paid from your
remaining vested account balance at the time of distribution. You should consult
a tax advisor if this occurs to determine its effect on your taxes. Note that if
the loan is deemed to be distributed as taxable income to you, and you are not
otherwise entitled to receive a distribution, the loan will remain part of your
account balance.

11. Further information concerning the loans is contained in the Loan
Application, the Promissory Note, and the Truth-in-Lending Disclosure Statement,
if applicable, copies of which are provided by the Plan Administrator.

12. Provisions for loans are subject to change by the Plan Administrator at any
time. Any future changes will not affect existing loans unless required by law.

13. Generally, interest repayments are not deductible.

-14-

<PAGE> 1
Exhibit 10.7

IBM Credit Corporation
Stamford, CT 06904

Term Lease Master Agreement

Name and Address of Lessee: Agreement No.: 1492403
CardMember Publishing Corp.
10703 J St IBM Branch Office No.: VS4
Omaha, Ne 68127

IBM Branch Office Addressee: IBM Customer No.: 1492403
450 Regency Pkwy
Omaha, Ne 68114

The Lessor pursuant to this Term Lease Master Agreement (Agreement) will
be (a) IBM Credit Corporation, or a subsidiary or affiliate thereof, (b) a
partnership in which IBM Credit Corporation is a partner, or (c) a related
business enterprise for whom IBM Credit Corporation is the agent (Lessor). The
subject matter of the lease shall be machines, field installable upgrades,
feature additions or accessories marketed by International Business Machines
Corporation (IBM) and shall be referred to as Equipment. Any lease transaction
requested by Lessee and accepted by Lessor shall be specified in a Term Lease
Supplement (Supplement). A Supplement shall refer to and incorporate by
reference this Agreement and, when signed by the parties, shall constitute the
lease (Lease) for the Equipment specified therein. Additional details pertaining
to a Lease shall be specified in a Supplement. A Supplement may also specify
additional terms and conditions as well as other amounts to be financed
(Financing). Financing may include licensed program material charges (LPM
Charges) for licensed programs marketed by IBM under the referenced IBM license
agreement (License Agreement).

1. Options. The Supplement shall designate various lease and financing
options. Option A is a Lease available only for Modifications (Paragraph 23) to
Equipment under Option A prior to enactment of the Tax Reform Act of 1986.
Option B is a Lease with a fair market purchase option at the end of the Lease.
For Equipment under Option B Prime (B'), Lessor assumes for tax purposes that
Lessee is the owner. For financing LPM Charges, Option S will apply.

2. Credit Review. For each Lease, Lessee consents to any reasonable credit
investigation and review by Lessor.

3. Agreement Term. This Agreement shall be effective when signed by both
parties and may be terminated by either party upon one month's written notice.
However, each Lease then in effect shall survive any termination of this
Agreement.

4. Changes. Lessor may, upon prior written notice, change the terms and
conditions of this Agreement. Any change will apply on the effective date
specified in the notice to Leases which have an Estimated Shipment Date, or
Effective Date for

<PAGE> 2

Additional License, one month or more after the date of notice. By notice to
Lessor in writing prior to delivery, or Effective Date for Additional License,
and within 15 days after receipt of such notice, Lessee may terminate the Lease
for an affected item. Otherwise, the change shall apply.

5. Advance Rent. Lessee shall pay to Lessor, prior to Lessor's acceptance
of a Lease, Advance Rent, if specified. Advance Rent shall be refunded if Lessor
for any reasons does not accept the Lease or Lessee terminates the Lease in
accordance with Paragraph 4, 12 or 15.

6. Selection and Use of Equipment, Programming and Licensed Program
Materials. Lessee agrees that it shall be responsible for the selection, use of,
and results obtained from, the Equipment, any programming supplied by IBM
without additional charge for use on the Equipment (Programming), licensed
program materials, and any other associated equipment, programs or services.

7. Assignment To Lessor. Lessee hereby assigns, exclusively to Lessor,
Lessee's right to purchase the Equipment from IBM. This assignment is effective
when Lessor accepts the applicable Supplement and Lessor shall then be obligated
to purchase and pay for the Equipment. Other than the obligation to pay the
purchase price, all responsibilities and limitations applicable to Customer as
defined in the referenced IBM purchase agreement in effect at the time the Lease
is accepted by Lessor (Purchase Agreement) shall apply to Lessee.

If the Equipment is subject to a volume procurement amendment to the
Purchase Agreement or to another discount offering, (a) Lessor will pay the same
amount for the Equipment that would have been payable by Lessee, and (b) Lessee
will remain responsible to IBM for any late order change charges, settlement
charges, adjustment charges or any other charges incurred under the volume
procurement amendment or other discount offering.

8. Lease Not Cancellable; Lessee's Obligations Absolute. Lessee's
obligation to pay shall be absolute and unconditional and shall not be subject
to any delay, reduction, set-off, defense, counterclaim or recoupment for any
reason whatsoever, including any failure of the Equipment, Programming or
licensed program materials or any representations by IBM. If the Equipment,
Programming or licensed program materials are unsatisfactory for any reason,
Lessee shall make any claim solely against IBM and shall, nevertheless, pay
Lessor all amounts payable under the Lease.

9. Warranties. Lessor grants to Lessee the benefit of any and all
warranties made available by IBM in the Purchase Agreement. Lessor warrants that
neither Lessor nor anyone acting or claiming through Lessor, by assignment or
otherwise, will interfere with Lessee's quiet enjoyment of the use of the
Equipment so long as no event of default shall have occurred and be continuing.
EXCEPT FOR LESSOR'S WARRANTY OF

- 2 -
<PAGE> 3

QUIET ENJOYMENT, LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. AS TO LESSOR, LESSEE LEASES
THE EQUIPMENT TAKES ANY PROGRAMMING "AS IS" IN NO EVENT SHALL LESSOR HAVE ANY
LIABILITY FOR, NOR SHALL LESSEE HAVE ANY REMEDY AGAINST LESSOR FOR,
CONSEQUENTIAL DAMAGES, ANY LOSS OF PROFITS OR SAVINGS, LOSS OF USE, OR ANY OTHER
COMMERCIAL LOSS.

10. Lessee Authorization. So long as Lessee is not in default under the
Lease (a) Lessee is authorized to act on Lessor's behalf concerning delivery and
installation of the Equipment, any IBM warranty service for the Equipment, and
any programming services for the Programming, and (b) Lessee shall have, solely
for these purposes, all rights Lessor may have against IBM under the Purchase
Agreement. The foregoing authorization shall not constitute any surrender of
Lessor's Interest in the Equipment.

11. Delivery and Installation. Lessee shall arrange with IBM for the
delivery of the Equipment and Programming and for Installation of the Equipment
at the Equipment Location. Lessee shall pay any delivery and installation
charges. Lessor shall not be liable to Lessee for any delay in, or failure of,
delivery of the Equipment and Programming. Lessee shall examine the Equipment
and Programming immediately upon delivery. If the Equipment is not in good
condition or the Equipment or Programming does not correspond to IBM's
specifications, Lessee shall promptly give IBM written notice and shall provide
IBM reasonable assistance to cure the defect or discrepancy.

12. Late Delivery. If the Equipment or licensed program materials are not
delivered to the Equipment Location on or before the 15th day after the
Estimated Shipment Date, Lessor may, upon written notice to Lessee, increase the
Lease Rate. Lessee may terminate the Lease for the affected item by giving
Lessor written notice prior to delivery. Otherwise, the Rent shall be adjusted
to reflect such increase.

13. Rent Commencement Date. The Rent Commencement Date, unless otherwise
specified in the Supplement, shall be the date payment is due IBM under the
applicable referenced agreement. Lessee shall be notified of the Rent
Commencement Date and the serial numbers of the Equipment.

14. Lease Term. The Lease shall be effective when signed by both parties.
The initial Term of the Lease shall expire at the end of the number of Payment
Periods, specified as "Term" in the Supplement, after the Rent Commencement
Date. However, obligations under the Lease shall continue until they have been
performed in full.

15. Rate Protection. Unless modified pursuant to Paragraph 12, the Rent
shall be based on the Lease Rate specified in the Supplement or such greater
Lease Rate as

- 3 -
<PAGE> 4

may be specified by written notice to Lessee more than one month before the
Estimated Shipment Date or Effective Date for Additional License. By notice to
Lessor in writing prior to delivery, or Effective Date for Additional License,
and within 15 days after receipt of such notice, Lessee may terminate the Lease
for the affected item. Otherwise, the Rent shall be adjusted to reflect the
increase. The Unit Purchase Price and LPM Charges are subject to change in
accordance with the referenced agreements.

16. Rent. During the initial Term, Lessee shall pay Lessor, for each
Payment Period, Rent as determined in Paragraph 15. Lessee's obligation to pay
shall begin on the Rent Commencement Date. Rent will be invoiced in advance as
of the first day of each Payment Period and will be due on the day following the
last day of the Payment Period. When the Rent Commencement Date is not on the
first day of a calendar month and/or when the initial Term does not expire on
the last day of a calendar month, the applicable Rent will be prorated on the
basis of 30-day months. Advance Rent, if any, will be applied to the initial
invoice(s).

17. Renewal. If Lessee is not then in default under the Lease, Lessee may
renew the Lease one or more times but not beyond six years from the expiration
of the initial Term. Lessor shall offer renewal Terms of one year and may offer
longer Terms if then generally available. For a renewal Term, upon request by
Lessee, at least five months prior to Lease expiration, Lessor shall notify
Lessee, at least four months prior to expiration, of the Rent, any changes to
the Payment Period and due dates, and of any required Purchase Option or Renewal
Option Percents not specified in the Supplement. The Rent shall be objectively
determined by Lessor by using the projected fair market rental value of the
Equipment as of the commencement of such renewal Term. However, for Option B',
the Rent shall be as specified in the Supplement. Lessee may renew for any
renewal Term only by so notifying Lessor in writing at least three months before
expiration.

18. Purchase of Equipment. If Lessee is not then in default under the
Lease, Lessee may, upon three months prior written notice to Lessor, purchase
Equipment upon expiration of the Lease. Under Option A or B, the purchase price
shall be objectively determined by Lessor by using the projected fair market
sales value of the Equipment as of such expiration date plus, for Equipment
under Option A, any recapture of investment tax credit and any tax due thereon.
Under Option B Prime (B') the purchase price shall be an amount determined by
multiplying the Unit Purchase Price by the Purchase Option Percent for such
Equipment.

If Lessee purchases any Equipment, Lessee shall, on or before the date of
purchase, pay to Lessor the purchase price, any applicable taxes, all Rent due
through the day preceding the date of purchase, any other amounts due, and the
prepayment of Financing (Paragraph 35). Lessor shall, on the date of purchase,
transfer to Lessee by bill of sale, without recourse or warranty of any kind,
express or implied, all of Lessor's

- 4 -
<PAGE> 5

right, title and interest in and to such Equipment on an "As Is", "Where Is"
basis except that Lessor shall warrant title free and clear of all encumbrances.

19. Optional Extension. If Lessee has not elected to renew or purchase,
and as long as Lessee is not in default under the Lease, the Lease will be
extended unless Lessee notifies Lessor in writing, not less than three months
prior to Lease expiration, that Lessee does not want the extension. The
extension will be under the same terms and conditions then in effect, including
Rent (but, for Options A or B, not less than fair market rental value) and will
continue until the earlier of termination by either party upon three months'
prior written notice or six years after expiration of the initial Term.

20. Inspection; Marking; Financing Statement. Upon request, Lessee shall
make the Equipment and its maintenance records available for inspection by
Lessor during Lessee's normal business hours. Lessee shall affix to the
Equipment any labels indicating ownership supplied by Lessor. Lessee shall
execute and deliver to Lessor for filing any Uniform Commercial Code financing
statements or similar documents Lessor may reasonably request.

21. Equipment Use. Lessee agrees that Equipment will be operated by
competent, qualified personnel, in accordance with applicable operating
instructions, laws and government regulations and that Equipment under Option A
will be used only for business purposes.

22. Maintenance. Lessee, at its expense, shall keep the Equipment in a
suitable environment as specified by IBM and in good condition and working
order, ordinary wear and tear excepted.

23. Alterations; Modifications; Parts. Lessee may alter or modify the
Equipment only upon written notice to Lessor. Any non-IBM alteration is to be
removed and the Equipment restored to its normal, unaltered condition at
Lessee's expense prior to its return to Lessor. At Lessee's option, any IBM
field installable upgrade, feature addition or accessory added to any item of
Equipment (Modification) may be removed. If removed, the Equipment is to be
restored at Lessee's expense to its normal, unmodified condition. If not
removed, such Modification shall, upon return of the Equipment, become, without
charge, the property of Lessor free of all encumbrances. Restoration will
include replacement of any parts removed in connection with the installation of
an alteration or Modification. Any part installed in connection with warranty or
maintenance service shall be the property of Lessor.

24. Leases for Modifications and Additions. Lessor will arrange for
leasing of Modifications and Additions under terms and conditions then
generally, in effect, subject to satisfactory credit review. Additions shall be
machines, or LPM Charges for licensed program materials, which are associated
with the Equipment. These Modifications and Additions must be ordered by Lessee
from IBM. Any lease for Modifications shall, and

- 5 -
<PAGE> 6

any lease for Additions may, expire at the same time as the Lease for the
Equipment. The rent shall be determined by Lessor and specified in a Supplement.
If Lessee purchases Equipment prior to Lease expiration, Lessee shall
simultaneously purchase any Modifications under the Lease.

25. Return of Equipment. Upon expiration or termination of the Lease for
any item of Equipment,, or upon demand by Lessor pursuant to Paragraph 38,
Lessee shall promptly return the Equipment, freight prepaid, to a location in
the continental United States specified by Lessor. Except for Casualty Loss,
Lessee shall pay any costs and expenses incurred by Lessor to inspect and
qualify the Equipment for IBM's maintenance agreement service. Any parts removed
in connection therewith shall become Lessor's property.

26. Casualty Insurance; Loss or Damage. Lessor will maintain, at its own
expense, insurance covering loss of or damage to the Equipment (but excluding
any Modifications not subject to a Lease and any non-IBM alterations) with a
$5,000 deductible per incident. If any item of Equipment shall be lost, stolen,
destroyed or irreparably damaged for any cause whatsoever (Casualty Loss) before
the Date of Installation as defined in the Purchase Agreement, the Lease for
that item shall terminate. If any item of Equipment suffers Casualty Loss, or
shall be otherwise damaged, on or after the Date of Installation, Lessee shall
promptly inform Lessor. If Lessor determines that the item can be economically
repaired, Lessee shall place the item in good condition and working order and
Lessor will reimburse Lessee the reasonable cost of such repair, less the
deductible. If not so repairable, Lessee shall pay Lessor the lesser of $5,000
or the fair market value of the Equipment immediately prior to the Casualty
Loss. Upon Lessor's receipt of payment the Lease for that item shall terminate.

27. Taxes. Lessee shall promptly reimburse Lessor for, or shall pay
directly if so requested by Lessor, as additional Rent, all taxes, charges and
fees imposed or levied by any governmental body or agency upon or in connection
with the purchase, ownership, leasing, possession, use or relocation of the
Equipment or Programming or in connection with the financing of LPM Charges or
otherwise in connection with the transactions contemplated by the Lease,
excluding, however, all taxes on or measured by the net income of Lessor. Upon
request, Lessee will provide proof of payment. Any other taxes, charges and fees
relating to the licensing, possession or use of licensed program materials will
be governed by the License Agreement.

28. Lessor's Payment. If Lessee fails to perform its obligations under
Paragraph 27 or 31 or to discharge any encumbrances created by Lessee, Lessor
shall have the right to substitute performance, in which case, Lessee shall pay
Lessor the cost thereof.

29. Tax Indemnification (Applies Only for Equipment Under Options A or B).
The Lease is entered into on the basis that under the Internal Revenue Code of
1986, as

- 6 -
<PAGE> 7

amended (Code), Lessor shall be entitled to (1) maximum Accelerated Cost
Recovery System (ACRS) deductions for 5-year property, and (2) deductions for
interest expense incurred to finance purchase of the Equipment. The Bulletin
"Lessor's Tax Assumptions" will be given to Lessee on request.

Lessee represents, warrants and covenants that at all times during the
Lease:

(a) no item of Equipment will constitute "public utility property" as
defined in the Code;

(b) Lessee will not make any election under the Code or take any action,
or fail to take any action, if such election, action or failure to
act would cause any item of Equipment to cease to be eligible for
any ACRS deductions or interest deductions;

(c) Lessee will keep and make available to Lessor the records required
to establish the matters referred to in this Paragraph 29; and

(d) for Equipment located in a United States possession, Lessee
represents that Lessee is a tax exempt entity as defined in the
Code.

Furthermore, if Lessee is a tax exempt entity, Lessee covenants that it
will not renew or extend the Lease if such action shall cause Lessor a Tax Loss
as described below.

If, as a result of any act, failure to act, misrepresentation, inaccuracy,
or breach of any warranty or covenant, or default under the Lease, by Lessee, an
affiliate of Lessee, or any person who shall obtain the use or possession of any
item of Equipment through Lessee, Lessor shall lose the right to claim or shall
suffer any disallowance or recapture of all or any portion of any ACRS
deductions or interest deductions (Tax Loss) with respect to any item of
Equipment, then, promptly upon written notice to Lessee that a Tax Loss has
occurred, Lessee shall reimburse Lessor the amount determined below.

The reimbursement shall be an amount that, in the reasonable opinion of
Lessor, shall make Lessor's after-tax rate of return and cash flows (Financial
Returns), over the term of the Lease for such item of Equipment, equal to the
expected Financial Returns that would have been otherwise available. The
reimbursement shall take into account the effects of any interest, penalties and
additions to tax required to be paid by Lessor as a result of such Tax Loss and
all taxes required to be paid by Lessor as a result of any payments pursuant to
this paragraph. Financial Returns shall be based on economic and tax assumptions
used by Lessor in entering into the Lease.

All the rights and privileges of Lessor arising from this Paragraph 29
shall survive the expiration or termination of the Lease.

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<PAGE> 8

For purposes of determining tax effects under Paragraphs 16, 27, 29 and
30, the term "Lessor" shall include, to the extent of interests, any partner in
Lessor and any affiliated group of corporations and each member thereof, of
which Lessor or any such partner is or shall become a member and with which
Lessor or any such partner joins in the filing of consolidated or combined
returns.

30. General Indemnity. This Lease is a net lease. Therefore, Lessee shall
indemnify Lessor against, and hold Lessor harmless from, any and all claims,
actions, damages, obligations, liabilities and liens; and all costs and
expenses, including legal fees, incurred by Lessor in connection therewith;
arising out the Lease including, without limitation, the purchase, ownership,
lease, licensing, possession, maintenance, condition, use or return of the
Equipment, Programming or licensed program materials; or arising by operation of
law; excluding, however, any of the foregoing which result from the sole
negligence or willful misconduct of Lessor. Lessee agrees that upon written
notice by Lessor of the assertion of any claim, action, damage, obligation,
liability or lien, Lessee shall assume full responsibility for the defense
thereof. Any payment pursuant to this paragraph shall be of such amount as shall
be necessary so that, after payment of any taxes required to be paid thereon by
Lessor, including taxes on or measured by the net income of Lessor, the balance
will equal the amount due hereunder. Lessee's obligations under this paragraph
shall not constitute a guarantee of the residual value or useful life of any
item of Equipment or a guarantee of any debt of Lessor. The provisions of this
paragraph with regard to matters arising during the Lease shall survive the
expiration or termination of the Lease.

31. Liability Insurance. Lessee shall obtain and maintain comprehensive
general liability insurance, in an amount of $1,000,000 or more for each
occurrence, with an insurer having "Best's Policyholders" rating of B+ or
better. The policy shall name Lessor as an additional insured as Lessor's
interests may appear and shall contain a clause requiring the insurer to give
Lessor at least one month's prior written notice of the cancellation, or any
alteration in the terms, of the policy. Lessee shall furnish Lessor, upon
request, evidence that such insurance coverage is in effect.

32. Sublease and Relocation of Equipment; Assignment by Lessee. Upon
Lessor's prior written consent which will not be unreasonably withheld, Lessee
may sublet the Equipment or relocate it from the Equipment Location. No sublease
or relocation shall relieve Lessee of its obligations under the Lease. In no
event shall Lessee remove the Equipment from the United States. Lessee shall not
assign, transfer or otherwise dispose of the Lease or Equipment, or any interest
therein, or create or suffer any levy, lien or encumbrance thereof except those
created by Lessor.

33. Assignment by Lessor. Lessee acknowledges and understands that the
terms and conditions of the Lease have been fixed to enable Lessor to sell and
assign its interest or grant a security interest or interests in the Lease and
the Equipment individually or together, in whole or in part, for the purpose of
securing loans ___

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<PAGE> 9

Lessor or otherwise. If Lessee is given written notice of any assignment, it
shall promptly acknowledge receipt thereof in writing. Each such assignee shall
have all of the rights of Lessor under the Lease. Lessee shall not assert
against any such assignee any ___ off, defense or counterclaim that Lessee may
have against Lessor or any other person. Lessor shall not be relieved of its
obligations hereunder as a result of any such assignment unless Lessee expressly
consents thereto.

34. Financing. If the Lease provides for financing of LPM Charges, Lessor
will pay such Charges directly to IBM. Any other charges due IBM under the
License Agreement shall be paid directly to IBM by Lessee. Lessee's obligation
to pay Rent shall not be affected by any discontinuance, return or destruction
of license or licensed program materials under the License Agreement on or after
the date LPM Charges are due. If Lessee discontinues any of the licensed program
materials in accordance with the terms of the License Agreement prior to the
date LPM Charges are due, the financing of affected LPM Charges shall be
cancelled.

35. Financing Prepayment. (Does Not Apply For Items of Equipment). Lessee
may terminate an item of Financing (but not an item of Equipment) by prepaying
its remaining Rent. Lessee shall provide Lessor with notice of the intended
prepayment date which shall be at least one month after the date of the notice.
Lessor may, depending on market conditions at the time, make an adjustment in
the remaining Rent to reflect such prepayment and shall advise Lessee of the
balance to be paid. If, prior to Lease expiration, Lessee purchases the
Equipment or if the Lease is terminated, Lessee shall at the same time prepay
any related Financing including that for programs licensed to the Equipment.

36. Delinquent Payments. If any amount to be paid to Lessor is not paid on
or before its due date, Lessee shall pay Lessor on demand 2% of such late
payment for each month or part thereof from the due date until the date paid or,
if less, the maximum allowed by law.

37. Default; No Waiver. Lessee shall be in default under the Lease upon
the occurrence of any of the following events: (a) Lessee fails to pay when due
any amount required to be paid by Lessee under the Lease and such failure shall
continue for a period of seven days after the due date; (b) Lessee fails to
perform any other provisions under the Lease or violates any of the covenants or
representations made by Lessee in the Lease, or Lessee fails to perform any of
its obligations under any other Lease entered into pursuant to this Agreement,
and such failure or breach shall continue unremedied for a period of 15 days
after written notice is received by Lessee from Lessor; (c) Lessee violates any
of the covenants or representations made by Lessee in any application for credit
or in any agreement with IBM with respect to the Equipment or licensed program
materials or fails to perform any provision in any such agreement (except the
obligation to pay the purchase price or LPM Charges); (d) Lessee makes an
assignment for the benefit of creditors, whether voluntary or involuntary, or
consents to the appointment of

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<PAGE> 10

a trustee or receiver, or if either shall be appointed for Lessee or for a
substantial part of its property without its consent; (e) any petition or
proceeding is filed by or against Lessee under any Federal or State bankruptcy
or insolvency code or similar law; or (f) if applicable, Lessee makes a bulk
transfer subject to the provisions of the Uniform Commercial Code.

Any failure of Lessor to require strict performance by Lessee or any
waiver by Lessor of any provision in the Lease shall not be construed as a
consent or waiver of any other breach of the same or of any other provision.

38. Remedies. If Lessee is in default under the Lease, Lessor shall have
the right, in its sole discretion, to exercise any one or more of the following
remedies in order to protect its interests, reasonably expected profits and
economic benefits. Lessor may (a) declare any Lease entered into pursuant to
this Agreement to be in default; (b) terminate in whole or in part any Lease;
(c) recover from Lessee any and all amounts then due and to become due; (d) take
possession of any or all items of Equipment, wherever located, without demand or
notice, without any court order or other process of law; and (e) demand that
Lessee return any or all such items of Equipment to Lessor in accordance with
Paragraph 25 and, for each day that Lessee shall fail to return any item of
Equipment, Lessor may demand an amount equal to the Rent, prorated on the basis
of a 30-day month, in effect immediately prior to such default. Upon
repossession or return of such item or items of Equipment, Lessor shall sell,
lease or otherwise dispose of such item or items in a commercially reasonable
manner, with or without notice and on public or private bid, and apply the net
proceeds thereof towards the amounts due under the Lease but only after
deducting (i) in the case of sale, the estimated fair market value of such item
or items as of the scheduled expiration of the Lease; or (ii) in the case of any
replacement lease, the rent due for any period beyond the scheduled expiration
of the Lease for such item or items; (iii) in either case, all expenses,
including legal fees, incurred in connection therewith; and (iv) where
appropriate, any amount in accordance with Paragraph 29. Any excess net proceeds
are to be retained by Lessor. Lessor may pursue any other remedy available at
law or in equity, including, but not limited to, seeking damages, specific
performance and an injunction.

No right or remedy is exclusive of any other provided herein or permitted
by law or equity. All such rights and remedies shall be cumulative and may be
enforced concurrently or individually from time to time.

39. Lessor's Expense. Lessee shall pay Lessor on demand all costs and
expenses, including legal and collection fees, incurred by Lessor in enforcing
the terms, conditions or provisions of the Lease or in protecting Lessor's
rights and interests in the Lease and the Equipment.

40. Ownership; Personal Property; Licensed Program Materials. The
Equipment under Lease is and shall be the property of Lessor. Lessee shall have
no

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<PAGE> 11

right, title or interest therein except as set forth in the Lease. The Equipment
is, and shall at all times be and remain, personal property and shall not become
a fixture or realty. Licensed program materials are licensed and provided by IBM
directly to Lessee under the terms and conditions of the License Agreement.

41. Notices; Administration. Service of all notices under the Lease shall
be sufficient if delivered personally or mailed to Lessee at its address
specified in the Supplement or to IBM Credit Corporation as Lessor in care of
the IBM Branch Office specified in the Supplement. Notice by mail shall be
effective when deposited in the United States mail, duly addressed and with
postage prepaid. Notices, consents and approvals from or by Lessor shall be
given by Lessor or on its behalf by IBM and all payments shall be made to IBM
until Lessor shall notify Lessee otherwise.

42. Lessee Representation. If the Lease includes Financing, Lessee
represents that it is (a) a corporation if any item of Equipment is located in
Ohio, Mississippi, Virginia or West Virginia, and/or (b) a business corporation
if any item of Equipment is located in Pennsylvania.

43. Revisions for Previously Installed Equipment. Equipment installed with
Lessee under an IBM lease or rental agreement may be purchased by Lessor, on the
Effective Date of Purchase (as defined in the Purchase Agreement), for lease to
Lessee under Option B or B'. For such Equipment, the Lease shall be revised as
follows:

Paragraphs 4 and 26 - replace "Estimated Shipment Date" by "Intended
Effective Date of Purchase"; replace "delivery" and "Date of Installation" by
"Effective Date of Purchase";

Paragraph 7 - add at the end of the first paragraph, "Assignment of the
option to purchase installed Equipment at the net purchase option price under an
IBM lease or rental agreement will be permitted only when Lessee submits the
Supplement in sufficient time to achieve the intended Effective Date of
Purchase. The Effective Date of Purchase under this assignment shall be the
later of the first day of the Quotation Month or the day on which the applicable
Supplement is accepted by Lessor. If the Quotation Month expires and the
purchase of Equipment is not concluded, this assignment and Lease will be null
and void regarding any such Equipment and all rights, duties and obligations of
Lessee and IBM will remain in accordance with the provisions of the IBM
agreement under which the Equipment is currently installed.";

Paragraphs 11 and 12 - delete both paragraphs; and

Paragraph 15 - replace the entire paragraph with the following: "The Rent
shall be based on the Lease Ratespecified in the Supplement or such greater
Lease Rate as may be specified by written notice to Lessee more than one month
before the Effective Date of Purchase. The Unit Purchaser Price is subject to
change in accordance with the

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<PAGE> 12

referenced Purchase Agreement. Lessee may terminate the Lease for any item
subject to an increase by giving Lessor written notice on or before the
Effective Date of Purchase."

44. Applicable Law; Severability. The Lease shall be governed by the laws
of the State of Connecticut. If any provisions shall be held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions shall
not in any way be affected or impaired.

LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND ITS
SUPPLEMENT, UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND
CONDITIONS. FURTHER, LESSEE AGREES THAT THIS AGREEMENT AND ITS SUPPLEMENT ARE
THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES,
SUPERSEDING ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER
COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF.

Accepted by:

IBM Credit Corporation CardMember Publishing Corp.

By: /s/ J.A. Settles By: /s/ Thomas St. Denis
------------------------------------ ----------------------------------
J.A. Settles 26 Nov 91 Thomas St. Denis 11/21/91
- --------------------------------------- ----------------------------------
Name (Type or Print) Date Name (Type of Print) Date

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<PAGE> 1
Exhibit 10.8

BANKERS

MASTER LEASE AGREEMENT

Dated as of May 7, 1996

LESSOR: Bankers Leasing Association, Inc. (herein called "LESSOR")
ADDRESS: 4201 Lake Cook Road, Northbrook, IL 60062
LESSEE: CARDMEMBER PUBLISHING CORPORATION (herein called "LESSEE")
ADDRESS: 655 WASHINGTON BLVD., SUITE 1000, STAMFORD, CT 06901

1. LEASE. LESSOR hereby leases and/or grants to, LESSEE the right to use, and
LESSEE hereby leases from and/or agrees to accept the right to use, subject to
the terms and conditions herein set forth, the item(s) of personal property
including but not limited to hardware and/or software and herein referred to as
"Equipment" described in each Equipment Schedule entered into from time to time
pursuant to this Master Lease Agreement. Each Equipment Schedule entered into by
the parties shall constitute a separate non-cancelable lease agreement and shall
incorporate therein all of the terms and conditions of this Master Lease
Agreement and contain such additional terms and conditions as agreed upon. The
term "LEASE" as used hereinafter shall refer to an individual Equipment Schedule
which incorporates this Master Lease Agreement. Until an Equipment Schedule is
signed by LESSOR, an Equipment Schedule signed by LESSEE constitutes an
irrevocable offer by LESSEE to lease from LESSOR.

2. TERM. This Master Lease Agreement shall be effective when signed by both
parties and shall continue in effect until all obligations of LESSEE under each
Equipment Schedule are fully satisfied.

The Lease Term for each Equipment Schedule shall become effective on the
first day of the month following the Installation Date ("Commencement Date').
The Installation Date is the (i) date on which the Equipment is installed at the
location set forth in the Equipment Schedule ("Equipment Location") and declared
acceptable for maintenance by the Maintenance Provider (as defined in paragraph
9) or, if LESSEE causes a delay in installation or acceptance for maintenance,
then even (7) days after the date on which the Equipment is delivered; or (ii)
if the Equipment is already installed, being used and leased from another party
and is being purchased by LESSOR for lease to LESSEE hereunder, then the date on
which LESSOR pays for the Equipment. LESSEE shall promptly sign and deliver to
LESSOR a Certificate of Acceptance dated as of the Installation Date. Unless
LESSEE, not more than two-hundred ten (210) days or less than one-hundred eighty
(180) days prior to the initial or extended expiration of the LEASE, notifies
LESSOR in writing by certified mail of its intention not to extend the LEASE,
the LEASE shall automatically and continuously be extended on the same terms and
conditions for a period of twelve (12) months. In the event LESSEE notifies
LESSOR of its intention not to extend the LEASE, then LESSEE must do one of the
following: (A) Purchase all of the Equipment at a Mutually Agreeable Purchase
Price; (B) Extend the LEASE for a period of twelve (12) months at the periodic
rent identified on the Equipment Schedule; (C) Enter into a new LEASE with
LESSOR to lease equipment which replaces the Equipment on the Equipment Schedule
and which has a cost that is greater than or equal to the original cost of the
Equipment. LESSOR and LESSEE shall each have absolute discretion regarding their
agreement or lock of agreement to the terms of options (A) and (C). If LESSOR
and LESSEE have not reached agreeable terms to either option (A) or option (C)
by the expiration of the Initial Lease Term, then option (B) shall prevail. At
the end of the extension provided by option (B), the LEASE shall continue
subject to termination at the end of any calendar month upon no less than 120
days written notice by either LESSOR or LESSEE.

3. RENT. LESSEE shall pay to LESSOR at its address set forth above, or at such
other address LESSOR may hereinafter designate in writing, the rent specified
for the Equipment, payable in advance, effective on the Commencement Date.
Charges from the Installation Date to the Commencement Date shall be computed by
converting the monthly or other calendar period rental to a daily rate based on
a 30-day month. Subsequent monthly or other calendar period rental payments
shall be due on the same day of subsequent months or other calendar periods as
the Commencement Date of the LEASE.

4. DISCLAIMER OF WARRANTIES. (a) LESSEE ACKNOWLEDGES THAT LESSEE MADE THE
SELECTION OF THE EQUIPMENT BASED ON ITS OWN JUDGMENT AND IS NOT RELYING ON
LESSOR'S SKILL OR JUDGMENT TO SELECT OR FURNISH GOODS SUITABLE FOR ANY
PARTICULAR PURPOSE. LESSEE ACKNOWLEDGES THAT LESSOR HAS NOT MADE AND DOES NOT
MAKE ANY WARRANTIES, EXPRESS OR IMPLIED, DIRECTLY OR INDIRECTLY, INCLUDING,
WITHOUT LIMITATION, THE WARRANTY OF

<PAGE> 2

MERCHANTABILITY AND OF FITNESS, CAPACITY OR DURABILITY FOR ANY PARTICULAR
PURPOSE, AND WARRANTIES AS TO THE DESIGN OR CONDITION OF THE EQUIPMENT AND THE
QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE EQUIPMENT LESSOR SHALL HAVE NO
LIABILITY TO LESSEE FOR ANY CLAIM, LOSS, OR DAMAGE OF ANY KIND OR NATURE
WHATSOEVER, INCLUDING ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, TO ANY
EXTENT WHATSOEVER, RELATING TO OR ARISING OUT OF THE SELECTION, QUALITY,
CONDITION, MERCHANTABILITY, SUITABILITY, FITNESS, OPERATION OR PERFORMANCE OF
THE EQUIPMENT. NO DEFECT IN OR UNFITNESS OF THE EQUIPMENT SHALL RELIEVE LESSEE
OF ITS OBLIGATIONS UNDER THE LEASE. LESSEE agrees that LESSOR assumes no
liability for and makes no representation as to the treatment by LESSEE of the
LEASE, the Equipment or the rent payments or other sums due thereunder for
financial statement or tax purposes.

(b) For the term of the LEASE, or any extension thereof, LESSOR hereby assigns
to LESSEE and LESSEE may have the benefit of any and all Vendor's warranties,
service agreements and patent indemnities, if any, with respect to the Equipment
to the extent assignable by LESSOR, provided, however, that LESSEE'S sole remedy
for the breach of any such warranty or indemnification shall be against the
Vendor and not against LESSOR, nor shall any such breach have any effect
whatsoever on the rights and obligations of either party with respect to the
LEASE.

5. STATUTORY FINANCE LEASE. LESSEE agrees and acknowledges that it is the intent
of both parties to the LEASE that it qualify as a statutory finance lease under
Article 2A of the Uniform Commercial Code. LESSEE acknowledges and agrees the
LESSEE has selected both: (1) the Equipment and (2) the Vendor from whom the
Equipment is to be acquired. LESSEE acknowledges the LESSOR has not participated
in any way in LESSEE'S selection of the Equipment or of the Vendor, and LESSOR
has not selected, manufactured, or supplied the Equipment.

LESSEE IS ADVISED THAT IT MAY HAVE RIGHTS UNDER THE CONTRACT EVIDENCING THE
ACQUISITION OF THE EQUIPMENT FROM THE VENDOR CHOSEN BY LESSEE AND THAT LESSEE
SHOULD CONTACT THE VENDOR OF THE EQUIPMENT FOR A DESCRIPTION OF ANY SUCH RIGHTS.

6. EQUIPMENT AND LIABILITY. LESSOR, at the request of LESSEE, has ordered or
shall order the Equipment described in each Equipment Schedule attached hereto
from a Vendor selected by LESSEE. LESSOR shall not be liable for specific
performance of the LEASE or for damages if, for any reason, the Vendor fails to
accept such order or delays or fails to fill the order. LESSEE agrees to accept
such Equipment and authorizes LESSOR to add the serial number of the Equipment
to the LEASE.

7. VENDOR NOT AN AGENT. LESSEE understands and agrees that neither the Vendor,
nor any salesman or other agent of the Vendor, is an agent of LESSOR, no
salesman or agent of the Vendor is authorized to waive or alter any term or
condition of the LEASE, and no representation as to Equipment or any other
matter by the Vendor shall in any way affect LESSEE'S duly to pay the rent and
perform its other obligations as set forth in the LEASE.

8. PLACE OF USE. LESSEE shall keep the Equipment at its place of business as
specified in the LEASE, or at such other place as LESSOR may consent to in
writing. LESSEE covenants and agrees not to allow the use of the Equipment by
other than the employees of the LESSEE and covenants and agrees not to rent or
sublet the Equipment or any part thereof AND WILL NOT WITHOUT LESSOR'S PRIOR
WRITTEN CONSENT ASSIGN THE LEASE OR ITS INTEREST THEREUNDER.

9. USE AND RETURN OF EQUIPMENT. The LESSEE leases and shall use the Equipment
only for its intended purposes and shall exercise due and proper care in the
use, repair and servicing of the Equipment and at all times and at its expense
shall keep and maintain the Equipment in good working condition, order, and
repair. The LESSEE shall make no alteration to the Equipment without the prior
written consent of the LESSOR. LESSEE represents and warrants that the Equipment
will be covered and maintained under the best standard full service maintenance
agreement offered by the Vendor, provided the Vendor is either the original
equipment manufacturer/licensor or an authorized original equipment
manufacturer/licensor maintenance organization, or such other maintenance
organization authorized by the original equipment manufacture/licensor
(hereinafter called "Maintenance Provider"), during the full term of the LEASE
or any extension thereof. Upon the expiration or termination of the LEASE,
LESSEE at its sole expense shall forthwith have the Equipment de-installed and
properly prepared for shipment by the Maintenance Provider, insure, warrant
eligibility for continued maintenance provider's best standard and most current

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<PAGE> 3

version full service and maintenance agreement and return the Equipment
unencumbered to LESSOR, at such place designated by LESSOR, in the same
condition as when received by LESSEE. LESSOR reserves the right to approve or
designate the carrier and the means of shipment. However, if requested by
LESSOR, LESSEE will, prior to shipment, at its sole expense, store the Equipment
after deinstallation and packing on its premises for ninety (90) days. All
replacement parts, additions and accessories incorporated in or affixed to the
Equipment, including but not limited to wiring, software and operating systems,
at or after the commencement of the LEASE shall become the property of LESSOR.
All related documentation, manuals and service logs are the property of LESSOR
and are to be returned with the Equipment.

10. RISK OF LOSS AND DAMAGE. (a) LESSEE hereby assumes and shall bear the entire
risk of loss for theft, loss, damage, destruction or governmental taking, and
from any and every cause whatsoever to the Equipment, whether partial or
complete and whether or not through any default or neglect of LESSEE. Except as
provided herein, no such event shall relieve LESSEE of its obligation to pay
rent hereunder, nor shall any such event impair any other obligation of LESSEE
under the LEASE which shall continue in full force and effect.

(b) If any Equipment is damaged, LESSEE must promptly notify LESSOR and within
sixty (60) days of such damage shall, at its expense, cause such repairs to be
made as are necessary to return the Equipment to its previous condition. LESSEE
shall then be entitled to receive from LESSOR any insurance proceeds received in
connection with such damage.

(c) In the event that any Equipment is destroyed, damaged beyond repair, lost,
stolen or taken by governmental action for a period extending beyond the term of
the LEASE, or any extension thereof (an "Event of Loss"), LESSEE must promptly
notify LESSOR and pay to LESSOR on the next rental payment date following the
Event of Loss, an amount equal to the Stipulated Loss Value set forth in the
applicable table (the form of which is attached to each Equipment Schedule as
Exhibit A) of the greater of (a) the fair market value of such Equipment prior
to such loss, or (b) twenty (20) percent of the Equipment Cost, all discounted
to present value at an annual rate of 6%. Upon payment of such amounts, LESSEE'S
obligation to pay further rent will cease with respect to such Equipment and
LESSEE will be entitled to receive any insurance proceeds or other recovery
received by LESSOR in connection with such Event of Loss.

(d) In the event of a governmental taking of the Equipment for an indefinite
period which does not extend beyond the term of the LEASE, all obligations of
the LESSEE with respect to such Equipment (including payment of rent) will
continue. So long as LESSEE is not in default hereunder, LESSOR will pay to
LESSEE all sums received by LESSOR by reason of such governmental taking up to
the amount paid by LESSEE during such period.

11. INSURANCE. LESSEE, at its expense, shall insure the Equipment against all
risks and shall maintain a loss payable endorsement in favor of LESSOR. The all
risks insurance shall be in such amounts as LESSOR reasonably requires but in no
event less than the full replacement value of the Equipment or if the Equipment
is not repaired or replaced the Stipulated Loss Value as set forth in the
applicable table (the form of which is attached to each Equipment Schedule as
Exhibit A), if applicable, or an amount equal to all unpaid and remaining
rentals due during the term of the LEASE plus an amount equal to twenty (20)
percent of the original Equipment Cost, all discounted to present value at an
annual rate of 6%. LESSEE may act as a self-insurer in amounts acceptable to
LESSOR only upon written consent of the LESSOR. LESSEE shall insure the LESSOR
and LESSEE with respect to liability for personal injuries, death; damage to or
loss of use of property resulting from the ownership, use and operation of the
Equipment, in the amount of at least one million dollars combined single limit,
or such greater amount as LESSOR shall reasonably require. All such insurance
policies shall name both the LESSOR and LESSEE as insured, and must provide that
they may not be cancelled or altered without at least 30 days prior written
notice to LESSOR. Such property insurance and liability insurance (and written
evidence therefor delivered to LESSOR upon request) shall be satisfactory to
LESSOR. If LESSEE fails to provide such evidence, then LESSOR shall have the
right, but not the obligation to halve either property insurance or liability
insurance or both protecting the LESSOR placed at LESSEE'S expense. LESSEE'S
expense may include the full premium paid by LESSOR (not reduced by any credit
or refund due or paid to LESSOR) and any customary charges or fees of LESSOR and
of its designee(s) associated with such insurance. LESSEE shall pay such amounts
in equal installments allocated to each rent payment plus interest on such
amounts at the lesser of the highest rate permitted by law or 1.5% per month.

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<PAGE> 4

12. TAXES. The LESSEE shall pay all taxes and assessments (and interest and
penalties, if any thereon) which may be levied, directly or indirectly, against
the Equipment or any interest therein or with respect to the ownership,
possession or use thereof, whether such taxes are levied against the LESSOR or
the LESSEE. Such taxes to be paid by the LESSEE shall include, without
limitation, property, sale, rent, lease, ad valorem and use taxes and any other
tax measured by the gross rent payable hereunder, but shall not include net
income or franchise taxes payable by the LESSOR. If such taxes are levied
against the LESSOR, it shall notify the LESSEE of such fact. The LESSOR shall
have the right, but not the obligation, to pay any such taxes, whether levied
against the LESSOR or LESSEE. In such event the LESSEE shall reimburse the
LESSOR therefor within five days after the receipt of an invoice based on the
full amount of such taxes without regard to any discounts LESSOR may obtain due
to early payment or otherwise. In the event of failure to make such
reimbursement when due the LESSOR shall have all remedies provided herein with
respect to the nonpayment of the rental hereunder. LESSEE agrees to reimburse
LESSOR for reasonable costs incurred by LESSOR in collecting taxes and
assessments hereunder.

LESSOR reserves the right to invoice and collect an estimated amount for
personal property taxes each year, such estimate to be based on the most recent
ascertainable assessment. Upon receipt of an invoice for the actual amount due,
LESSOR will invoice and LESSEE will pay to LESSOR or LESSOR will rebate to
LESSEE any difference between the actual invoice and the estimated amount.

13. ADDITIONAL SECURITY. In any jurisdiction where the Uniform Commercial Code
is in effect, LESSEE grants to LESSOR a security interest in any and all goods,
chattels, fixtures, furniture, equipment, assets, accounts receivable, contract
rights, general intangibles, and property of every kind wherever located now
and/or hereafter belonging to LESSEE and in which LESSEE has any interest and
proceeds thereof, and agrees that any security interest created by this
agreement secures any and all obligations of LESSEE and those of any affiliate
of LESSEE to LESSOR whether hereunder or otherwise and whether now in existence
and/or to come into existence and whether initially owing to LESSOR or acquired
by LESSOR through one or more assignments.

14. TITLE. All Equipment shall remain personal property and the title thereto
shall remain in the LESSOR exclusively unless the Equipment is, or includes
software in which event and only to the extent required by the applicable
license, title to said software shall remain in the Licensor. To the extent that
the License allows title to software to pass to the Licensee, such title shall
vest and remain in LESSOR. To the extent that such vesting requires a specific
written conveyance, LESSEE hereby conveys to LESSOR any title it has or may
hereafter acquire in the software and relinquishes any subsequent claim or title
in the software, including any rights to purchase the software and/or retain
rights to use the same beyond the Lease Term. If any provision of this paragraph
requires for its effectiveness Licensor's prior written consent because the
License limits transfers, encumbrance, or assignment of the software, then
LESSEE shall assist LESSOR, if so requested, in obtaining such consent. LESSEE
shall keep the LESSOR'S title rights in the Equipment free from any and all
liens, claims, and legal processes. LESSEE shall give LESSOR immediate notice of
any attachment or other judicial process, liens, or claims affecting the
Equipment and shall indemnify and save LESSOR harmless from any loss or damage
caused thereby. To further secure payment to LESSOR, LESSEE agrees that each
LEASE is cross-collateralized with all others and in the event of default by
LESSEE of any LEASE, LESSOR may exercise its rights and remedies as if LESSEE
defaulted on all LEASES.

In the event the Maintenance Provider deems it necessary to replace any
Equipment with like equipment LESSEE shall immediately notify LESSOR of the
same. However, no exchange or replacement shall occur without LESSOR'S prior
written approval and consent. LESSEE further agrees (a) to take all necessary
and reasonable steps to insure title to the replacement Equipment is, subject to
LESSOR'S satisfaction, transferred to the LESSOR, (b) agrees to insure the
replacement Equipment as provided in paragraph 11, and (c) to pay any and all
costs in connection with or related to such Equipment exchange.

15. FILING. LESSEE, on behalf of LESSEE and LESSOR, hereby authorizes LESSOR and
appoints LESSOR its attorney-in-fact to execute and file the LEASE, any
financing statements or security agreements with respect to the Equipment or any
collateral provided by LESSEE to LESSOR prior to or following LESSOR'S
acceptance of the LEASE, in any state of the United States. LESSEE shall execute
such supplemental instruments and financing statements if LESSOR deems such to
be necessary or advisable and shall otherwise cooperate to defend the title of
the LESSOR by filing or otherwise.

- 4 -
<PAGE> 5

16. RIGHT OF INSPECTION. The LESSOR, its agents, dealers, and representatives
shall have the right at any time during usual business hours to inspect the
Equipment and for this purpose to have access to the location of the Equipment.

17. NON-WAIVER. LESSOR'S failure at any time to require strict performance by
LESSEE of any of the provisions of the LEASE shall not waive or diminish
LESSOR'S right thereafter to demand strict compliance therewith or with any
other provision. Waiver of any default shall not waive any other default.
LESSOR'S rights under the LEASE are cumulative and not alternative.

18. DEFAULT. Time is of the essence of the LEASE, and no waiver by LESSOR of any
breach or default shall constitute a waiver of any other breach or default by
LESSEE or waiver of any of LESSOR'S rights. If LESSEE fails to pay any rent or
other amounts required within ten (10) days after the same is due and payable,
or if LESSEE fails to observe, keep or perform any other provision of the LEASE
required to be observed, kept or performed by LESSEE, or if LESSEE ceases doing
business as a going concern, or if a petition if filed by or against LESSEE
under the Bankruptcy Act or any amendment thereto (including a petition for
re-organization or an arrangement), or if a receiver is appointed for LESSEE or
its property, or if LESSEE commits an act of bankruptcy, becomes insolvent,
makes an assignment for the benefit of creditors, offers a composition or
extension of any of its indebtedness, or if LESSEE without LESSOR'S prior
written consent, attempts to remove or sell or transfer or encumber or sublet or
part with the possession of the Equipment, or if LESSOR deems itself insecure,
LESSOR or its agents shall have the right to exercise any one or more of the
following remedies; (a) to declare the entire amount of rent hereunder
immediately due and payable without notice or demand to LESSEE, (b) to sue for
and recover from the LESSEE the amount stated in the Stipulated Loss Value as
set forth in the applicable table (the form of which is attached to the
Equipment Schedule as Exhibit A), if any, or an amount equal to the unpaid
balance of the rent due and to become due during the term of the LEASE plus an
amount equal to the greater of (i) the fair market value of the Equipment prior
to the event of default, or (ii) twenty (20) percent of the Equipment Cost, all
discounted to present value at an annual rate of 6% , (c) to take possession of
any Equipment without demand or notice wherever same may be located without any
court order or other process of law. Upon retaking possession of any Equipment,
the LESSOR at its option may (i) lease repossessed Equipment or any part thereof
to any third party on such terms and conditions as the LESSOR may determine or
(ii) sell the Equipment or any part thereof to the highest bidder at public
auction or at private sale, and will credit the new amount so realized less
expenses incurred in connection with such disposition to the amount due pursuant
to (b) above. LESSEE hereby waives any and all damages occasioned by such taking
of possession. Any said taking of possession shall not constitute termination of
the LEASE and shall not relived LESSEE of its original obligations unless LESSOR
expressly so notifies LESSEE in writing.

To the extent permitted by applicable law, the LESSEE waives any and all
rights and remedies conferred upon a LESSEE by UCC Sections 2A-508 through
2A-522, including (without limitation) the LESSEE'S right to (a) cancel or
repudiate the LEASE, (b) reject or revoke acceptance of the leased Equipment,
(c) recover damages from the LESSOR for breach of warranty or for any other
reason, (d) claim a security interest in any rejected Equipment in the LESSEE'S
possession or control, (e) deduct from rental payment all or any part of any
claimed damages resulting from the LESSOR'S default under the LEASE, (f) accept
partial delivery of the leased Equipment, (g) "cover" by making any purchase or
lease of other equipment in substitution for Equipment due from the LESSOR, (h)
recover from the LESSOR any general, special, incidental or consequential
damages, for any reason whatsoever, and (i) specific performance, replevin or
the like for any of the leased Equipment.

To the extent permitted by applicable law, the LESSEE waives any rights now
or hereafter conferred by statute or otherwise that may require the LESSOR to
sell, release or otherwise use or dispose of any of the leased Equipment in
mitigation of the LESSOR'S damages as set forth in the LEASE or that may
otherwise limit or modify any of LESSOR's rights or remedies under the LEASE.
The remedies provided for in the LEASE shall not be deemed exclusive but shall
be cumulative, and shall be in addition to all other remedies existing at law or
in equity.

Should any legal proceedings be instituted by LESSOR to recover any monies
due or to become due under the LEASE and/or for the possession of the Equipment,
LESSEE shall pay LESSOR'S reasonable attorney's fees, court costs, and other
related expenses as well as fees and costs incurred in connection with a
bankruptcy proceeding including, but not limited to, any objections of disputes.
The LESSEE and all endorsers and guarantors hereby consent to the

- 5 -
<PAGE> 6

LESSOR granting, at its own option, one or more extensions of the time of
payment or performance of any of the obligations of the LESSEE or of any
security agreement securing the LEASE, hereby waiving all notice thereof.

19. ASSIGNMENT. NEITHER THE LEASE NOR THE RIGHTS THEREUNDER SHALL BE ASSIGNED,
NOR SHALL ANY OF THE EQUIPMENT BE SUBLEASED BY LESSEE WITHOUT PRIOR WRITTEN
CONSENT OF LESSOR. LESSOR, WITHOUT NOTICE TO LESSEE, MAY AT ANY TIME ASSIGN ALL
OR PART OF ITS RIGHT, TITLE AND INTEREST IN AND TO THE LEASE IN AND TO EACH ITEM
OF EQUIPMENT AND MONIES TO BECOME DUE TO THE LESSOR THEREUNDER; and, LESSOR may
grant a security interest in the Equipment, subject

to the LESSEE'S rights therein as set forth in the Lease. Any assignee of LESSOR
shall have all of the rights, but none of the obligations, of LESSOR under the
LEASE and LESSEE agrees that it will not assert against any assignee of LESSOR
any defense, counterclaim or offset that LESSEE may have against LESSOR. LESSEE
acknowledges that any assignment or transfer by LESSOR would neither materially
change LESSEE'S duties or obligations under the LEASE nor materially increase
the burdens or risks imposed on LESSEE.

20. POSSESSION AND QUIET ENJOYMENT. LESSOR covenants to and with LESSEE that,
provided LESSEE performs the conditions of the LEASE and so long as LESSEE shall
not be in default thereunder, LESSEE shall peaceably and quietly hold and use
the Equipment during the LEASE term without hindrance or interruption by LESSOR.

21. LIABILITY AND INDEMNITY. Except for the gross negligence or willful
misconduct of LESSOR, LESSEE agrees to indemnify LESSOR against and hold LESSOR
harmless from any and all claims, (INCLUDING WITHOUT LIMITATION, CLAIMS
INVOLVING STRICT OR ABSOLUTE LIABILITY), actions, suits, proceedings, costs,
expenses, damages and liabilities at law or in equity, including costs and
reasonable attorney's fees, arising out of, connected with or resulting from the
LEASE or the Equipment, including, without limitation the manufacture,
selection, purchase, ownership, delivery, possession, use, operation, condition,
sales, return, storage or disposition thereof, any latent or other defects,
whether or not discoverable, and any claim for patent, trademark or trade name
infringement.

LESSOR shall not be liable to LESSEE for any loss, damage, injury, or
expense of any kind or nature, caused directly or indirectly by any Equipment or
the use or maintenance thereof; the repair, servicing or adjustment thereto, or
for any delay or failure to provide any thereof, any interruption of service or
loss of use of the Equipment, or for any loss of business or damage whatsoever
and howsoever caused.

For purposes of this Paragraph, the term "LESSOR" shall include LESSOR, its
successors and assigns, shareholders, directors, officers, representatives,
employees, and agents, and the provisions of this Paragraph shall survive
expiration of the LEASE with respect to events occurring prior thereto.

22. NET LEASE. The LEASE is a net lease and LESSEE agrees that its obligation to
pay all rent and other sums payable thereunder are absolute and unconditional
and shall not be subject to any abatement, reduction, setoff, defense,
counterclaim or recoupment for any reason whatsoever.

23. REPRESENTATIONS AND WARRANTIES OF LESSEE. LESSEE hereby represents, warrants
and covenants that, with respect to the LEASE, any amendment, addendum, rider,
or other attachment executed thereunder:

(a) The execution, delivery and performance thereof by LESSEE has been duly
authorized by all necessary corporate or business action.

(b) The individual executing such was duly authorized to do so.

(d) Any and all financial statements or other information with respect to
LESSEE supplied to LESSOR at the time of execution hereof and any amendments,
addendums, or riders hereto are true and complete.

- 6 -
<PAGE> 7

The foregoing representations and warranties shall survive the signing and
delivery of the LEASE and any amendments, addendums, riders or other attachments
thereto.

24. MISCELLANEOUS. (a) All notices relating hereto shall be in writing and
mailed to LESSOR or LESSEE by certified mail, return receipt requested at its
respective address above shown or at any later address last known to the sender.
The LEASE is irrevocable for the full term thereof and for the aggregate rental
therein reserved, and the rent shall not abate by reason of termination of
LESSEE'S right of possession and/or the taking of possession by LESSOR or for
any other reason. If more than one LESSEE is named in the LEASE, the liability
of each shall be joint and several.

(b) Delinquent installments of rent, or other amounts due under the LEASE,
of more than ten (10) days shall be subject to a penalty equal to ten (10)
percent of such payment, plus interest at the rate of one and one-half (1 1/2)
percent per month, but in no event greater than the highest lawful rate. If
LESSOR supplies LESSEE with labels stating that Equipment is owned by LESSOR,
LESSEE shall label the Equipment and shall keep the same affixed in a prominent
place.

(1) Such additional information as LESSOR may reasonably request
concerning LESSEE and LESSEE'S use of the Equipment in order to enable
LESSOR to determine whether the covenants, terms, and provisions of the
LEASE have been complied with by LESSEE.

(2) copies of annual or quarterly financial statements, including a
copy of the Balance Sheet and Profit and Loss Statement of LESSEE.

(3) Financial Statements of any corporation that owns a controlling
interest in LESSEE.

(4) Copies of all Maintenance Provider's reports covering the
Equipment.

(5) A duly executed written warranty verifying the serial number(s) of
the Equipment and any attachments or appurtenances thereto, specifying the
shipment date for the return of the Equipment, its general condition, that
the Equipment has been and continues to be in use for its intended purpose
and within the limitations set forth and at the location specified in the
LEASE and that insurance is in full force and effect.

(d) LESSEE shall furnish to LESSOR such information and data as LESSOR may
from time to time reasonably request as to existence of and status of any claims
for damages (whether against the Equipment or against LESSOR or LESSEE) arising
out of the use, operation, or condition of the Equipment; the taxes of the
nature provided to be paid by LESSEE under the provisions of Paragraph 12 which
have been assessed and the amount of such taxes paid, and such other data
pertinent to the Equipment and the condition, use, and operation thereof as
LESSOR may from time to time reasonably request.

(e) If LESSEE shall fail to comply with its covenants and obligations under
the LEASE, the payment of taxes, assessments, and other charges of keeping the
Equipment in repair and free of liens, charges, and encumbrances, LESSOR may,
after reasonable notice to LESSEE of LESSOR'S intent, pay such charges, taxes,
assessments or cause compliance with such covenants, however, LESSOR shall not
be obligated to make advances to perform the same, and all sums so advanced
shall be payable to LESSOR upon demand as additional rent. No such advance shall
be deemed to relieve LESSEE from any default under the LEASE or be considered a
waiver by LESSOR of any of its rights or remedies.

(f) In the event a major change in the ownership or financial condition of
LESSEE occurs prior to delivery and acceptance of any Equipment, and LESSOR, in
its sole discretion deems itself insecure as a result of such change, LESSOR
reserves the right to cancel the LEASE and LESSEE hereby agrees to hold LESSOR
harmless and to indemnify LESSOR from any and all obligations liabilities, costs
and expenses incurred as a result of such cancellation, including but not
limited to LESSOR'S issuance of its purchase order to the Equipment Vendor.

- 7 -
<PAGE> 8

(g) The LEASE, any amendments, addendums, riders, or other attachments made
thereto shall be deemed to have been made and executed in Cook county, Illinois,
regardless of the order in which the signatures of the parties shall be affixed
thereto, and shall be interpreted and the rights and liabilities of the parties
thereto determined in accordance with the laws of the State of Illinois. All
claims and other matters relating to the LEASE, any amendments, addendums,
riders, or other attachments made thereto and the Equipment SHALL BE HEARD IN
ANY STATE OR FEDERAL COURT LOCATED IN COOK COUNTY, ILLINOIS, AND THE PARTIES
CONSENT TO THE EXCLUSIVE PERSONAL JURISDICTION OF SUCH COURTS, AND WAIVE TRIAL
BY JURY.

(h) Notwithstanding anything to the contrary contained in the LEASE,
including but not limited to paragraph 18, in addition to all other remedies
provided therein, in the event LESSEE fails to ship the Equipment to the
destination designated by LESSOR on or before the warranted date as specified in
paragraph 24(c)(5), LESSEE agrees to pay to LESSOR upon demand an amount equal
to the daily rate, based on a 30 day month, of the monthly or other calendar
period rental for each day after such date until such time as the Equipment
leaves the LESSEE'S location.

(i) LESSEE and any guarantor agree that any process served for any action
or proceeding shall be valid if mailed by certified mail, return receipt
requested, with delivery directed to the LESSEE, its registered agent, or any
agent appointed in writing to accept such process. LESSEE and any guarantor
accordingly hereby expressly appoint "COOK COUNTY PROCESS SERVERS," or its
successor, in Illinois as THEIR AGENT TO ACCEPT SERVICE of such process in
connection with the LEASE.

(j) AT LESSOR'S SOLE ELECTION, LESSOR MAY SUBMIT ANY MATTER ARISING OUT OF
THIS TRANSACTION, INCLUDING ANY CLAIM, COUNTER-CLAIM, SETOFF, OR DEFENSE, TO
BINDING ARBITRATION BY THE AMERICAN ARBITRATION ASSOCIATION IN COOK COUNTY,
ILLINOIS OR ANY OTHER SITE OF LESSOR'S CHOICE. THE DECISION AND AWARD OF THE
ARBITRATOR(S) SHALL BE FINAL AND BINDING AND MAY BE ENTERED AS RENDERED IN ANY
COURT HAVING JURISDICTION THEREOF.

25. SEVERABILITY. If any provisions of the LEASE or any remedy thereunder
provided for is deemed invalid under any applicable law, such provision shall be
inapplicable and deemed omitted, but the remaining provisions thereof including
remaining default remedies, shall be given effect in accordance with the
manifest intent thereof.

26. CONFLICTS. If any of the provisions of the LEASE conflict with any
provisions of any other documentation relating to the transaction, the terms of
the LEASE shall prevail and control, unless otherwise agreed to in writing by
LESSOR.

27. ENTIRE AGREEMENT, WAIVER. This instrument constitutes the entire agreement
between the parties. No waiver by LESSOR of any provision hereof shall
constitute a waiver of any other matter. This Master Lease Agreement may be
executed simultaneously in any number of counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument. This Master Lease Agreement including any amendments, additions,
riders or other attachments is not valid and binding until execution thereof by
an authorized officer of LESSOR in Northbrook, Illinois.

LESSEE'S INITIAL [ ]

IN WITNESS WHEREOF, LESSOR and LESSEE have signed this Master Lease Agreement as
of the date set forth above.

LESSOR: LESSEE:

BANKERS LEASING ASSOCIATION, INC. CARDMEMBER PUBLISHING CORPORATION

By:________________________________ By:________________________________

___________________________________ ___________________________________
(Print or Type Name) (Print or Type Name)

Title:_____________________________ Title: SENIOR VICE PRESIDENT/CFO

- 8 -
<PAGE> 9

AMENDMENT NO. 1
TO
MASTER LEASE AGREEMENT DATED AS OF MAY 7, 1996
BETWEEN
BANKERS LEASING ASSOCIATION, INC.. (AS "LESSOR")
AND
CARDMEMBER PUBLISHING CORPORATION (AS "LESSEE")

This Amendment is entered into in accordance with the Master Lease Agreement
identified above. All the terms and conditions of the Master Lease Agreement are
hereby incorporated herein and made a part hereof. In the event of a conflict
between the terms of the Master Lease Agreement and this Amendment, the terms of
this Amendment shall prevail.

Amend Lessee's address to read: 680 Washington Blvd., Suite 1100
Stamford, Connecticut 06901-3709

In all other respects, the terms and conditions of the Master Lease Agreement
shall remain in full force and effect as originally written.

IN WITNESS WHEREOF, the parties hereto, by their authorized signatories, have
executed this Amendment at the date set forth below their respective signatures.

Lessor: Lessee:

BANKERS LEASING ASSOCIATION, INC. CARDMEMBER PUBLISHING CORPORATION

By: By: /s/ Steven Levenherz
----------------------------- ------------------------------
Steven Levenherz
Title: Title: Senior Vice President/CFO
-------------------------- ---------------------------

Dated as of: Dated as of: 6-24-96
-------------------- --------------------

- --------------------------------------------------------------------------------
BANKERS LEASING ASSOCIATION, INC. 4201 Lake Cook Road, Northbrook, IL 60062
TEL: (708) 564-5353 FAX: (708) 564-5412

OFFICES IN PRINCIPAL CITIES
(800) 477-2000 Except in Illinois

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 25, 1996, except as
to Note 15 which is as of August 15, 1996, relating to the consolidated
financial statements of MemberWorks Incorporated, which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedule for the three years ended June 30, 1996 listed under Item
16(b) of this Registration Statement when such schedule is read in conjunction
with the financial statements referred to in our report. The audits referred to
in such report also included this schedule. We also consent to the reference to
us under the heading "Experts" in such Prospectus.

PRICE WATERHOUSE LLP

Stamford, Connecticut
August 21, 1996

<ARTICLE> 5
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<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 4,312,000
<SECURITIES> 0
<RECEIVABLES> 6,349,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,494,000
<PP&E> 4,777,000
<DEPRECIATION> 1,516,000
<TOTAL-ASSETS> 19,715,000
<CURRENT-LIABILITIES> 26,055,000
<BONDS> 0
20,487,000
0
<COMMON> 8,000
<OTHER-SE> (36,340,000)
<TOTAL-LIABILITY-AND-EQUITY> 19,715,000
<SALES> 0
<TOTAL-REVENUES> 57,012,000
<CGS> 0
<TOTAL-COSTS> 61,949,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 310,000
<INCOME-PRETAX> (5,247,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,247,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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