10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-13806

REWARDS NETWORK INC.

(Exact name of registrant as specified in its charter)

DELAWARE	84-6028875
(State or other jurisdiction of incorporation or organization)	(I.R.S Employer Identification No.)
Two North Riverside Plaza, Suite 950, Chicago, Illinois	60606
(Address of principal executive offices)	(Zip Code)

(312) 521-6767

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common stock, $.02 par value per share	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer    ¨                         Accelerated filer    x                         Non-accelerated filer    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of June 30, 2005, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $103,433,000 based on the closing sale price as reported on the American Stock Exchange.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at March 14, 2006
Common Stock, $0.02 par value per share	26,473,814 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Proxy Statement for the Annual Meeting of Shareholders to be held May 23, 2006	Part III

FORWARD-LOOKING STATEMENTS

You should read the following discussion together with our consolidated financial statements and notes to those financial statements, which are included in this report. This report contains forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “anticipates,” “intends,” “expects,” “could,” “should,” “plans,” “believes,” “estimates” or words or phrases of similar import generally identify forward-looking statements. You are cautioned that forward-looking statements are subject to risks, trends and uncertainties that could cause actual results, performance or achievements to differ materially from those expressed in any forward-looking statements. Important factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by those statements include, but are not limited to, those set forth below in the section entitled “Risk Factors” under Part I, Item 1A of this Annual Report on Form 10-K. We undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to future results over time or otherwise, except as required by law.

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PART I

Item 1. Business

Overview

We are a leading provider of marketing and loyalty programs to the restaurant industry. We help thousands of restaurants by providing marketing services, loyalty programs, business intelligence, and access to capital. We partner with leading airline frequent flyer programs, club memberships, and other affinity organizations to provide millions of members with incentives to do business with our participating merchants. We provide members with incentives in a variety of benefit currencies, including airline miles, a variety of loyalty and reward program points, and Cashback Rewards^SM savings.

Shares of our common stock are traded on the American Stock Exchange under the symbol IRN.

Marketing Credits Program and Marketing Services Program

We primarily offer two programs to our participating restaurants—our Marketing Credits Program and our Marketing Services Program. Our Marketing Credits Program provides our participating restaurants with marketing, loyalty programs, business intelligence and also access to capital through our purchase of dining credits from these restaurants. Our Marketing Services Program provides our participating restaurants with all of these services except access to capital because we do not purchase dining credits from restaurants that participate in the Marketing Services Program.

Marketing. We market our participating restaurants to members through websites, emails and printed materials that are mailed to members.

We maintain websites for our Cashback Rewards program and also for loyalty partner, payment card issuer and corporate programs, which are described below in the section regarding Members. These websites provide a directory of participating restaurants and include information such as the restaurant’s name and address, map and directions, cuisine type and the type of benefits available to members for dining at the restaurant, and may also include additional material such as a menu, photographs, restaurant ratings and reviews. In addition to our website for our Cashback Rewards program, as of December 31, 2005, we hosted more than 26 different websites on behalf of our program partners. These 26 websites allow us to host various website addresses for our program partner websites. These websites are co-branded with our program partners.

For members who provide us with an email address and permission to send them emails, we market our participating restaurants through welcome emails, new restaurant email alerts, benefit confirmation emails and other emails. These emails may be sent by us directly to a member or may be sent on our behalf by a program partner.

In addition to our electronic marketing, we also market our participating restaurants with printed material such as welcome kits and directories.

Our program partners generally have the right to approve all communications between us and members of their program. Our relationship with Cashback Rewards program members is direct and we maintain control over communications with these members. Our corporate program terms typically require our corporate program partners to promote the program to their employees and encourage its use, and we work with these partners to develop and deliver marketing and promotional materials to their employees. In some cases, a portion of the benefit goes to employees in the form of airline frequent flyer miles, providing further incentives for employees to direct their spending to participating merchants.

Loyalty Programs. On behalf of our participating restaurants, we award benefits to our members for dining at participating restaurants. Benefits are in the form of frequent flyer miles, Cashback Rewards savings and other benefit currencies and are designed to encourage dining at participating restaurants.

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Business Intelligence. We provide our participating restaurants with periodic reports that include information regarding the number of members who have dined at the restaurant, the amount spent by members at the restaurant, marketing data, such as web impressions and emails sent to members, results of member surveys and other information that helps a restaurant to determine the impact our programs have on the restaurant’s business.

Access to Capital. We provide restaurants that participate in our Marketing Credits Program access to capital by purchasing dining credits from these restaurants. We purchase dining credits in advance, in bulk and at a discount from the retail price of the goods and services provided by the restaurant. The discount at which we purchase dining credits also takes into account the marketing services, loyalty programs and business intelligence that we provide to participating restaurants. These dining credits are used by members when they dine at the restaurant. When a member dines at the restaurant, we receive an agreed-upon percentage of the bill and redeem the restaurant’s dining credits in an equal amount.

Participating Restaurants

As of December 31, 2005, we had approximately 9,950 participating restaurants across the United States and Canada. As of December 31, 2005, we had approximately 7,950 restaurants participating in our Marketing Credits Program and approximately 2,000 restaurants participating in our Marketing Services Program.

In June 2004, we launched our Marketing Credits Program and Marketing Services Program in Canada in the provinces of Ontario and British Columbia. As of December 31, 2005, we had approximately 190 participating restaurants in Canada.

Members

As of December 31, 2005, we had approximately 3.4 million active member accounts. We consider a member account to be active if the account has at least one transaction at a participating merchant during the past 12 months. An active member account may consist of more than one payment card and may have more than one person associated with the account, although we consider each member account to be held by one member.

We obtain members from a variety of sources and marketing efforts, including through our relationships with major airlines, payment card issuers and other loyalty program providers, and through our corporate program. We refer to our partners in all of these programs as program partners. In these programs, members may be solicited for enrollment or may be directly enrolled by our program partners. Generally, a member enrolled in one of our programs through a program partner remains a member so long as our relationship with the program partner continues. If our relationship with the program partner terminates, in most cases our relationship with the member terminates as well. Additionally, members enrolled by our program partners may also be unenrolled by the program partner, and our program partner generally has the right to approve all communications between us and the member.

We offer a choice of programs to members. Members who enroll directly in our Cashback Rewards program generally pay an annual fee, and members who enroll in our programs that provide benefits to members in other benefit currencies, such as airline frequent flyer miles, generally do not pay an annual fee. Our membership programs consist of the following:

Loyalty Partner Programs. We partner with various loyalty program providers to offer their members the opportunity to earn benefits, such as airline frequent flyer miles, award points or other currency relevant to that partner, through our programs when their members patronize our participating merchants. These programs are typically co-branded with our program partner (e.g., Continental Airlines’ OnePass Dining by Rewards Network). In some cases, we work with the loyalty program provider’s affinity payment card issuer by automatically including our benefit as a feature of the payment card.

The loyalty program provider benefits by expanding the earning opportunities for its members and increasing the volume of the benefits currency it sells, or by receiving a commission on the benefits currency provided to its members.

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Airline frequent flyer programs represent the largest number of our member accounts that are part of our loyalty partner programs. As of December 31, 2005, we provided dining benefits to nine major airlines, which we believe makes us the largest provider of dining rewards programs to the airline industry in the United States. We are actively working to expand our loyalty partnerships beyond airlines. Upromise, InterContinental Hotels Group, Electronic Script Incorporated (eScrip) and, beginning in January 2006, The New York Times are notable instances of non-airline loyalty program providers for which we provide dining benefits.

Cashback Rewards Program. This is a fee-based program that typically provides between 5% and 20% Cashback Rewards savings on the total qualified transaction amount at participating merchants. Cashback Rewards savings are a cash credit that we make directly to the member’s payment card account.

Members pay an upfront annual fee or members may elect to “earn” their fee. When the member elects to “earn” the fee, we retain Cashback Rewards savings until the member has accumulated the amount of the fee in Cashback Rewards savings, after which the member receives the Cashback Rewards savings and we (by not providing a benefit until the amount of the fee has accumulated) have effectively received a fee.

Corporate Program. We offer the corporate program as a travel and entertainment expense reduction program to large corporations. The corporate program partner enrolls some or all of its corporate payment cards issued to its employees in our program. We typically earn an annual fee by retaining a portion of the benefits for each member account enrolled in the program. We usually pay the benefits earned by the member accounts directly to the corporate program partner. In some cases, a portion of the benefit goes to employees in the form of airline frequent flyer miles, providing further incentives for employees to direct their spending to participating merchants.

Payment Card Issuer Programs. We work with various issuers of general purpose payment cards to provide a program that provides cash credits as a loyalty incentive to certain payment card portfolios. Our program is a differentiating feature of the card and provides cardholders with additional opportunities to earn benefits through the payment card’s loyalty program. In some cases, the payment card issuer pays us a fee for their cardholders’ access to our program.

The table below sets forth for each channel the number of active member accounts as of, and sales for the years ended, December 31, 2005, 2004 and 2003.

	2005			2004			2003
	Active Member Accounts	Sales		Active Member Accounts	Sales		Active Member Accounts	Sales
	(in thousands)
Loyalty Partner	3,018	$	228,849	3,158	$	258,602	2,880	$	253,564
Cashback Rewards	220		39,228	281		57,620	296		70,925
Corporate	116		12,337	150		17,393	163		19,909
Payment Card Issuer	73		6,731	164		14,463	61		4,628
Total	3,427	$	287,145	3,753	$	348,078	3,400	$	349,026

Member Benefits

We provide the majority of benefits to members in the form of a mileage credit to their frequent flyer account, a Cashback Rewards savings credit to their payment card account, or an award to their loyalty program account. From time to time, we offer the opportunity for members to earn additional benefits under special promotions and bonus offers. Cashback Rewards savings typically represent between 5% and 20% of the member’s total transaction amount with participating merchants. Effective July 1, 2005, members receiving airline frequent flyer miles generally earn between one and ten miles for each dollar spent at participating

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merchants. The amount of benefits earned per dollar spent by members of our airline frequent flyer programs and some of our other loyalty programs is tied to the member’s level of participation in our program, with more active members earning greater benefits per dollar spent than less active members.

We communicate benefit opportunities to members via a variety of communication tools, including email, our website and our partners’ websites, newsletters, directories, and toll-free numbers.

Hotels

Since the second quarter of 2003, we have offered a hotel program to certain members. The hotel program provides members with reduced rates and Cashback Rewards savings, frequent flyer miles and other benefits if they make their reservations at participating hotels through our website and pay for the hotel room with a payment card that they have registered with us. In the first half of 2005, many of the hotels participating in the program were made available to members through our relationship with Travelweb LLC, a travel distribution company, and on July 1, 2005, we outsourced our entire hotel offering to Travelweb LLC, which pays us a fee when a member pays for a hotel room with a payment card that they have registered with us after making a reservation through our website. The fee is equal to a percentage of the hotel room rate. As of December 31, 2005, our hotel program was available to approximately 37% of members.

Registered Card Platform

Our registered card platform is a critical part of the administration of our programs. Members enrolled in our programs have payment cards registered with us and then present a registered payment card while transacting business at a participating merchant. Based on our agreements with card issuers and various processors, presenters and aggregators throughout the country, we receive data regarding payment card transactions at our participating restaurants, which we use to determine which transactions were made by members. These member transactions are qualified via business rules to determine what benefit, if any, they are eligible to receive.

We use the qualified transaction data to provide airline frequent flyer miles, Cashback Rewards savings and other currencies to members, depending on the program in which the member is enrolled. We also use these qualified transaction data to invoice and collect our fees from restaurants participating in our Marketing Services Program and redeem outstanding dining credits at restaurants that participate in our Marketing Credits Program.

Competition

We compete with a variety of companies and programs for both members and merchants. Our competitors include major payment card companies that offer discount and rewards programs using a registered card platform, various loyalty program providers and companies that offer marketing services and marketing programs to merchants. There are many small companies that offer services that may compete with the services currently offered or to be offered in the future by us. We also compete with various finance companies to address the liquidity needs of restaurants. Certain competitors or potential competitors have substantially greater financial resources and expend considerably larger sums than we do for new product development and marketing. Further, we must compete with many larger and better-established companies for the hiring and retention of qualified sales and marketing personnel.

We believe that we have designed our programs to compete effectively for members and merchants. Features of our programs include: (1) the ability to market our participating merchants to Cashback Rewards program members and our program partner members; (2) our partner and processor relationships; (3) our programs provide substantial benefits to members without the need for a member to present discount coupons or a separate card when paying for a meal; and (4) we provide restaurants that participate in our Marketing Credits Program with access to capital in advance of customer transactions through our purchase of dining credits.

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Employees

As of December 31, 2005, we had approximately 400 employees of whom approximately 360 are full time. We believe that our relationship with employees is good. None of our employees are represented by a labor union.

Executive Officers of the Registrant

The following table sets forth certain information concerning our executive officers as of March 15, 2006:

Name	Age	Position(s)
Ronald L. Blake	50	President, Chief Executive Officer and Director
Bryan R. Adel	43	Senior Vice President, General Counsel, Secretary and Chief Privacy Officer
Megan E. Flynn	39	Senior Vice President, Business Development
Christopher J. Locke	35	Senior Vice President and Chief Financial Officer
Robert S. Wasserman	46	Executive Vice President, Sales and Marketing, Operations

Ronald L. Blake became President and Chief Executive Officer of the Company in March 2005 and a director of the Company in September 2005. Prior to joining the Company, Mr. Blake was chairman and chief executive officer of Willis Stein Telecommunications Acquisition Corp. since 2000. Mr. Blake served as chairman, president and chief executive officer of Orius Corp, a network and infrastructure firm, from June 2001 until February 2003. Mr. Blake currently serves as a director of VelociTel, as chairman of the Foundation for Independent Higher Education, and as trustee of Alverno College.

Bryan R. Adel became Vice President, General Counsel, Secretary and Chief Privacy Officer in April 2003 and became a Senior Vice President in April 2004. For the previous ten years, Mr. Adel held various positions at McDonald’s Corporation, the world’s leading food service retailer, most recently Managing Counsel, International Legal. From January 2001 to February 2003, Mr. Adel served on the board of directors of Chipotle Mexican Grill, Inc., a company that operates quick-service eateries that is majority owned by McDonald’s Corporation.

Megan E. Flynn became Senior Vice President, Business Development in July 2003. Prior to that, she served as Vice President, Chief Marketing Officer starting in April 2002. From September 2000 to March 2002, Ms. Flynn served as Vice President of Partnership Development.

Christopher J. Locke joined Rewards Network in May 2005 as Senior Vice President, Business Planning, Analysis and Assurance. In December 2005, Mr. Locke was named Senior Vice President and Chief Financial Officer. Prior to joining the Company, he served as Chief Financial Officer of Willis Stein Telecommunications Acquisition Corp. beginning in December 2003. From 2000 to 2003, Mr. Locke was an independent consultant primarily serving private equity firms and privately held companies in an interim chief financial officer capacity.

Robert S. Wasserman joined Rewards Network in June 2005 as Executive Vice President, Sales and Marketing, Operations. Prior to joining Rewards Network, Mr. Wasserman served as Senior Vice President and a Principal of Knowledge Systems & Research, Inc., a custom research and consulting organization, from February 2004. From February 2003 until February 2004, and from February 2001 through June 2001, Mr. Wasserman served as Executive Vice President of Willis Stein Telecommunications Acquisition Corp. Mr. Wasserman served as Chief Operating Officer of Orius Corp. from June 2001 until February 2003, and as Chief Operating Officer and President of NewPath Holdings, Inc. prior to February 2001.

Available Information

Our principal executive offices are located at Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606, and our telephone number is (312) 521-6767. Our website is www.rewardsnetwork.com. We make

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available free of charge on or through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with or furnish such material to the Securities and Exchange Commission (“SEC”). You may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Item 1A. Risk Factors

Important factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by statements in this Annual Report on Form 10-K include, but are not limited to, the risk factors set forth below. If the events discussed in these risk factors occur, our business, financial condition, results of operations or cash flows could be adversely affected in a material way and the market value of our common stock could decline.

A significant number of our active member accounts are obtained from our relationships with airlines and other program partners.

We depend on our relationships with airline and other program partners for a significant number of members and a significant portion of our revenue. We are particularly dependent on our relationships with airline partners. For the year ended December 31, 2005, approximately 57% of our sales were derived from members enrolled in our programs through airline frequent flyer programs. As of December 31, 2005, we had contracts or relationships with nine major airlines and approximately 2.0 million of our approximately 3.4 million active member accounts were enrolled through airline frequent flyer programs. In addition, member accounts enrolled through three of our program partners jointly accounted for approximately 54% of our active member accounts and approximately 46% of our sales for the year ended December 31, 2005. Members of each of the Upromise, Inc., United Air Lines, Inc. (“United Airlines”) and Delta Air Lines, Inc. (“Delta Airlines”) programs separately accounted for approximately 19%, 16% and 11%, respectively, of our sales for the year ended December 31, 2005.

If our contracts or relationships with airline and other program partners terminate, we will likely lose those member accounts that are enrolled in our programs through these program partners. Each year a number of these contracts are subject to renewal. We cannot assure you that any of our contracts with our program partners will be renewed or, if renewed, will be renewed on terms as favorable to us as the current terms. Moreover, we cannot assure you that relationships with our program partners with which we do not have contracts will continue or will continue on terms as favorable to us as the current terms. If our program partner contracts are terminated, are not renewed or are renewed on less favorable terms, for example if our program partner raises the price for us to purchase benefits currency, or if our program partner relationships are terminated or altered in ways unfavorable to us, the number of members in our programs could significantly decline.

In addition, some of our relationships with loyalty program partners depend upon the use of bank affinity payment cards that are associated with our loyalty program partners. If the relationship between a loyalty program partner and its payment card issuer terminates, we may lose access to the member accounts enrolled through that payment card program.

We have relationships with various organizations for the marketing, support and endorsement of our services and products. For example, we rely on our agreements with banks, payment card issuers, corporations, airline frequent flyer programs, member savings and loyalty programs and other entities across the country to market our services to their existing and future customers. However, we need to expand these relationships and

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enter into new relationships. The development and management of these relationships (including keeping our web site content attractive) is a long and difficult process, requiring experienced sales and marketing personnel and may not be successful.

A significant amount of our benefits currency is concentrated in one industry group.

A significant portion of the benefits currency we provide members consists of airline miles. Although airline miles are currently considered to be an attractive benefits currency, there is no assurance that airline miles benefits will continue to be viewed favorably by consumers and members. The terms of frequent flyer programs are subject to change at the discretion of the airlines, and changes to these programs may make frequent flyer miles a less attractive benefits currency. For example, if the airlines increase the number of miles required to earn travel rewards, reduce the number of seats available for reward travel or otherwise limit the availability of redemption options, the attractiveness of airline miles will diminish and may result in reduced membership in our programs and in reduced usage of our programs.

Furthermore, a sustained economic downturn in the airline industry could have an adverse effect on the financial condition of our business because there is no assurance that we can convert members who choose frequent flyer miles over our other benefits currencies to other forms of benefits currencies should the airlines no longer be able to participate. Following September 11, 2001, the airline industry suffered a significant decline in passenger traffic and profitability, including several airlines with which we have program relationships, and events in the future may again cause a decline in passenger traffic and profitability. Although Delta Airlines and Northwest Airlines have continued to honor their outstanding frequent flyer miles after filing for bankruptcy protection, there is no assurance that they or any other airline will continue to offer frequent flyer programs or to sell frequent flyer miles to third parties such as us. The continued impact of the economic downturn of the airline industry on our airline partners may result in the diminished attractiveness of airline miles as a currency that we offer to members and, thus, reduce the usage of our programs.

We have minimum program partner purchase obligations and other performance requirements.

We have agreements with various program partners that obligate us, among other things, to purchase a minimum amount of benefits currency in a given period. If member activity is not sufficient to fulfill our minimum currency purchase obligation with a program partner, we will be required to purchase additional currency from that program partner that we may not be able to utilize, or we may be required to make a payment to the program partner. We have agreements with various program partners that include minimum levels of marketing activity. Minimum marketing requirements may obligate us to incur marketing expenses that we otherwise would not incur. If we do not meet minimum benefits currency purchase obligations and other performance requirements in the normal course of our business, we will incur expenses that we otherwise would not incur.

We depend on our ability to attract and retain restaurants.

Our business requires significant marketing and sales efforts to restaurants. Partially due to the high rate of restaurant failures, we are always at risk for decreases in the number of participating restaurants. Because of this, we constantly need to recruit new restaurants to participate in our programs. Moreover, we need to continually demonstrate to our participating and prospective restaurants the value of our programs in order to retain them in our programs. Achieving these goals requires us to improve our product offerings to existing and potential restaurants and to improve the effectiveness of our sales force.

We have invested in the training of our sales force in an effort to increase its effectiveness. If the sales approach that is the subject of this training prove ineffective, or if our sales force does not effectively adopt this sales approach, we may not experience an increase in sales effectiveness.

In 2004 and early 2005, we changed the pricing structure of our product offerings, which resulted in a decline in deal profitability. We are now working on improving the profitability of restaurant deals, and if

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restaurants do not accept our new pricing for our products, we may not attract new participating restaurants or retain existing participating restaurants. We are also implementing more conservative dining credits purchasing policies in an attempt to decrease the time it takes for members to use the dining credits we purchase from restaurants. In addition, we augmented our due diligence process and began developing and implementing new credit evaluation tools in an effort to better assess the financial risk of proposed deals and the credit profile of our restaurants. We cannot assure you that these initiatives will be successful in reducing the financial risk profile of our restaurants and these initiatives may make it more difficult for us to attract new participating merchants or retain existing participating restaurants.

An absence of desirable merchants could cause members to either become less engaged or cancel their memberships with us or cause affiliates and loyalty program partners to choose not to participate in our programs. This would reduce our revenues and profitability and harm our ability to attract new members and participating merchants.

We depend on our ability to attract and retain active members.

We must increase the frequency with which members patronize participating merchants. Any number of factors could affect the frequency with which members participate in our programs or whether consumers enroll in any of our programs at all. These factors include (1) consumer tastes and preferences, (2) the frequency with which consumers dine out, (3) the number of desirable merchants participating, (4) general economic conditions, and (5) the availability of alternative discount programs in the local regions where consumers live and work. Any significant decline in usage or increase in membership cancellations, without a corresponding increase in new member enrollments, could make our programs less desirable to participating or prospective restaurants, would adversely affect our revenue and could have a material adverse effect on our business, financial condition and results of operations. Any decline in member usage of dining credits would cause a decline in revenue and a higher cost of our dining credits inventory.

During an initial annual membership term or a renewal term, members who pay a fee may cancel their memberships in the program, generally for a pro rata refund of the membership fees for that period. Accordingly, our profitability depends, in part, on recurring and sustained fee membership renewals.

Changes in our programs that affect the rate of rewards received by members could have adverse consequences.

We have implemented a tiered member benefit program with substantially all of our loyalty partner programs that is designed to align member benefits with member activity. If members react to these changes by reducing the frequency of transactions with our participating merchants, our sales could decrease and members could use our dining credits more slowly. In addition, the rate of our new member activation could suffer if potential members perceive our tiered benefit program as offering fewer benefits.

We must maintain an appropriate balance between the number of members and the number of participating restaurants in each market.

A critical success factor for our business is our ability to maintain an appropriate balance of members to participating restaurants within each geographic market we serve. If we have too many members and too few participating restaurants, our member base may become dissatisfied and/or participating restaurants may experience a higher volume of business from members than anticipated. This could result in low program usage, high membership cancellations and participating restaurant attrition. Alternatively, if too many restaurants participate in our programs with too few members, dining credits usage will be reduced, resulting in reduced revenue. Managing this balance may be difficult where a particular loyalty partner program has a concentration of members in a single geographic market. We cannot assure you that we will be able to manage this balance effectively in each of our markets.

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We are subject to changes to payment card association rules and practices.

Our business model depends on our ability to obtain information with respect to payment card transactions made by members at our participating restaurants. Current VISA and MasterCard rules and practices permit the aggregation of data for payment card transactions at our participating restaurants and the comparison of this data with a file containing members’ registered card information. However, there is no assurance that payment card association rules and practices will not change and limit our ability to obtain this information.

We depend upon our relationships with payment card issuers, transaction processors, presenters and aggregators.

Payment card transaction processing is an integral part of our business, and our relationships with payment card issuers, payment card processors, transaction presenters and aggregators of payment card transactions are very important. We obtained transaction data for approximately 22% of our sales for the year ended December 31, 2005, through our relationship with First Data Merchant Services Corporation. On September 19, 2005, we entered into an agreement with American Express Travel Related Services Company, Inc. (“American Express”) to obtain American Express card transaction data directly from American Express. We obtain transaction data for approximately 15% of our sales from American Express. We currently have contracts with a significant number of other processors, presenters and aggregators of payment card transactions. If these relationships terminate and we are unable to find suitable replacements, our ability to receive and process restaurants transactions could be impaired, which would adversely affect our ability to pay member benefits and recognize revenues.

Network interruptions, processing interruptions or processing errors could occur.

We depend on the functionality of transaction processing networks. Network interruptions and processing errors may result from various causes, including disruptions to telecommunications services or the electricity supply. Such disruptions may be caused by human error. There is also the potential threat of telecommunications and electrical disruptions caused by natural disasters, acts of terrorism or the malicious acts of computer criminals, who may attempt to compromise specific systems or generally propagate malicious software, such as viruses and worms. Any extensive or long-term disruptions affecting transaction processors could cause us to incur substantial additional expense.

We are susceptible to a changing regulatory environment.

We are subject to a number of current and pending federal and state laws and regulations governing privacy and the use and storage of financial data and personally identifiable information. Changes to existing laws and regulations or the promulgation of new laws and regulations could increase our operating costs, change our competitive environment or otherwise adversely affect us.

Privacy concerns of our program partners, payment card processors and the public may result in increased operating costs.

Privacy concerns make it more difficult for us to obtain and retain program partners. Our program partners may be subject to public pressure not to divulge information regarding their members to us. Our program partners may also adopt more stringent policies regarding the use and disclosure of financial data than their existing policies and practices. Our operating costs will increase if we are required to implement new systems and processes to comply with changes to our program partners’ privacy policies and practices or to address privacy concerns of our payment card processors and the public.

Our security measures may not be successful.

We have developed and implemented a number of measures in an effort to keep our member and participating merchant data secure. We continually work on enhancing and improving our security measures.

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These measures may be expensive and involve hiring additional personnel or suppliers and consultants. The measures we have taken and may take in the future may not be successful. The complete or partial failure of our security measures could result in damage to our reputation, the loss of members and participating merchants, incurring costs related to notification requirements and the filing of claims and lawsuits against us.

We are susceptible to restaurant credit risk.

We typically purchase dining credits from restaurants that participate in our Marketing Credits Program. These dining credits are used by members when they patronize participating restaurants. However, members may not be able to use any or all of the amount of the outstanding dining credits that we have purchased from that restaurant due to restaurant failure or other breach by the restaurant of our agreement with the restaurant. Although we perform due diligence on certain transactions and we generally secure dining credits by obtaining personal guarantees from restaurant owners and security interests in available assets, we cannot assure you that these measures will be adequate to enforce our agreement with the restaurant.

Economic changes could hurt our business.

The success of our business depends on members’ use at participating merchants of payment cards registered with us. If the national or local economy slows in the regions in which we do business, members may perceive that they have less disposable income to permit them to dine out. As a consequence, they may spend less and use their registered cards less often, if at all. Any decline in program usage would hurt our business. In addition, a sustained economic downturn could cause participating restaurants to go out of business or cause members to dine out less frequently. It is likely that, if the number of restaurants entering bankruptcy rises, the amount of dining credits that members are unable to use would also rise.

Alternatively, if the economy is robust and consumers have more disposable income to spend, merchants may be less inclined to participate in our programs. Any decline in the quality, attractiveness or number of participating merchants could hurt our business.

Our allowance for doubtful dining credits accounts is an estimate and may prove inadequate to absorb actual losses.

We maintain an allowance for doubtful dining credits accounts. We perform a quarterly analysis of the adequacy of our balance sheet allowance and, if necessary, adjust this allowance. This analysis is based on a number of factors, including the specific identification of at-risk dining credits, the aging of the dining credits and the overall size of the portfolio. The amount of our allowance, however, is an estimate, and we cannot assure you that our actual dining credits losses will not be materially greater than our allowance for doubtful dining credits accounts.

We could lose key personnel.

Our success depends, in part, on the skills, experience, efforts and policies of key personnel, including our President and Chief Executive Officer. We cannot assure you that we will continue to retain such personnel.

We are a defendant in lawsuits that, if adversely determined, could result in significant monetary damages and expenses to us and/or restrictions on how we conduct our business.

Our annual reports on Form 10-K and our quarterly reports on Form 10-Q describe matters in which we are a defendant. In addition, from time to time, we become involved in various litigation matters that arise in the ordinary course of business. These matters could result in significant monetary damages and expenses to us and/or restrictions on how we conduct our business.

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We face significant competition.

We compete for both members and participating merchants, and we experience competition with respect to different aspects of our business. Some of our competitors provide loyalty programs, and others provide merchant financing. Although we believe that none of our competitors provides the suite of services that we offer and that none of our competitors operates in all of the markets in which we operate, new competitors could enter our business.

Our competitors include major payment card companies that offer discount and rewards programs using a registered card platform, various loyalty program providers and companies that offer marketing services and marketing programs to merchants. There are numerous small companies that offer services that may compete with the services currently offered or to be offered in the future by us. We also compete with various finance companies to address the liquidity needs of restaurants. Certain of our competitors or potential competitors have substantially greater financial resources and expend considerably larger sums than we do for new product development and marketing. Further, we must compete with many larger and better-established companies for the hiring and retention of qualified sales and marketing personnel.

If we are unable to obtain sufficient cash, our business, financial condition and results of operations may be adversely affected.

Our business is cash intensive. We typically purchase dining credits from participating restaurants in exchange for cash. As of December 31, 2005, our cash and cash equivalents and short-term investments were $31.6 million, we have $25 million of borrowing availability under our revolving credit facility, subject to compliance with conditions in the credit facility agreement that we may not be in compliance with at the time of borrowing, and we had $121.0 million of dining credits, net of our allowance for doubtful dining credits accounts. We cannot assure you that we will be able to raise cash in the future on acceptable terms or at all. If we raise funds through the sale of equity or convertible debt securities, the value of our outstanding stock likely will be reduced.

The expansion of our program into Canada may not be successful.

The expansion of our program into Canada has required and will require us to make investments of management time and infrastructure, as well as funds. Prior to our expansion into Canada, we had no direct experience in markets outside the United States. We cannot assure you that we will be successful in having our program accepted by Canadian restaurants and members.

There are Canadian laws and regulations that differ materially from the laws and regulations of the United States and, as a result, we are subject to restrictions on the conduct of our business in Canada that we are not subject to in the United States. Conducting business in Canada requires us to enter into new relationships with Canadian payment card processors, whose guidelines may now or in the future place restrictions on the manner in which we conduct business in Canada. We face competitors in Canada who have already established a network of merchants and a base of Canadian members. We cannot assure you that our expansion into Canada will be successful.

We are controlled by Samstock, L.L.C. and its affiliates.

As of March 1, 2006, our largest stockholder, Samstock, L.L.C. and its affiliates, beneficially owned in aggregate 6,589,026 shares of our common stock, representing approximately 25% (based on 26,463,564 shares of common stock outstanding at March 1, 2006) of our outstanding common stock (assuming the exercise of all exercisable stock options and warrants and issuance of all vested stock awards). Of this amount, 6,056,446 shares were owned by Samstock and its affiliates and 532,580 shares were held by others but were subject to voting and disposition restrictions in favor of Samstock. As a result of their ownership, Samstock and its affiliates may be able to substantially influence the outcome of all matters submitted to a vote of our stockholders, including the

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election of directors. Samstock is ultimately owned by certain trusts and the trustee of these trusts is Chai Trust Company, L.L.C. The current chairman of our board of directors, Donald J. Liebentritt, is the president of Chai Trust Company, L.L.C.

Our board of directors may issue our authorized preferred stock without stockholder approval.

Our certificate of incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock with rights and preferences that may be determined from time to time by our board of directors. Accordingly, our board of directors may, without stockholder approval, issue one or more series of preferred stock with rights which could adversely affect the voting power or other rights of the holders of outstanding shares of preferred stock or common stock. Although we do not have any current plans to issue any series or shares of preferred stock, we may do so in the future.

The future sales of restricted and other shares may cause dilution to each stockholder’s percentage ownership interest and could cause our stock price to decline.

Sales of a substantial amount of stock in the public market (such as the shares previously registered by us), or the perception that these sales may occur, could result in lower market prices of our common stock. This could also impair our ability to raise additional capital through the sale of other securities. As of March 1, 2006, 26,463,564 shares of our common stock were outstanding. In addition, as of March 1, 2006, 1,124,250 shares of our common stock were issuable upon exercise of outstanding employee and director stock options; 228,410 shares of our common stock were issuable upon the exercise of outstanding director stock awards; 480,580 shares of our common stock were issuable upon the exercise of employee stock awards and an additional 514,660 shares of our common stock were available under our incentive stock option plans for future grant. All of these shares have been registered for sale. The issuance and sale of a significant number of shares of our common stock upon the exercise of stock options and warrants, or the sale of a substantial number of shares of our common stock pursuant to Rule 144 or otherwise, could result in a dilution to each stockholder’s percentage ownership and could adversely affect the market prices of our securities.

The price of our common stock could be volatile.

The market prices of our securities have been volatile and could continue to be subject to significant fluctuations in response to the factors set forth above and other factors, many of which are beyond our control. Such fluctuations, as well as economic conditions generally, may adversely affect the market price of our securities. In addition, the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies.

These fluctuations may adversely affect the price of our securities regardless of operating performance.

Delaware corporate law, our certificate of incorporation and our by-laws contain anti-takeover provisions that could delay or prevent a change of control even if the change of control would be beneficial to our stockholders.

Delaware law, our certificate of incorporation and our by-laws contain anti-takeover provisions that could delay or prevent a change of control of the Company, even if a change of control would be beneficial to our stockholders. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions:

• authorize the issuance of preferred stock that can be created and issued by our board of directors without prior stockholder approval to increase the number of outstanding shares and deter or prevent a takeover attempt;

• prohibit common stockholder action by written consent, thereby requiring all common stockholder actions to be taken at a meeting of our common stockholders;

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• prohibit cumulative voting in the election of directors, which would otherwise enable less than a majority of stockholders to elect director candidates;

• limit the ability of stockholders to call special meetings of stockholders; and

• establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, Section 203 of the Delaware General Corporation Law, our certificate of incorporation and the terms of our 2004 Long-Term Incentive Plan may discourage, delay or prevent a change of control of our company. Specifically, Section 203 and our certificate of incorporation prohibit us from engaging in any business combination with an interested stockholder unless specific conditions are met. Also, our 2004 Long-Term Incentive Plan includes provisions that allow us to grant options, stock appreciation rights and other stock-based awards that will become vested immediately upon a change of control of the Company.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table sets forth certain information regarding our principal facilities as of December 31, 2005:

Location	Monthly Rent		Term of Lease	Square Footage
Chicago, IL—Executive offices	$	25,609	09/01/03 - 08/31/08	15,575
Miami, FL—Operations		50,191	07/01/05 - 06/30/07	26,769
Englewood Cliffs, NJ—Backup IT Center		4,916	10/01/05 - 09/30/10	3,277
New York, NY—Sales (Subleased)		12,205	09/01/01 - 10/31/06	3,000
New York, NY—Sales		6,489	01/03/06 - 12/03/12	2,049
Pasadena, CA—Sales		7,482	07/13/01 - 07/12/06	2,057
Duluth, GA—Sales		5,894	04/01/04 - 03/31/09	3,815
Bethesda, MD—Sales		4,457	01/01/04 - 12/31/08	1,923
Boston, MA—Sales		3,532	09/01/03 - 08/31/08	1,500

We subleased our New York sales office effective December 5, 2005 and moved that sales office to a new location. The term of the sublease coincides with the term of our current lease on this location, both of which expire on October 31, 2006. The sublease calls for a monthly rent payment of $12,000 and the monthly rent payment the Company is required to make under the original lease agreement is $12,205. In addition to the properties listed above, we have fourteen sales offices throughout the United States and Canada. We believe our properties are generally in good condition and adequate for our needs. Furthermore, we believe that suitable additional or replacement space will be available when and if needed.

Item 3. Legal Proceedings

On May 25, 2004, a complaint was filed in the Los Angeles County Superior Court against the Company and certain of its subsidiaries by Bistro Executive, Inc., Westward Beach Restaurant Holdings, LLC and MiniBar Lounge, all of which were participants in the Company’s dining credits Purchase Plan (the “Dining Plan”), and their respective owners.

The complaint was brought as a putative class action and alleges that amounts paid by the Company under the Dining Plan constituted loans in violation of California usury laws and the California Unfair Competition Law. The complaint seeks, among other relief, damages and equitable and injunctive relief, including disgorgement of all purported “interest” and profits earned by the Company from the Dining Plan in California, which plaintiffs allege to be a significant portion of an amount in excess of $300 million, and treble damages for all purported “interest” paid within one year prior to the filing of the complaint.

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On June 25, 2004, the action was removed to the United States District Court for the Central District of California.

On October 11, 2005, plaintiffs’ motion for class certification was granted certifying two classes as follows: (i) all California restaurants which, from May 25, 2000 to May 25, 2004, participated in the Dining Plan and which took a cash advance from the Company pursuant to its California Dining Plan agreements, and (ii) all persons who, from May 25, 2000 to May 25, 2004, guaranteed payment of cash advances underlying the Company’s California Dining Plan agreements. Trial had been set for April 24, 2006, but the date was continued and a new trial date has been set for October 3, 2006. The Company disputes the allegations of wrongdoing in this complaint, and will continue to defend itself vigorously in this matter. The ultimate cost to the Company from this action is not possible to predict and may not be determined for a number of years.

On October 1, 2004, a complaint was filed in the United States District Court for the Eastern District of Texas against Rewards Network Inc. by Source Inc. The complaint claims that the Company is infringing four patents owned by Source Inc. The complaint seeks, among other relief, treble damages due to willful infringement and equitable relief. The Company disputes the allegations of wrongdoing in this complaint, and will continue to defend itself vigorously in this matter. The ultimate cost to the Company from this action is not possible to predict and may not be determined for a number of years.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of stockholders during the three-month period ended December 31, 2005.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(A) MARKET INFORMATION

Our common stock is listed on the American Stock Exchange. The following table sets forth, for the periods presented, the high and low sales prices per share of our common stock, as reported on the American Stock Exchange.

Quarter Ended	Low	High
March 31, 2004	8.90	12.25
June 30, 2004	8.51	11.29
September 30, 2004	6.20	8.90
December 31, 2004	4.88	7.62
March 31, 2005	4.01	7.00
June 30, 2005	3.63	5.50
September 30, 2005	4.95	7.06
December 31, 2005	4.76	7.01

(B) HOLDERS

As of March 14, 2006, there were 261 holders of common stock of record.

(C) DIVIDENDS

We have not paid cash dividends on our common stock in our two most recent fiscal years. We do not expect to pay any cash dividends on our common stock in the foreseeable future.

Item 6. Selected Financial Data (in thousands except for per share data)

We changed our fiscal year end to December 31 from September 30, effective the three-month period ended December 31, 2001. The financial information for the three-months ended December 31, 2001 and 2000 (unaudited) is provided for comparative purposes.

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The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the notes to those financial statements, which are included in this Annual Report on Form 10-K.

	Years ended December 31,												Year ended September 30,			Three months ended December 31,
	2005			2004			2003			2002			2001			2001			2000
																			Unaudited
Statements of Operation Data
Sales	$	287,145		$	348,078		$	349,026		$	289,095		$	190,037		$	50,629		$	43,981
Net revenue		74,261			89,711			88,638			70,709			45,401			12,162			9,835
Other operating revenue		2,790			3,536			4,684			5,140			7,785			1,632			1,915
Total operating revenues		77,051			93,247			93,322			75,849			53,186			13,794			11,750
Total operating expenses		74,178			68,195			64,771			55,949			47,450			12,109			11,301
Operating income		2,873			25,052			28,551			19,900			5,736			1,685			449
Other income (expense), net		(2,753	)		(2,804	)		(2,371	)		(1,993	)		(4,317	)		(529	)		(1,342	)
Income (loss) before income taxes and extraordinary item		120			22,248			26,180			17,907			1,419			1,156			(893	)
Income tax provision (benefit)		741			9,031			10,470			(1,328	)		85			71			—
Net income (loss)	$	(621	)	$	13,217		$	15,710		$	19,235		$	1,334		$	1,085		$	(893	)
Net income (loss) available to common stockholders	$	(621	)	$	14,865		$	16,048		$	(714	)	$	131		$	788		$	(1,194	)
Per Share Data:
Net income (loss)
Basic	$	(0.02	)	$	0.53		$	0.68		$	(0.04	)	$	0.01		$	0.05		$	(0.07	)
Diluted	$	(0.02	)	$	0.50		$	0.61		$	(0.04	)	$	0.01		$	0.05		$	(0.07	)
Weighted average number of common and common equivalent shares outstanding:
Basic		26,133			24,837			23,056			18,357			15,983			15,781			16,177
Diluted		26,133			29,731			26,439			18,357			16,281			16,089			16,177
Balance Sheet Data:
Total assets	$	190,887		$	200,671		$	187,125		$	152,143		$	108,320		$	109,390		$	112,359
Revolving securitization		—			—			—			60,000			55,500			55,500			56,442
Long-term debt		70,000			70,000			70,000			—			—			—			—
Redeemable preferred shares		—			—			—			133			9,672			9,672			9,672
Stockholders’ equity		94,188			92,368			73,647			52,268			20,157			20,717			19,555
Long term debt to total assets		37	%		35	%		37	%		—			—			—			—
Earnings to fixed charges		103	%		511	%		560	%		557	%		92	%		156	%		48	%

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(amounts in thousands, except average transaction amount, merchant count and per share data)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and the notes to those financial statements provided under Part II, Item 8 of this Annual Report on Form 10-K.

Overview

We are a leading provider of marketing services and loyalty programs to the restaurant industry. We help thousands of restaurants and other merchants grow their businesses by providing marketing services, loyalty programs, business intelligence, and access to capital. We partner with leading airline frequent flyer programs, club memberships, and other affinity organizations to provide millions of members with incentives to do business with our participating merchants. We provide members with incentives in a variety of benefit currencies, including airline miles, a variety of loyalty and reward program points, and Cashback Rewards^SM savings.

We primarily offer two programs to participating restaurants—our Marketing Credits Program and our Marketing Services Program. Our Marketing Credits Program provides our participating restaurants with marketing, loyalty programs, business intelligence and also access to capital through our purchase of dining credits from these restaurants. Our Marketing Services Program provides our participating restaurants with all of these services except access to capital because we do not purchase dining credits from restaurants that participate in the Marketing Services Program.

We obtain members through our relationships with airlines and other loyalty program providers, directly through our website, through corporate clients who participate in our corporate program, and through our relationships with payment card issuers. We are able to provide frequent flyer miles and other currencies as benefits to members through our relationships with these airlines, payment card issuers and other loyalty program providers.

Our business is dependent on, among other things, members’ continuing decision to dine in our participating restaurants and earn benefits. In this regard, having a diverse cuisine mix and expanding inventory of participating restaurants is an important element to our continuing growth and profitability.

We generate revenue when members dine at participating restaurants and use a payment card that they have registered with us. For transactions at participating restaurants, our revenue is equal to a percentage of members’ total dining transaction. These revenues are applied to recover our costs where we have purchased dining credits; provide benefits to members; cover our selling, general and administrative expenses; and generate operating income that provides a return for our stockholders.

We also offer a hotel program to certain members. The hotel program provides members with reduced rates and Cashback Rewards^SM savings, frequent flyer miles and other benefits if they make their reservations at participating hotels through our website and pay for the hotel room with a payment card that they have registered with us. On July 1, 2005, we outsourced our entire hotel offering to Travelweb LLC, a travel distribution company, which pays us a fee when a member pays for a hotel room with a payment card that they have registered with us after making a reservation through our website.

During 2004 and the beginning of 2005, we expanded the flexibility of our Marketing Credits Program products, often resulting in more favorable pricing of dining credits for our restaurants, in an effort to meet the needs of new restaurants and reduce attrition of existing restaurants. These products resulted in reduced sales yield and an increased cost of sales. During the same period, we also increased our efforts to manage members’ share of an individual restaurant’s business in an effort to reduce attrition of existing restaurants. We manage our members’ share of an individual restaurant’s business, when appropriate, by qualifying transactions at that restaurant only on certain days of the week and/or only for certain member groups and/or by limiting the number

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(amounts in thousands, except average transaction amount, merchant count and per share data)

of qualified transactions a member may have in a specific period. The expanded flexibility of our Marketing Credits Program products and the increased management of our members’ share of an individual restaurant’s business had the effect of extending the period of time it takes for members to use the dining credits that we purchase from restaurants, which contributed to an increase in our provision for losses. We did not experience the expected increase in merchant count as a result of these initiatives.

On March 31, 2005, Ronald L. Blake was named President and Chief Executive Officer and throughout 2005 there were several additional changes in our management team. Our new management team adopted a number of initiatives during the second half of 2005. In an effort to increase the profitability of our Marketing Credits Program products, we adopted new pricing for these products. The new pricing is intended to increase the sales yield and decrease our cost of sales. We are also focused on providing an improved member experience by working to increase the days of the week on which benefits are available to members at individual restaurants and increasing the number of restaurants that provide full benefits to members. In order to support sales efforts for our products with this new pricing structure, we developed a new sales approach, shifting from a price-driven selling approach to a consultative, value-based selling approach. We believe that the value-based selling approach and related sales training programs will better prepare our salespersons to articulate the value of our marketing, access to capital, loyalty programs and business intelligence services. In addition to our new sales approach, we modified the sales compensation plan to compensate our sales personnel based on the profitability of our deals with restaurants. We believe that our value-based selling approach combined with the new pricing structure of our products may result in a lower merchant count in the short term, although we have designed the new pricing structure of our products to increase profitability despite a decrease in merchant count. We believe these initiatives will result in increased restaurant retention and profitability in the long term.

Also during 2005, we implemented more conservative dining credits purchasing policies in an attempt to decrease the time it takes for members to use the dining credits we purchase from restaurants. In addition, we augmented our due diligence process and began developing and implementing new credit evaluation tools in an effort to better assess the financial risk of proposed dining credits purchases and the credit profile of our restaurants. We have revised and strengthened our approval processes and standards in an effort to further improve the profitability and reduce the risk of the deals that we enter into with restaurants. If we are successful with these initiatives, we believe we should be able to reduce our exposure to financial risk in our restaurant portfolio, which we believe should over time reduce our provision for losses.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the allowance for dining credits losses, the valuation allowance, if any, for net deferred tax assets, investments and intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Allowance for Dining Credits Losses

We provide allowances for dining credits losses based on our estimate of losses that would result from the inability of participating restaurants to remain in business and enable us to recover outstanding dining credits. If

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(amounts in thousands, except average transaction amount, merchant count and per share data)

the financial condition of our restaurant base were to deteriorate beyond our expectations, resulting in participating restaurants’ inability to provide food, beverage, goods and services to members thereby reducing the members’ use of dining credits, additional allowances may be required.

We review our members’ ability to use dining credits on a regular basis and provide for anticipated losses on dining credits from restaurants that have ceased operations, restaurants that interfere with our members’ ability to use dining credits and restaurants whose dining credits are not being utilized by members. All other balances are segregated and evaluated based on the size of balance and the estimated number of months required for members to usez the dining credits outstanding. Losses are reduced by recoveries of dining credits previously written off. Account balances are charged off against the allowance after recovery efforts have been exhausted.

Deferred Tax Assets Valuation Allowance

We record a valuation allowance to reduce our deferred tax assets when future realization is in question. We consider future taxable income and available tax planning strategies in assessing the need for the valuation allowance. In the event we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period in which such determination is made.

Impairment Loss of Unamortized Goodwill

On at least an annual basis, we evaluate whether events and changes in circumstances warrant the recognition of an impairment loss of unamortized goodwill. The conditions that would trigger an impairment assessment of unamortized goodwill include a significant, sustained negative trend in our operating results or cash flows, a decrease in demand for our programs, a change in the competitive environment and other industry and economic factors. Recoverability of an asset is measured by comparison of its carrying amount to the expected future cash flows. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value. Significant management judgment is required in the forecasting of future operating results that are used in the preparation of projected cash flows, and, if different conditions prevail or judgments are made, a material write-down of goodwill could occur.

We comply with SFAS No. 142, “Goodwill and Other Intangible Assets,” the current standard for periodic assessment of the carrying value of intangible assets, including goodwill. We assess the impact of SFAS No. 142 using a two-step approach to assess goodwill based on applicable reporting units and any intangible assets, including goodwill, recorded in connection with our previous acquisitions. During the three months ended March 31, 2005, certain territories related to reacquired franchises experienced a significant decline in sales related to unanticipated competition and the loss of key salespersons in these territories which contributed to an operating loss for the quarter. These financial results, coupled with several changes in senior sales management in the three months ended March 31, 2005, gave rise to the Company’s need to reassess the goodwill related to the reacquired franchises.

In accordance with the provisions of SFAS 142, the Company prepared a discounted cash flow analysis which indicated that the book value of certain reporting units exceeded their estimated fair value and that goodwill had been impaired. Accordingly, the Company recognized a non-cash impairment loss of $1,554 during the three months ended March 31, 2005. As of December 31, 2005, we had unamortized goodwill of $8,117.

Revenue Recognition

We recognize revenue when members patronize our participating merchants and pay using a payment card they have registered with us. Revenue is recognized only if the member’s transaction qualifies in accordance with

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(amounts in thousands, except average transaction amount, merchant count and per share data)

the rules of the particular program. The amount of revenue recognized is that portion of the member’s total transaction amount that we are entitled to receive in cash, in accordance with the terms of our agreement with the participating merchant. For example, if a member’s total transaction amount is $100 at a participating restaurant, as evidenced by the full amount of the payment card transaction, and our contract provides for us to receive 80%, the amount of revenue we recognize is $80, representing what we will actually realize in cash. Similarly, under the typical Marketing Services Program contract, we recognize revenue only to the extent that we are contractually entitled to receive cash for a portion of the member’s total transaction amount. The same $100 transaction referred to above at a Marketing Services Program merchant may yield $20 in cash to be realized.

Membership Fees and Other Income

Membership fees and other income consists principally of renewal fees from the Cashback Rewards Program members and is recognized over the membership period, which is usually twelve months beginning in the month the fee is received. Cardholder membership fees are cancelable and refunded to members, if requested, on a pro rata basis based on the remaining portion of the membership. In those cases where we earn an annual fee by retaining a portion of the benefits for each member account enrolled in the program, the retained portion reduces the amount of benefit we record.

Results of Operations

As a means of better explaining our operations and results, the following table illustrates the relationship between revenue and expense categories for the years ended December 31, 2005, 2004 and 2003. These amounts have been rounded to the nearest tenth.

	Percentage of Sales
	2005		2004		2003
Sales	100.0		100.0		100.0
Cost of sales	51.4		48.5		48.0
Provision for dining credits losses	7.8		5.7		4.7
Member benefits	14.9		20.1		21.9
Net revenue	25.9		25.8		25.4
Membership fees and other income	1.0		1.0		1.3
Total operating revenue	26.8		26.8		26.7
Salaries and benefits	6.5		5.3		4.8
Sales commission and expenses	7.3		5.9		5.8
Professional fees	2.5		1.4		0.7
Member and merchant marketing expenses	2.1		1.9		2.4
Goodwill impairment	0.5		0.0		0.0
General and administrative expenses	6.9		5.2		4.8
Total operating expenses	25.8		19.6		18.6
Operating income	1.0		7.2		8.2
Other income (expense), net	(1.0	)	(0.8	)	(0.7	)
Income before income tax provision	0.0		6.4		7.5
Income tax provision	0.3		2.6		3.0
Net (loss) income	(0.2	)	3.8		4.5

22

(amounts in thousands, except average transaction amount, merchant count and per share data)

Comparison of the Years Ended December 31, 2005 and 2004

The following table sets forth for the periods presented our sales, components of our costs of sales and certain other information for each of our two marketing programs. Our hotel program is included under the Marketing Services Program.

Results of Operations (Year ended December 31, 2005 versus December 31, 2004)

	2005									2004
	Marketing Credits Program			Marketing Services Program			Total			Marketing Credits Program			Marketing Services Program			Total
Number of qualified transactions		8,182			1,981			10,163			8,966			2,115			11,081
Average transaction amount	$	46.39		$	53.04		$	47.69		$	47.71		$	54.20		$	48.95
Qualified transaction amounts	$	379,578		$	105,065		$	484,643		$	427,782		$	114,636		$	542,418
Sales yield		70.2	%		19.7	%		59.2	%		74.9	%		24.0	%		64.2	%
Sales		266,471			20,674			287,145			320,589			27,489			348,078
Cost of dining credits		146,021			—			146,021			167,667			—			167,667
Processing fee		1,225			339			1,564			986			85			1,071
Total cost of sales	$	147,246		$	339		$	147,585		$	168,653		$	85		$	168,738
Provision for dining credits losses		22,522			—			22,522			19,711			—			19,711
Member benefits		29,581			7,407			36,988			51,842			12,165			64,007
Bonus rewards		1,050			290			1,340			855			229			1,084
Partner Commissions		3,631			818			4,449			4,077			750			4,827
Total member benefits		34,262			8,515			42,777			56,774			13,144			69,918
Net revenue	$	62,441		$	11,820		$	74,261		$	75,451		$	14,260		$	89,711

As more fully discussed below, sales for 2005 decreased 17.5% when compared to the prior year primarily due to a decrease in the number of restaurants in our Marketing Credits Program, a decrease in the number and amount of qualified transactions, and a decrease in the sales yield recognized from qualified transactions. While sales metrics for 2005 were, in general, lower as compared to 2004, a number of mid-year changes in policy, procedure and selling approach were introduced during the second half of 2005 to address the decrease in overall sales metrics. We initiated several initiatives aimed at improving the profitability of sales, including the revision of restaurant deal profitability standards, revision of the sales compensation plan to be driven by restaurant deal profitability and the development of a consultative, value-based selling approach for our sales force to use. These changes are designed to lead to an increase in overall merchant count, an increase in qualified transaction amount, an increase in overall sales yield for our products, a decrease in cost of sales and a lower provision for losses.

Total merchants as of December 31, 2005 were 9,957 as compared to 10,502 as of December 31, 2004, a 5.2% decrease. The decrease in total merchant count was driven by a 1,113, or 12.3%, decrease in Marketing Credit Program merchants which was partially offset by a 568, or 39.6%, increase in Marketing Services Program merchants. The decrease in merchant count is attributed to our focus on entering into deals with increased profitability, as well as a decrease in sales force efficiency due to a less experienced sales force and the rollout of a new value-based selling approach during the third and fourth quarters of 2005.

Qualified transaction amounts at our participating merchants (which are transactions where members are entitled to receive benefits) decreased $57,775 or 10.7% to $484,643 for the year ended December 31, 2005 as

23

(amounts in thousands, except average transaction amount, merchant count and per share data)

compared to $542,418 for the prior year. The number of qualified transactions decreased 8.3% to approximately 10,163 for the year ended December 31, 2005 as compared with 11,081 for the prior year and the average qualified transaction amount decreased 2.6% to $47.69 for the year ended December 31, 2005 from $48.95 for the prior year.

The decrease in the number of qualified transactions is a result of fewer participating restaurants in the programs as well as our efforts to improve the management of members’ share of an individual restaurant’s business. We manage our members’ share of an individual restaurant’s business, when appropriate, by qualifying transactions at that restaurant only on certain days of the week and/or only for certain member groups and/or by limiting the number of qualified transactions a member may have in a specific period. As a result, even if members have the same amount of transactions at that restaurant, the number of those transactions that are qualified transactions may be lower. This contributed to an 8.7% decrease in the number of active member accounts to 3,427 at December 31, 2005 as compared with 3,753 at December 31, 2004.

We believe that the lower average qualified transaction amount for the year ended December 31, 2005 compared with the year ended December 31, 2004 was due to a number of factors, including, but not limited to, (i) decreased sales in some large primary markets where the average transaction amounts tend to be higher, (ii) increased weekday revenues where transaction amounts tend to be slightly lower, (iii) increased transactions among member groups with lower average dining transaction amounts and (iv) decreased transactions among member groups with higher average dining transaction amounts.

Sales yield, which represents sales as a percentage of qualified transaction amounts, decreased to 59.2% for the year ended December 31, 2005 compared with 64.2% for the prior year. The decrease in sales yield for the year was a result of the sale of Marketing Credit and Marketing Services products with lower sales yields during 2004 and 2005. The rollout of the value-based selling approach in mid-2005 is intended to assist the sales force in securing new deals with higher sales yields going forward. While our intent is to increase sales yield in both the Marketing Credit and Marketing Services program, our overall sales yield will be impacted by future sales mix between these programs. If sales mix shifts towards the Marketing Services Program, which has a lower overall sales yield, the blended sales yield would be expected to decrease as well.

Cost of sales, which is composed of the cost of Dining Credits and related processing fees, increased to 51.4% of sales for the year ended December 31, 2005 compared to 48.5% of sales for the prior year. Many of the new products sold in the first half of 2005 not only had a lower sales yield, but also had more favorable pricing of Dining Credits for our restaurants, which has resulted in a higher cost of sales for the year ended December 31, 2005 compared with the prior year. The new value-based selling approach is intended to assist the sales force in securing new deals with a lower cost of sales going forward. Also contributing to the increase in the cost of sales percentage was the decrease in sales under our Marketing Services Program to 7.2% of total sales for the year ended December 31, 2005 compared to 7.9% of total sales for the prior year. There is effectively no direct cost of sales associated with sales under our Marketing Services Program and, therefore, the relative decrease in these sales as a percentage of total sales results in a higher total cost of sales percentage.

The provision for Dining Credits losses increased to 7.8% of total sales and 8.5% of Marketing Credits Program sales for the year ended December 31, 2005 compared to 5.7% of sales and 6.1% of Marketing Credits Program sales for the year ended December 31, 2004. At the end of each reporting period we estimate the allowance for doubtful Dining Credits accounts and, if necessary, adjust the provision for losses. The Dining Credits portfolio is aged based on sales for the preceding quarter and the allowance is determined primarily by applying estimated loss percentages to the aged portfolio. Allowances are also provided for specifically identified accounts and for Dining Credits balances that are large or slow moving. The increase in the provision for losses for the year ended December 31, 2005 was a result of an increase in write-offs. The new deals entered into in 2004 and early 2005 generally allowed restaurants a larger dining credit purchase opportunity, which extended

24

(amounts in thousands, except average transaction amount, merchant count and per share data)

the period of time it takes our members to use the dining credits. This increased credit risk in the dining credits portfolio and resulted in increased write-offs. Also, contributing to the higher level of expense for the year ended December 31, 2005 is an allowance at 100% of our $762 exposure for restaurants in the areas affected by Hurricane Katrina.

During the second half of 2005, we implemented more conservative dining credits purchasing policies that resulted in a decrease in the average amount of time it takes our members to use the dining credits we purchase. In addition, we augmented our due diligence process and began developing and implementing new credit evaluation tools in an effort to better assess the financial risk of the proposed deals and the credit profile of our restaurants. We have revised and strengthened our approval processes and standards in an effort to further improve the profitability and reduce the potential risk of the deals that we enter into with our restaurants. If we are successful with these initiatives, we believe we should be able to reduce our exposure to financial risk in our merchant portfolio, which we believe should over time reduce our provision for losses.

Member benefits which include partner commissions and incentive bonus rewards paid to members, decreased to 14.9% of sales for 2005 compared to 20.1% of sales for 2004. There are two primary reasons for the decrease in the rate of benefits during 2005. First, in some cases, as part of the changes in restaurant deal economics, we have reduced member benefit levels. Secondly, in the second quarter of 2004 we introduced a program of variable benefits whereby some of our members’ benefits are tied to their level of participation in our programs. Effective July 1, 2005, the variable benefits program was rolled out to substantially all of our loyalty partner program members. The reduced member benefit levels and the reduced rate of benefits paid to less engaged members resulted in a lower overall effective rate of benefits earned by our total membership base in the year ended December 31, 2005 compared with the prior year.

Membership and other income decreased $746 or 21.1% for the year ended December 31, 2005 compared with the prior year. The decrease can be primarily attributed to the decline in membership fee income and a focus on marketing a no-fee dining program to key program partners where we enroll accounts at a reduced cost of acquisition and solicitation.

Salaries and benefits increased $301 or 1.6% to $18,623 for the year ended December 31, 2005 from $18,322 for the prior year due primarily to information technology personnel who were previously outsourced that were brought in-house in January 2005 and included in salaries and benefits instead of operating expenses. In addition, there were annual merit increases and higher employee benefit costs. The annual merit increases and higher employee benefit costs were substantially offset by a reduction of $727 thousand in management incentive compensation. The lower management incentive compensation was due to the Company’s below expected performance in 2005.

Sales commissions and expenses increased to 7.3% of sales for the year ended December 31, 2005 compared to 5.9% of sales for the year ended December 31, 2004. In June 2005, we made changes to our sales compensation plan that provided minimum incentive payments and now pays our salespersons based on the profitability of each restaurant deal. Minimum incentive payments began July 2005 and continued through November of 2005 and totaled approximately $1,270. The expected reduction in sales commissions from a 17.5% decrease in sales for the year ended December 31, 2005 compared to the prior year was more than offset by the increase in base salaries and the minimum incentive payments to salespersons. In addition, sales training and related travel expenses were $1,566 for the year ended December 31, 2005, compared with $595 for the prior year. During the second quarter of 2005, the Company hired an outside consulting firm to assist with the training of the sales force. We believe that the investment made in the training of our sales consultants will result in increased sales productivity, higher deal profitability and improved restaurant retention.

25

(amounts in thousands, except average transaction amount, merchant count and per share data)

Professional fees increased $2,253 or 45.0% to $7,256 for the year ended December 31, 2005 compared with the prior year. The increase is primarily due to increased legal costs for various litigation matters, offset by a $254 decrease in accounting fees associated with the requirements under Sarbanes-Oxley for the audit of internal control over financial reporting in 2005 compared to 2004.

Member and merchant marketing expenses decreased $575 or 8.9% for the year ended December 31, 2005 compared with the prior year primarily due to the fact that we have discontinued our newsletter mailings and we are concentrating more on electronic marketing such as emails. In addition, we have eliminated our hotel and retail marketing efforts to focus on our dining business.

During the first quarter of 2005, certain territories that we reacquired in 1998 and 1999 experienced a significant decline in sales related to unanticipated competition and the loss of key salespersons in these territories which contributed to an operating loss for the quarter. These financial results, coupled with several changes in senior sales management in the first quarter, gave rise to the Company’s need to evaluate the goodwill related to the reacquired franchises. As a result of this evaluation, the Company recognized a non-cash goodwill impairment loss of $1,554 during the first quarter of 2005. There was no impairment charge recorded in 2004.

General and administrative expenses increased $1,767 or 9.8% for the year ended December 31, 2005 compared with the prior year. The increase is primarily the result of (i) increases in severance which increased $2,787 to $2,875 primarily due to the termination of some senior executives, including the Chief Executive Officer, during 2005; (ii) increases in rent and other office expenses by $336 or 13.0% to $2,930 due primarily to rent increases, the opening of some new sales offices and increases in temporary services; and (iii) an increase in depreciation and amortization by $234 or 5.6% to $4,391 due to the design of a data warehouse as well as the purchase or design of software primarily relating to the Company website or websites hosted on behalf of our partners. These increases were partially offset by decreases in (i) programming and systems by $717 or 25.2% to $2,123 due primarily to previously outsourced information technology personnel costs that are now included in salaries and wages; and (ii) other expenses by $878 or 12.2% to $6,330 primarily due to an impairment of $500 on an investment in a development stage entity during 2004 and a reduction in financial advisory fees.

Interest and other income increased $154 or 44.3% to $502 for the year ended December 31, 2005 compared with the prior year. The increase is primarily due to our increased cash balance towards the end of 2005 resulting from the decline in the Dining Credits balance as well as improved interest rates earned on these investments.

Interest expense and financing costs related to our securitization facility, revolving credit facility and convertible subordinated debentures increased $103 or 3.3% for the year ended December 31, 2005 compared to the prior year. On November 3, 2004, we entered into a $50,000 unsecured revolving credit facility with Bank of America, N.A. and LaSalle Bank, N.A. In July 2005, the facility was amended to, among other things, reduce the facility limit to $25,000 and modify the maturity date to June 30, 2006. EITF No. 98-14 states that if the borrowing capacity of the new arrangement is less than the borrowing capacity of the old arrangement, then any fees paid to the creditor and any third-party costs incurred should be associated with the new arrangement (that is, deferred and amortized over the term of the new arrangement). In addition, any unamortized deferred costs relating to the old arrangement at the time of the change should be written off in proportion to the decrease in borrowing capacity of the old arrangement. The remaining unamortized deferred costs relating to the old arrangement should be deferred and amortized over the term of the new arrangement. As a result of the amendment, the Company amortized an additional $268 of deferred financing costs relating to the old arrangement during 2005. Also, financing costs associated with our securitization facility were fully amortized in May 2004 thereby partially offsetting the increase in 2005 expense. There were no borrowings outstanding under the revolving credit facility at December 31, 2005.

26

(amounts in thousands, except average transaction amount, merchant count and per share data)

Our effective tax rate for the year ended December 31, 2005 was 36.8% compared with 40.6% for the prior year due to the decrease in the applicable federal rate and the weighted average effective state tax rate resulting from a shift in the apportionment factors among the states in which we conduct business. The current tax provision, which totaled $741 as compared to taxable book income of $120 was driven by (i) several unfavorable book versus tax differences, including severance expense, goodwill impairment and depreciation, that caused taxable income to be higher than book income and (ii) state tax planning strategy that, while effective in reducing our effective state tax rate, caused a one-time expense charge for the write-down of a deferred tax asset relating to dining credit allowances.

Net loss for the year ended December 31, 2005 was $621 compared with net income of $13,217 for the prior year. This change is primarily due to the decline in sales, increase in the cost of Dining Credits, higher provision for losses, severance costs, a goodwill impairment charge, increased salaries and benefits, sales commissions, professional fees and higher rent and office expenses. Our weighted average shares and our basic and diluted weighted average shares outstanding were 26,133 for the year ended December 30, 2005. Weighted average shares for the year ended December 31, 2004 were 24,837 shares and our diluted weighted average shares were 29,731 shares. We adopted EITF 04-08 as of September 31, 2004. We have $70,000 of 3.25% debentures that are convertible into approximately 3,913 shares of common stock if certain conditions are met. Applying the if-converted method, as required by EITF 04-08, net income for the diluted earnings per share calculation is adjusted for interest expense associated with the convertible debt instrument and diluted weighted average shares outstanding are increased for shares issuable upon conversion. We excluded 4,102 weighted average shares of common stock equivalents from our 2005 calculation of diluted weighted average shares outstanding as their effect would have been anti-dilutive. Prior period diluted shares outstanding and diluted earnings per share amounts have been revised to present comparable information.

Comparison of the Years Ended December 31, 2004 and 2003

The following table sets forth for the periods presented our sales, components of our costs of sales and certain other information for each of our two marketing programs. Our hotel program is included under the Marketing Services Program.

Results of Operations (Year ended December 31, 2004 versus December 31, 2003)

	2004									2003
	Marketing Credits Program			Marketing Services Program			Total			Marketing Credits Program			Marketing Services Program			Total
Qualified transactions amount	$	427,782		$	114,636		$	542,418		$	418,806		$	109,834		$	528,640
Sales yield		74.9	%		24.0	%		64.2	%		76.4	%		26.3	%		66.0	%
Sales		320,589			27,489			348,078			320,139			28,887			349,026
Cost of dining credits		167,667			—			167,667			166,249			—			166,249
Processing fee		986			85			1,071			1,175			105			1,280
Total cost of sales	$	168,653		$	85		$	168,738		$	167,424		$	105		$	167,529
Provision for dining credits losses		19,711			—			19,711			16,502			—			16,502
Member benefits								64,007									71,873
Bonus rewards								1,084									771
Partner Commissions								4,827									3,713
Total member benefits								69,918									76,357
Net revenue							$	89,711								$	88,638

27

(amounts in thousands, except average transaction amount, merchant count and per share data)

As more fully discussed below, sales for 2004 decreased 0.3% when compared to the prior year primarily due to a decrease in the sales yield recognized from qualified transactions, a reduction in the average transaction amount and a decrease in the number of our Marketing Services participating restaurants.

Qualified transaction amounts at our participating merchants (qualified transactions are transactions where members are entitled to receive benefits) increased $13,778 or 2.6% to $542,418 for the year ended December 31, 2004 as compared to $528,640 for the prior year. A decrease in the average transaction amount to $48.95 for the year ended December 31, 2004 from $50.51 for the prior year was more than offset by the increase in number of transactions, which increased by 5.9% to approximately 11,081 for 2004 as compared with 10,466 for 2003. The increase in the number of transactions was primarily the result of a 9.8% increase in the number of active member accounts to 3,753 at December 31, 2004 as compared with 3,417 at December 31, 2003. An active member account is an account with at least one qualified transaction with one of our participating merchants during the previous 12 months. We believe that the lower average dining transaction amount in 2004 compared with 2003 was due to a number of factors, including, but not limited to, the replacement of some restaurants in our programs with restaurants with lower menu prices, decreased sales in some large primary markets, increased weekday revenues where transaction amounts tend to be slightly lower, increased transactions among member groups with lower average dining transaction amounts and decreased transactions among member groups with higher average dining transaction amounts.

Sales yield, which represents sales as a percentage of qualified transaction amounts, decreased to 64.2% for the year ended December 31, 2004 compared with 66.0% for the prior year. The decline in the sales yield reflects the changing mix in business propositions marketed to our merchants in 2004 as we worked to improve restaurant products to meet the needs of new merchants and reduce attrition of existing merchants. Many of these products have more favorable pricing for our Dining Credits to our merchants and resulted in lower sales yield from Marketing Credits Program and Marketing Services Program qualified transaction amounts. Dining qualified transaction amounts included in the Marketing Services Program decreased $3,857 to $104,261 for 2004 compared with $108,118 for 2003 and hotel qualified transaction amounts included in the Marketing Services Program increased $8,139 to $9,855 for 2004 compared with $1,716 for 2003. Dining Marketing Services Program qualified transactions typically have a higher sales yield than hotel qualified transactions and, therefore the decrease in dining qualified transaction amounts to 90.9% of total Marketing Services Program qualified transaction amounts for 2004 compared with 98.4% of total Marketing Services Program qualified transaction amounts for 2003 resulted in lower overall yield from the Marketing Services Program.

Cost of sales, which is composed of the cost of Dining Credits and related processing fees, increased to 48.5% of sales for the year ended December 31, 2004 compared to 48.0% of sales for the prior year. Contributing to the increase in the cost of sales percentage was the decrease in sales under our Marketing Services Program to 7.9% of total sales for the year ended December 31, 2004 compared to 8.3% of total sales for the prior year. There is no cost of sales associated with sales under our Marketing Services Program and, therefore, the relative decrease in these sales as a percentage of total sales results in a higher total cost of sales percentage. Also, many of the new products designed to meet the needs of merchants and reduce the rate of attrition not only have lower sales yield, but they have more favorable pricing of Dining Credits for our merchants and have resulted in a higher cost of sales for our Dining Credits portfolio for the year ended December 31, 2004 compared to the prior year.

The provision for Dining Credits losses increased to 5.7% of total sales and 6.1% of Dining Credits Program sales for the year ended December 31, 2004 compared to 4.7% of sales and 5.2% of Dining Credits Program sales for the year ended December 31, 2003. At the end of each reporting period we estimate the allowance for doubtful Dining Credits accounts and, if necessary, adjust the provision for losses. The Dining Credits portfolio is aged based on sales for the preceding quarter and the allowance is computed primarily by applying estimated loss percentages to the aged portfolio. Allowances are also provided for specifically identified accounts and for Dining Credits balances that are large or slow moving.

28

(amounts in thousands, except average transaction amount, merchant count and per share data)

Member benefits which include partner commissions and incentive bonus rewards paid to members, decreased to 20.1% of sales for 2004 compared to 21.9% of sales for 2003. There are two primary reasons for the decrease in the rate of benefits during 2004. First, in some cases, as part of the changes in merchant deal economics, we reduced member benefit levels. Secondly, in the second quarter of 2004, we introduced a program of variable benefits whereby some of our member benefits are tied to their level of participation in our programs. The reduced rate of rewards paid to less engaged members resulted in a lower overall effective rate of reward earned by our total membership base in 2004. Partially offsetting this reduced expense was an increase in commissions paid to loyalty program partners reflecting increased program usage by their members.

Membership and other income decreased $1,148 or 24.5% for the year ended December 31, 2004 compared with the prior year. The decrease can be primarily attributed to the decline in membership fee income and reflects the continuing effects of a change in our marketing strategy. In the fourth quarter of 1999, we reduced our marketing of the fee-based membership due to changes in the regulatory environment regarding direct marketing solicitations and we shifted our marketing strategy to focus on marketing a no-fee dining program to key affinity and loyalty partners where we could take advantage of the registered card platform and enroll large quantities of accounts at a reduced cost of acquisition and solicitation.

Salaries and benefits increased $1,541 or 9.2% to $18,322 for the year ended December 31, 2004 from $16,781 for the prior year primarily as a result of annual merit increases, higher employee benefit costs and a planned increase in the number of employees principally in marketing, information technology, finance and our Canada and Retail initiatives. These increases were partially offset by a lower level of management incentive compensation in 2004 compared to 2003.

Sales commissions and expenses amounted to 5.9% of sales for the year ended December 31, 2004 compared with 5.8% for the year ended December 31, 2003. In January 2004, we adopted a new sales consultant compensation plan which we believed would decrease sales commission as a percentage of sales in 2004. Although actual sales commissions decreased for the year ended December 31, 2004, the replacement of some of our more experienced sales consultants with less experienced sales consultants who earn a fixed salary as part of their compensation increased the guaranteed salaries paid to sales consultants. The additional guaranteed salaries paid to new sales consultants, coupled with increased sales expenses caused primarily by increased travel allowances, training and seminar expenses, resulted in increased sales commissions and expenses as a percentage of sales for the year ended December 31, 2004 compared to the prior year. We have included in sales commissions and expenses for the years ended December 31, 2004 and 2003 all costs associated with generating sales, including the cost of sales managers’ salaries, which were reported in 2003 in salaries and benefits.

Member and merchant marketing expenses decreased $1,935 or 23.0% for the year ended December 31, 2004 compared with the prior year. A reduction in directory printing and mailing costs was realized in 2004. This is primarily due to the marketing initiative we began in the second half of 2003, replacing national directories with a customized, pocket-sized, eight-panel directory of restaurant listings in a member’s frequent dining areas (which we call “Fold-N-Go statements”) for segments of our membership base. These Fold-N-Go statements are less expensive to produce and distribute than the directories. We included in member and merchant marketing expenses for the years ended December 31, 2004 and 2003 all costs associated with printing and postage relating to merchant and member communication which in 2003 were included in printing and postage. In addition to the decrease in printing and postage, there were decreases in website enhancement costs which were partially offset by restaurant marketing expenses such as newsletters and survey costs and hotel member marketing, primarily through direct and electronic mailings.

Professional fees increased $2,499 or 99.8% primarily due to increases in professional fees associated with the requirements under Sarbanes-Oxley for the audit of internal control and legal costs for various litigation matters.

29

(amounts in thousands, except average transaction amount, merchant count and per share data)

General and administrative expenses increased $1,260 or 7.5% for the year ended December 31, 2004 compared with the prior year. Attributing to the increase in general and administrative expenses were (i) an increase in rent and other office expenses by $474 or 22.3% to $2,594 due primarily to rent increases, the opening of some new sales offices; (ii) an increase in telephone by $244 or 27.4% to $1,136 due to increases in outbound long distance call volumes; (iii) an increase in programming and systems by $155 or 5.8% to $2,840 primarily due to website enhancements; and (iv) an increase in other expenses by $383 or 5.5% to $7,296 primarily due to increases in directors’ fees, temporary services and an impairment of $500 on an investment in a development stage entity partially offset by decreases in severance and recruiting costs.

Interest expense and financing costs related to our securitization facility, revolving credit facility and convertible subordinated debentures increased $587 or 22.9% for the year ended December 31, 2004 compared to the prior year. The increase in our interest expense is a result of our having had an additional $10,000 of debt outstanding for the full year of 2004 compared to only approximately two and a half months in 2003 and having a fixed interest rate on our convertible subordinated debentures that were outstanding for 2004 that was higher than the floating rate on the securitization facility under which we had outstanding debt through most of 2003. In addition, on November 3, 2004, we entered into a $50,000 unsecured revolving credit facility with Bank of America, N.A. and LaSalle Bank, N.A. This facility was scheduled to expire on July 13, 2008. The amortization of origination fees and expenses relating to this credit facility is included in our 2004 interest expense and financing costs.

Our effective tax rate for the year ended December 31, 2004 was 40.6% compared with 40.0% for the prior year due to the increase in the weighted average effective state tax rate resulting from a shift in the apportionment factors among the states in which we conduct business.

Net income decreased 15.9% to $13,217 for the year ended December 31, 2004 compared to $15,710 in 2003. In addition, our weighted average shares and our diluted weighted average shares outstanding increased to 24,837 and 29,731, respectively, for 2004 compared with 23,056 and 26,439, respectively, for 2003. The increase in the weighted average shares and our diluted weighted average shares coupled with the decrease in net income resulted in the decreased earnings per share and diluted earnings per share of $0.53 and $0.50, respectively, compared with $0.68 and $0.61, respectively, for 2003. We adopted EITF 04-08 as of December 31, 2004. We have $70,000 of 3.25% debentures that are convertible into approximately 3,913 million shares of common stock if certain conditions are met. Applying the if-converted method, as required by EITF 04-08, net income for the diluted earnings per share calculation is adjusted for interest expense associated with the convertible debt instrument and diluted weighted average shares outstanding are increased for shares issuable upon conversion. Prior period diluted shares outstanding and diluted earnings per share amounts have been revised to present comparable information.

Contractual Obligations

We lease facilities and equipment under long-term operating leases. These contractual obligations entered into in the ordinary course of business are not required to be reflected in our consolidated balance sheets, but may impact our liquidity. The following table sets forth our future minimum lease payments under non-cancelable operating leases, long-term debt and other contractual obligations and commitments at December 31, 2005:

	Payments by Due Periods (in thousands)
Contractual Obligations and Commitments	Total		Less than 1 year		1-3 years		3-5 years
Revolving credit facility	$	—	$	—	$	—	$	—
Convertible subordinated debentures (including interest)		76,376		2,275		74,101		—
Vendor contracts		32,674		11,984		20,690		—
Operating leases		3,796		1,644		1,825		327
Total	$	112,846		15,903		96,616		327

30

(amounts in thousands, except average transaction amount, merchant count and per share data)

Off Balance Sheet Arrangements

We have no off balance sheet arrangements as of December 31, 2005 and 2004.

Liquidity and Capital Resources

General

Our working capital was $147,036 at December 31, 2005 versus $142,506 at December 31, 2004. The $4,530 increase can be primarily attributed to an increase in cash and cash equivalents.

Cash, cash equivalents and short-term investments were $31,585 as of December 31, 2005, an increase of $16,139 over the prior year total of $15,446. For the year ended December 31, 2005, we generated $17,050 in cash from operating activities. Cash from operations significantly exceeded net income for the year ended December 31, 2005 due to non-cash expense items, primarily related to provision for losses, depreciation, amortization and an impairment of goodwill. The cash generated in 2005 is due to the decrease in dining credits. The decrease in dining credits was due to (i) more conservative dining credits purchase policies, (ii) the decline in our restaurant count, and (iii) a slow-down in new dining credit activity due to the introduction of a new value-based selling approach during the second half of 2005. We believe that the investment made in the training of our sales consultants will result in increased sales productivity and cash will be redeployed in new dining credits purchases.

Net cash provided by investing activities for the year ended December 31, 2005 totaled $4,269 and was primarily the result of $6,772 in net proceeds from sales and maturities of short-term investments partially offset by $2,503 invested in capital equipment. Capital expenditures for the year ended December 31, 2005 consisted primarily of website redesign and development, the augmentation of a data warehouse and data security development.

During the year ended December 31, 2005, the only source of financing cash flow was provided from the exercise of warrants and options. Net cash provided by financing activities for the year ended December 31, 2005 totaled $1,439.

Revolving Credit Facility

On November 3, 2004, we entered into a $50,000 unsecured revolving credit facility with Bank of America, N.A. and LaSalle Bank, N.A. (the “Lenders”). For the three months ended March 31, 2005, we were in breach of certain financial covenants of the Credit Agreement and on April 25, 2005, we obtained a waiver from the Lenders of any default having occurred or to occur as a result of such breach. On July 19, 2005, we entered into an Amendment (“Amendment”) to the Credit Agreement with the Lenders. Pursuant to the Amendment, the Credit Agreement has been modified by reducing the credit facility to $25,000, accelerating the maturity date to June 30, 2006, revising the ratio of senior indebtedness to earnings before interest, taxes, depreciation and amortization, as further defined in the Amendment (“EBITDA”), establishing a minimum threshold of EBITDA and providing for a security interest in substantially all of the Company’s assets at the time the Company makes a borrowing under the Credit Agreement. As a result of the amendment, the Company applied EITF 98-14 and amortized an additional $268 of deferred financing costs relating to the old arrangement during the three months ended September 30, 2005. At December 31, 2005, we were in compliance with the covenants. The credit facility contains customary representations, warranties and covenants and includes customary events of default, including a change of control provision. The Company does not currently have any borrowings outstanding under the Credit Agreement.

31

(amounts in thousands, except average transaction amount, merchant count and per share data)

Convertible Subordinated Debentures

On October 15, 2003, we completed a private placement of $70,000 principal amount of our 3 ¹/4% Convertible Subordinated Debentures with a final maturity date of October 15, 2023. The debentures bear interest at 3.25% per annum, payable on April 15 and October 15 of each year. There were no interest payments outstanding at December 31, 2005. The net proceeds from the offering were $67,500 and the issuance costs of $2,500 are being amortized over five years. Holders of the debentures may require us to repurchase for cash all or part of their debentures on October 15, 2008, October 15, 2013 and October 15, 2018 or upon a change of control at a price equal to 100% of the principal amount of the debentures, together with accrued and unpaid interest. We may redeem the debentures, in whole or in part, at any time after October 15, 2008 at a price equal to 100% of the principal amount of the debentures, together with accrued and unpaid interest. The debentures are convertible prior to the maturity date into shares of our common stock at an initial conversion price of $17.89 per share, subject to adjustment for certain events, upon the occurrence of any of the following: (i) the closing price of our common stock on the trading day prior to the conversion date was 110% or more of the conversion price of the debentures on such trading day; (ii) we have called the debentures for redemption; (iii) the average of the trading prices of the debentures for any five consecutive trading day period was less than the average conversion value for the debentures during that period, subject to certain limitations; or (iv) we make certain distributions to holders of our common stock or enter into specified corporate transactions.

Securitization of Dining Credits

The revolving securitization of our dining credits was privately placed through asset-backed commercial paper conduits. Borrowing capacity under the facility was calculated based on a formula-driven advance rate applied to the then-current balance of dining credits that is eligible to be securitized. A portion of the proceeds from the private placement mentioned above were used to pay down the balance on our revolving securitization to zero and reduced the facility limit to $50,000 on October 15, 2003. In connection therewith, a portion of the securitization renewal fees were expensed and the balance was amortized over the remainder of the renewal term, which ended on May 13, 2004. We chose not to renew the securitization, and have replaced it with the revolving credit facility mentioned above. As of December 31, 2005, we have no further obligations under the revolving securitization.

Dining Credits

Dining credits funded (Gross dining credits less Accounts Payable—dining credits) was $133,784 at December 31, 2005, a decrease of $24,075 from the prior year. The decrease in dining credits funded occurred in the second half of 2005. This decrease was due to (i) more conservative dining credits purchase policies, (ii) the decline in our restaurant count, and (iii) a slow-down in new dining credit activity due to the introduction of a new value-based selling approach during the second half of 2005. We believe that the investment made in the training of our sales consultants will result in increased sales productivity and cash will be redeployed in new dining credits purchases. We believe that the purchase of dining credits can be funded generally from cash generated from operations and, if needed, from funds made available through the revolving credit facility.

Common and Series A Preferred Stock

On June 12, 2002, we sold 3,000 shares of our common stock at $9.50 per share in a private placement to a group of 15 unaffiliated institutional investors from which we received $26,280, net of financial advisory, agent and legal fees.

The entire net proceeds from the stock issuance were used to repurchase shares of our outstanding Series A Convertible Preferred Stock issued in connection with a rights offering on November 30, 1999. We commenced a

32

cash tender offer on June 13, 2002 to purchase up to 2,475 shares, or 61.1%, of our outstanding Series A Convertible Preferred Stock at a price of $10.62 per share. The tender offer expired on July 15, 2002, and a total of 3,177 shares of Series A Convertible Preferred Stock were tendered. Since more than the maximum 2,475 shares of Series A Convertible Preferred Stock were tendered, we accepted and paid for shares on a pro rata basis from among the validly tendered shares. In addition to the purchase price, tendering stockholders also received a payment in lieu of cash dividends for the period July 1 through July 15, 2002 equal to $0.006 per share of Series A Convertible Preferred Stock accepted.

Furthermore, on December 24, 2002, we gave notice to holders of our Series A Preferred Stock of our intention to exercise our right to convert all of the issued and outstanding shares of Series A Preferred Stock into shares of our common stock. On January 23, 2003, 1,329 shares of our Series A Preferred Stock were converted into 1,586 shares of our common stock. Each share of our Series A Preferred Stock was converted into 1.19316 shares of our common stock. Each holder of record of Series A Preferred Stock on January 23, 2003 also received a partial quarterly cash dividend pro-rated for the period from January 1, 2003 through January 23, 2003.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk (in thousands)

Our exposure to market risk for changes in interest rates is limited to the exposure related to our revolving credit facility and available for sale securities, each of which is tied to market rates. Our revolving credit facility is tied to the Eurodollar rate, which is basically LIBOR, plus an applicable rate. The Eurodollar rate is subject to interest rate risk. However, as of December 31, 2005, the amount outstanding under this revolving credit facility was zero.

On October 15, 2003, we issued $70,000 in convertible subordinated debentures. The interest rate on the debentures is fixed at 3.25% per annum. The market value of the debentures will fluctuate with movements of interest rates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest and the market value of the debentures will generally fluctuate in tandem with changes in the price of our common stock.

We generally invest our excess cash in high-credit-quality fixed income securities and money market funds. The fair value of fixed income securities may be adversely affected due to a rise in interest rates, and we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. Cash equivalents consist of short-term investments with reputable financial institutions with durations of no more than 90 days. All of our cash equivalent are designated as available-for-sale and, accordingly, are presented at fair value on our consolidated balance sheets.

33

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

Consolidated financial statements applicable to Rewards Network Inc. and subsidiaries are contained on the page(s) indicated.

Reports of Independent Registered Public Accounting Firm	F -1, 2
Financial Statements:
Consolidated Balance Sheets at December 31, 2005 and 2004	F - 3
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003	F - 4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (loss) for the years ended December 31, 2005, 2004 and 2003	F - 5
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003	F - 6
Notes to Consolidated Financial Statements	F - 7 - 27
Schedule II—Valuation and Qualifying Accounts	F - 28

Selected quarterly financial data under the caption “Note 18 Selected Quarterly Financial Data (unaudited)” are also filed as part of this annual report on Form 10-K.

34

REWARDS NETWORK INC.

Consolidated Financial Statements

December 31, 2005 and 2004

(With Independent Auditors’ Report Thereon)

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Rewards Network Inc.:

We have audited the accompanying consolidated balance sheets of Rewards Network Inc. and subsidiaries (the Company) as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2005. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule for each of the years in the three-year period ended December 31, 2005 as listed in item 15(a)(2) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2005 and 2004 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 6, 2006, expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/    KPMG LLP

March 6, 2006

Miami, Florida

Certified Public Accountants

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Rewards Network Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, appearing under Item 9A that Rewards Network Inc. and subsidiaries (the Company) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control – Integrated Framework issued by the COSO. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), cash flows for each of the years in the three-year period ended December 31, 2005, and the related financial statement schedule and our report dated March 6, 2006 expressed an unqualified opinion on those consolidated financial statements.

/s/    KPMG LLP

March 6, 2006

Miami, Florida

Certified Public Accountants

F-2

REWARDS NETWORK INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2005 and 2004

(in thousands, except per share data)

	2005			2004
Assets
Current assets:
Cash and cash equivalents	$	31,585		$	8,728
Short-term available for sale securities		—			6,718
Accounts receivable, net of allowance for doubtful accounts of $2,498 and $2,793, respectively		7,240			7,642
Dining Credits, net of allowance for doubtful accounts of $21,192 and $26,943, respectively		121,026			143,947
Deferred income taxes		7,322			8,640
Prepaid expenses		2,532			1,588
Income taxes receivable		2,666			1,194
Total current assets		172,371			178,457
Property and equipment, net of accumulated depreciation and amortization of $17,137 and $13,194, respectively		8,565			10,450
Other assets		1,834			2,093
Excess of cost over net assets acquired		8,117			9,671
Total assets	$	190,887		$	200,671
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable—dining credits	$	8,434		$	13,031
Accounts payable—member benefits		6,399			13,191
Accounts payable—trade		3,800			2,494
Accrued compensation		1,783			2,641
Other current liabilities		3,693			2,978
Deferred membership fee income		1,226			1,616
Total current liabilities		25,335			35,951
Convertible subordinated debentures		70,000			70,000
Deferred income taxes		1,006			1,904
Other long-term liabilities		358			448
Total liabilities		96,699			108,303
Stockholders’ equity:
Common stock, par value $0.02 per share; authorized 70,000 shares; issued 26,625 and 26,041 shares, respectively; and outstanding 26,343 and 25,759 shares, respectively		533			521
Additional paid-in capital		61,725			59,450
Cumulative other comprehensive income (loss):
Unrealized losses on marketable securities, net of tax		—			(54	)
Foreign currency translation, net of tax		359			259
Retained earnings		33,781			34,402
Treasury stock, at cost (282 shares of common stock)		(2,210	)		(2,210	)
Total stockholders’ equity		94,188			92,368
Total liabilities and stockholders’ equity	$	190,887		$	200,671

See accompanying notes to consolidated financial statements.

F-3

REWARDS NETWORK INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except earnings per share)

	Years ended December 31,
	2005			2004			2003
Operating revenues:
Sales	$	287,145		$	348,078		$	349,026
Cost of sales		147,585			168,738			167,529
Provision for losses		22,522			19,711			16,502
Member benefits		42,777			69,918			76,357
Total direct expenses		212,884			258,367			260,388
Net revenue		74,261			89,711			88,638
Membership fees and other income		2,790			3,536			4,684
Total operating revenues		77,051			93,247			93,322
Operating expenses:
Salaries and benefits		18,623			18,322			16,781
Sales commissions and expenses		21,057			20,374			20,315
Professional fees		7,256			5,003			2,504
Member and merchant marketing		5,898			6,473			8,408
Goodwill impairment		1,554			—			—
General and administrative		19,790			18,023			16,763
Total operating expenses		74,178			68,195			64,771
Operating income		2,873			25,052			28,551
Other income (expense):
Interest and other income		502			348			194
Interest expense and financing costs		(3,255	)		(3,152	)		(2,565	)
Income before income tax provision		120			22,248			26,180
Income tax provision		741			9,031			10,470
Net (loss) income	$	(621	)	$	13,217		$	15,710
Net (loss) income available for common stockholders	$	(621	)	$	14,865		$	16,048
(Loss) earnings per share of common stock:
Basic	$	(0.02	)	$	0.53		$	0.68
Diluted	$	(0.02	)	$	0.50		$	0.61
Weighted average number of common and common equivalent shares outstanding:
Basic		26,133			24,837			23,056
Diluted		26,133			29,731			26,439

See accompanying notes to consolidated financial statements

F-4

Rewards Network Inc. and Subsidiaries

Consolidate Statements of Stockholders’ Equity and Comprehensive Income (Loss)

(in thousands)

	Preferred Stock				Common Stock		Treasury Stock			Additional paid -in capital	Cumulative other Comprehensive income(loss)		Retained earnings		Total
	Number of shares		Amount		Number of shares	Amount	Number of shares	Amount
Balance, December 31, 2002	1,330		133		20,530	411	260	(2,210	)	48,573	4		5,490		52,401
Net income	—		—		—	—	—	—		—	—		15,710		15,710
Change in market value of available for sales securities	—		—		—	—	—	—		—	7		—		7
Comprehensive income															15,717
Preferred dividend	—		—		—	—	—	—		—	—		(15	)	(15	)
Stock options, awards and warrants exercised	—		—		2,357	46				3,982	—		—		4,028
Conversion of preferred stock	(1,330	)	(133	)	1,586	32	22	—		656	—		—		555
Income tax benefit arising from employee stock option plans	—		—		—	—	—	—		961	—		—		961
Balance, December 31, 2003	—		—		24,473	489	282	(2,210	)	54,172	11		21,185		73,647
Net income	—		—		—	—	—	—		—	—		13,217		13,217
Change in market value of available for sales securities	—		—		—	—	—	—		—	(65	)	—		(65	)
Foreign exchange translation adjustments	—		—		—	—					259		—		259
Comprehensive income															13,411
Stock options and warrants exercised	—		—		1,568	32	—	—		4,524	—		—		4,556
Income tax benefit arising from employee stock option plans	—		—		—	—	—	—		754	—		—		754
Balance, December 31, 2004	—		—		26,041	521	282	(2,210	)	59,450	205		34,402		92,368
Net loss	—		—		—	—	—	—		—	—		(621	)	(621	)
Change in market value of available for sales securities	—		—		—	—	—	—		—	54		—		54
Foreign exchange translation adjustments	—		—		—	—					100		—		100
Comprehensive loss															(467	)
Issuance of stock awards and exercise of stock options	—		—		584	12	—	—		1,870	—		—		1,882
Income tax benefit arising from employee stock option plans	—		—		—	—	—	—		405	—		—		405
Balance, December 31, 2005	—		—		26,625	533	282	(2,210	)	61,725	359		33,781		94,188

See accompanying notes to consolidated financial statements.

F-5

REWARDS NETWORK INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

	Years ended December 31,
	2005			2004			2003
Cash flows from operating activities:
Net (loss) income	$	(621	)	$	13,217		$	15,710
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		4,212			4,157			4,140
Loss on disposal of asset		179			—			—
Amortization of deferred financing cost		966			711			694
Goodwill impairment		1,554			—			—
Provision for losses on dining credits		22,522			19,711			16,502
Benefit on exercise of stock options		405			754			961
Stock-based compensation		443			—			66
Deferred income taxes		420			(965	)		(283	)
Changes in assets and liabilities:
Accounts receivable		88			(1,374	)		(90	)
Dining Credits including accounts payable—dining credits		(3,883	)		(46,591	)		(25,585	)
Prepaid expenses		(943	)		754			(695	)
Income taxes receivable		(1,472	)		231			(1,601	)
Other assets		(802	)		511			(1,234	)
Accounts payable—trade		(5,486	)		(773	)		2,922
Accrued compensation		(857	)		(2,107	)		678
Other current liabilities		715			179			693
Deferred membership fee income		(390	)		(485	)		(115	)
Net cash provided by (used in) operating activities		17,050			(12,070	)		12,763
Cash flows from investing activities:
Additions to property and equipment		(2,503	)		(5,298	)		(5,505	)
Purchases of available for sale securities		—			(20,736	)		(51,535	)
Sales and maturities of available for sale securities		6,772			32,308			34,108
Net cash provided by (used in) investing activities		4,269			6,274			(22,932	)
Cash flows from financing activities:
Repayment of revolving securitization		—			—			(60,000	)
Proceeds from issuance of convertible subordinated debentures		—			—			70,000
Payment of subordinated debenture issuance costs		—			—			(2,476	)
Conversion of warrants and options for common stock, net		1,439			4,556			4,096
Dividends paid		—			—			(8	)
Net cash provided by financing activities		1,439			4,556			11,612
Effect of exchange rate on cash		99			259			—
Net increase (decrease) in cash	$	22,857		$	(981	)	$	1,443
Cash and cash equivalents:
Beginning of the period		8,728			9,709			8,266
End of the period	$	31,585		$	8,728		$	9,709
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest	$	2,287		$	2,479		$	1,264
Income taxes	$	1,411		$	9,024		$	11,431
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Tax benefit of stock options exercised	$	405		$	754		$	961

The Company entered into capital lease obligations to acquire computer software and hardware totaling $508 and $165 in 2004 and 2003 respectively. The Company did not enter into capital lease obligations in 2005.

See accompanying notes to consolidated financial statements.

F-6

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

(1) Description of Business and Summary of Significant Accounting Policies

(a) Description of Business

Rewards Network Inc. (the “Company”) commenced operations in 1984 as Transmedia Network Inc. and was reincorporated as a Delaware corporation in 1987. On January 30, 2002 the Company changed its name from Transmedia Network Inc. to iDine Rewards Network Inc. Effective December 9, 2003, the Company changed its name to Rewards Network Inc. from iDine Rewards Network Inc.

The Company is a leading provider of marketing services and loyalty programs to the restaurant industry. The Company helps thousands of restaurants and other merchants grow their businesses by providing marketing services, loyalty programs, business intelligence, and access to capital. The Company partners with leading airline frequent flyer programs, club memberships, and other affinity organizations to provide millions of members with incentives to do business with its participating merchants. The Company provides members with incentives in a variety of benefit currencies, including airline miles, a variety of loyalty/reward program points, and Cashback Rewards^SM savings.

The Company primarily offers two programs to its participating restaurants—the Marketing Credits Program and the Marketing Services Program. The Marketing Credits Program provides participating restaurants with marketing, loyalty programs, business intelligence and also with access to capital through the Company’s purchase of dining credits from these restaurants. The Marketing Services Program provides participating restaurants with all of these services except access to capital because the Company does not purchase dining credits from restaurants that participating in the Marketing Services Program.

The Company obtains members through its relationships with airlines and other loyalty program providers, directly through its website, through corporate clients who participate in its corporate program, and through its relationships with payment card issuers. The Company is able to provide frequent flyer miles and other currencies as benefits to members through its relationships with these airlines, payment card issuers and other loyalty program providers.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

(b) Cash and Cash Equivalents

Cash and cash equivalents of $31,585 and $8,728 at December 31, 2005 and 2004, respectively, includes overnight repurchase agreements and money market funds with an initial term of less than three months. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

(c) Investments

All marketable securities are deemed by management to be available for sale and are reported at fair value with net unrealized gains and losses on such securities reflected, net of related deferred income tax, in cumulative other comprehensive income (loss). Realized gains and losses on investments are included in earnings and are derived using the specific identification method for determining the cost of securities. Investments that at the date of purchase have a maturity greater than three months but less than a year are classified as short-term investments. The Company’s investments are comprised of instruments of the U.S. government and its agencies and certificates of deposit. At December 31, 2004, all of the Company’s investments, except for certificates of deposit, have a maturity date of less than one year. At December 31, 2005, the Company had no marketable securities.

F-7

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

The amortized cost and market value of the Company’s investments at December 31, 2004 is shown in the table below:

	2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
Short-term available for sale securities
U.S. government obligations	$	6,772	$	—	$	54	$	6,718
Long-term available for sale securities
Certificates of deposit	$	331	$	—	$	—	$	331

(d) Accounts Receivable

Accounts receivable are composed primarily of unprocessed and uncollected merchant billings and do not bear interest. The Company typically uses Automated Clearing House (“ACH”) debits to collect these billings from its participating merchants’ bank account. ACH debits are processed daily by the Company and sent electronically to the merchants’ bank account. Some of these ACH debits may not be collected for various reasons, including insufficient funds. The Company provides an allowance for losses on Accounts Receivable based on a percentage of the amount of uncollected ACH debits outstanding. The Company does not have any off-balance-sheet credit exposure related to its customers.

(e) Dining Credits

Dining credits (formerly “Rights to Receive” or “Marketing Credits”) are composed primarily of credits for food, beverage, goods and services acquired from restaurants on a wholesale basis, typically for cash. The dining credits acquired represent the Company’s right to receive future revenue from the restaurants when its members dine at those restaurants. dining credits are recorded at cost and stated at the gross amount of the commitment to the restaurant, net of an allowance for doubtful accounts. Accounts payable-dining credits represent the unfunded portion of the total commitments. At December 31, 2005, the period of time it takes for members to use outstanding dining credits was approximately 12 months. The Company reviews its ability to realize dining credits on a periodic basis and provides for anticipated losses on dining credits from restaurants that have ceased operations, restaurants that otherwise interfere with the Company’s ability to recover unused dining credits and restaurants where dining credits are not being utilized by members. All other balances are segregated and evaluated based on the size of the balance and the number of months required to recover the outstanding dining credits. Losses are reduced by recoveries of dining credits previously written off. Account balances are charged off against the allowance after collection efforts have been exhausted. The Company does not have any off-balance sheet credit exposure related to its participating merchants.

(f) Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Capital leases are stated at the present value of minimum lease payments. Depreciation on property and equipment is calculated on the straight-line method over an estimated useful life of three to five years. Amortization of leasehold improvements is calculated over the shorter of the lease term or estimated useful life of the asset.

(g) Software Development Costs

The Company has developed and/or purchased certain software applications and hardware that support its rewards administration platform. The Company has capitalized software and website development costs totaling

F-8

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

$831, $2,178 and $1,052 during the years ended December 31, 2005, 2004 and 2003, respectively. The amortization of these costs is calculated on a straight-line basis over a three-year life. During the years ended December 31, 2005, 2004 and 2003, the amortization of these capitalized costs totaled $1,292, $984 and $961, respectively. The Company had $1,874 and $2,415, respectively, of unamortized computer software costs at December 31, 2005 and 2004, respectively. All other software development and expansion expenditures are charged to expense in the period incurred.

(h) Excess of Cost Over Net Assets Acquired and Other Intangible Assets

Excess of cost over net assets acquired has resulted primarily from the acquisition of previously franchised territories. These transactions primarily consisted of reacquiring franchise rights from franchisees and were accounted for using the purchase method of accounting. The primary intangible asset to which the Company generally allocated value in these transactions was the reacquired franchise rights. The Company has determined that the reacquired franchise rights do not meet the criteria to be recognized as an asset apart from goodwill.

Goodwill and intangible assets acquired in a business combination are determined to have an indefinite useful life and are not amortized, but instead tested for impairment at least annually. On at least an annual basis, we evaluate whether events and changes in circumstances warrant the recognition of an impairment loss of unamortized goodwill. The conditions that would trigger an impairment assessment of unamortized goodwill include a significant, sustained negative trend in our operating results or cash flows, a decrease in demand for our programs, a change in the competitive environment and other industry and economic factors. Recoverability of an asset is measured by comparison of its carrying amount to the expected future cash flows. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value. Significant management judgment is required in the forecasting of future operating results that are used in the preparation of projected cash flows, and, if different conditions prevail or judgments are made, a material write-down of goodwill could occur.

We comply with SFAS No. 142, “Goodwill and Other Intangible Assets,” the current standard for periodic assessment of the carrying value of intangible assets, including goodwill. We assess the impact of SFAS No. 142 using a two-step approach to assess goodwill based on applicable reporting units and any intangible assets, including goodwill, recorded in connection with our previous acquisitions. During the three months ended March 31, 2005, certain territories related to reacquired franchises experienced a significant decline in sales related to unanticipated competition and the loss of key salespersons in these territories which contributed to an operating loss for the quarter. These financial results, coupled with several changes in senior sales management in the three months ended March 31, 2005, gave rise to the Company’s need to reassess the goodwill related to the reacquired franchises.

In accordance with the provisions of SFAS 142, the Company prepared a discounted cash flow analysis which indicated that the book value of certain reporting units exceeded their estimated fair value and that goodwill had been impaired. Accordingly, the Company recognized a non-cash impairment loss of $1,554 during the year ended December 31, 2005.

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.

(i) Revenue Recognition

The Company recognizes revenue when its members patronize its participating merchants and pay using a payment card they have registered with the Company. Revenue is recognized only if the member transaction

F-9

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

qualifies in accordance with the rules of the particular marketing program associated with that merchant. The amount of revenue recognized is that portion of the member’s total transaction amount that the Company is entitled to receive in cash, in accordance with the terms of the Company’s contract with the participating merchant. For example, if the total transaction amount by a member is one hundred dollars at a participating restaurant, as evidenced by the full amount of the payment card transaction, and the Company’s contract provides for the Company to receive 80%, the amount of revenue recognized is eighty dollars representing what the Company will actually realize in cash. Similarly, for a member’s total transaction amount at a participating restaurant in the Marketing Services Program where the Company has not purchased dining credits, revenue is recognized only to the extent that the Company is contractually entitled to receive cash for a portion of the member’s total transaction amount. The same one hundred dollar transaction referred to above in a Marketing Services restaurant may only yield twenty dollars in cash to be realized.

Membership fees and other income consists principally of renewal fees from the Cashback Rewards Program members and is recognized over the membership period, which is usually 12 months beginning in the month the fee is received. Cardholder membership fees are cancelable and refunded to members, if requested, on a pro rata basis based on the remaining portion of the membership.

(j) Cost of Sales and Member Benefits

Cost of sales is composed of the cost of dining credits and related transaction processing fees. The cost of dining credits is determined with respect to each individual merchant, according to the contractual funding ratio used when the dining credits were acquired. The typical ratio is two dollars of dining credits received for one dollar of cash paid to the merchant by the Company.

The vast majority of rewards are delivered to members in the form of a direct credit on their payment card statement, a dollar-denominated reward to a loyalty or rewards program account or a mileage credit to their frequent flyer account. Only members of the Cashback Rewards Program are eligible to receive cash credit on their registered payment card accounts. Cashback Rewards savings typically range from 5% to 20% of the member’s transaction amount with participating restaurants. Alternatively, members may elect to receive rewards in the form of airline frequent flyer miles with up to nine major airlines. Members receiving airline frequent flyer miles generally earn from one to ten miles for each dollar spent at participating restaurants.

Some companies participate in the Company’s Corporate Program. The companies register their employees’ corporate cards with the Company on a no fee basis. However, rewards are not provided until the employee reaches a certain level of qualified annual transaction amount. After reaching such level, the participating company receives a monthly check for the aggregate rewards earned by its employees when transacting at participating merchants. In some cases, a portion of the aggregate rewards goes to the employees in the form of airline frequent flyer miles. Rewards associated with the Corporate Program, and others like it, are charged to income during the period incurred. The retained savings prior to achieving the qualified annual transaction amount level are deferred and spread over the contract year on an effective rate basis, resulting in a reduction in the overall member benefits expense. These retained savings prior to achieving the qualified annual transaction amount level are not recorded as membership fees as described in note (i) above, but rather as a reduction in benefits by the Company neither paying nor expensing those amounts.

(k) Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement

F-10

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the year in which those temporary differences are expected to be recovered. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.

(l) Stock Based Compensation

The Company applies the intrinsic-value-based method of accounting for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,”(“SFAS No. 123”) established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123.

The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested stock options awards in each period. See assumptions used in Note 11.

	Year ended December 31,
	2005			2004			2003
Net (loss) income—as reported	$	(621	)	$	13,217		$	15,710
Net (loss) income available to common stockholders	$	(621	)	$	14,865		$	16,048
Add: Stock-based employee compensation expense included in reported net income, net of related tax effect		66			13			—
Deduct: Total stock-based employee compensation benefit (expense) determined under fair value based method for all awards, net of related tax effect		1,622			(2,679	)		(3,947	)
Net income available to common stockholders—pro forma	$	1,067		$	12,199		$	12,101
(Loss) earnings per share
Basic—as reported	$	(0.02	)	$	0.53		$	0.68
Basic—pro forma	$	0.04		$	0.42		$	0.51
Diluted—as reported	$	(0.02	)	$	0.50		$	0.61
Diluted—pro forma	$	0.04		$	0.41		$	0.46

The stock-based employee compensation (expense) benefit in 2005 was due to significant forfeitures.

(m) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

Statement of Financial Accounting Standards No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”) provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 also changes the criteria for classifying an asset as held for sale; and broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations. The Company adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 did not affect the Company’s financial statements.

F-11

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Excess of cost over net assets acquired and intangible assets not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. This determination is made at the reporting unit level and consists of two steps. First, the Company determines the fair value of a reporting unit and compares it to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with FASB Statement No. 141, Business Combinations. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

(n) Segment Information

Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” (“SFAS No. 131”) establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company’s chief operating decision-maker is considered to be the chief executive officer (CEO). The CEO reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The consolidated financial information is in the same format as the information presented in the accompanying consolidated statements of operations. Therefore, the Company has determined that it operates in a single operating segment, the providing of benefits to its members.

(o) Basic and Diluted Net (Loss) Income per Share

Basic and diluted net (loss) income per share was computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of the Company’s common stock outstanding for each period presented. Potentially dilutive securities were considered for the years ended December 31, 2005, 2004 and 2003 to the extent dilutive. There were 4,102 weighted average shares of common stock equivalents which were excluded for 2005 as their effect would have been anti-dilutive.

F-12

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

For periods with potentially dilutive securities, incremental shares and adjustments to net income are determined using the “if converted” and treasury stock method as follows.

	Year ended December 31,
	2005			2004		2003
Net (loss) income as reported	$	(621	)	$	13,217	$	15,710
Series A Preferred Stock dividends		—			—		(15	)
Convertible debentures, net of tax benefit		—			1,648		353
Net (loss) income available to common stockholders	$	(621	)	$	14,865	$	16,048
Weighted average number of shares of common stock and common stock equivalents outstanding
Basic		26,133			24,837		23,056
Series A Preferred Stock		—			—		97
Stock options and restricted stock		—			513		1,201
Warrants		—			468		1,260
Convertible debentures		—			3,913		825
Diluted		26,133			29,731		26,439
(Loss) earnings per share
Basic	$	(0.02	)	$	0.53	$	0.68
Diluted	$	(0.02	)	$	0.50	$	0.61

(p) Comprehensive Income (loss)

Comprehensive (loss) income presents a measure of all changes in stockholders’ equity except for changes in stockholders’ equity resulting from transactions with stockholders in their capacity as stockholders. The Company’s other comprehensive (loss) income presently consists of net unrealized holding gains (losses) on investments available for sale and gain on foreign exchange.

(q) Foreign Currencies

The Company started transacting business in Canada in July 2004. The functional currency of its foreign operation is the Canadian dollar. Consequently, assets and liabilities of operations outside the United States are translated into United States dollars using year end exchange rates. Revenues and expenses are translated at the weighted average exchange rates for the year.

The effects of foreign currency translation adjustments are included in stockholders’ equity as a component of “accumulated other comprehensive income (loss)” in the accompanying consolidated balance sheets.

(r) Recent Accounting Pronouncements

In September 2004, the Emerging Issues Task Force of the FASB reached consensus on Issue No. 04-08, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share” (“EITF 04-08”). The guidance requires companies to include shares issuable under convertible debt in diluted earnings per share computations (if dilutive) regardless of whether the market price trigger (or other contingent feature) has been met. The

F-13

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

Company adopted EITF 04-08 as of December 31, 2004 and prior period’s diluted shares outstanding and diluted earnings per share amounts were restated to present comparable information. The Company has $70,000 of 3.25% debentures that are convertible into approximately 3,913 shares of common stock if certain conditions are met. Applying the if-converted method, as required by EITF 04-08, net income (loss) for the diluted earnings per share calculation is adjusted for interest expense associated with the convertible debt instrument and diluted weighted average shares outstanding are increased for shares issuable upon conversion.

In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. This Statement is a revision to Statement 123 and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This Statement will require measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock options. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. Currently, our Company uses the Black-Scholes formula to estimate the value of stock options granted to employees and will continue to utilize this model upon adoption of SFAS No. 123(R). The Company will adopt this Statement on January 1, 2006 under the modified prospective method of application. Under that method, the Company will recognize compensation costs for new grants of share-based awards, awards modified after the effect date, and the remaining portion of the fair value of the unvested awards at the adoption date. In March 2005, the SEC issued Staff Accounting Bulleting No. 107 (“SAB 107”), “Share-Based Payment,” providing guidance on option valuation methods, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123R, and the disclosures in management’s Discussion and Analysis of Financial Condition and Results of Operations subsequent to the adoption. The Company will provide SAB 107 required disclosures upon adoption of SFAS 123R. The Company estimates that the adoption of Statement 123R will result in the recognition of compensation costs for share based awards of $380 or $0.01 per diluted share in 2006.

In May 2005, FASB issued SFAS 154, “Accounting Changes and Error Corrections” (“SFAS 154”). The Statement requires retroactive application of a voluntary change in accounting principle to prior period financial statements unless it is impracticable. SFAS 154 also requires that a change in method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is affected by a change in accounting principle. SFAS 154 replaces APB Opinion 20, “Accounting Changes”, and SFAS 3, “Reporting Accounting Changes in Interim Financial Statements”. The Company will adopt the provisions of SFAS 154, effective January 1, 2006 for its fiscal 2006 consolidated financial statements. SFAS 154 is effective for accounting changes and a correction of errors made in fiscal years beginning after December 15, 2005 and is not expected to have a material effect on the Company’s consolidated financial statements.

In March 2005, the FASB issued FASB Interpretation No 47 Accounting for Conditional Asset Retirement Obligations (“FIN 47”) which requires conditional asset retirement obligations to be recognized if a legal obligation exists to perform asset retirement activities and a reasonable estimate of the fair value of the obligation can be made. FIN 47 also provides guidance as to when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The Company adopted the provisions of FIN 47 on December 31, 2005. No conditional asset retirement obligations were recognized and, accordingly, the adoption of FIN 47 had no effect on the Company’s consolidated financial statements.

F-14

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

(s) Reclassification

Certain 2003 and 2004 amounts have been reclassified to conform to the 2005 presentation.

(t) Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. The principal estimate used by the Company relates to the allowance for dining credits losses. Additionally, the Company uses estimates to determine the effective cost of benefits in the Corporate Program and in the valuation of long lived assets. Actual results could differ from those estimates.

(2) Chief Executive Officer Compensation Agreements

On March 29, 2005, the Company’s Board of Directors appointed Ronald L. Blake as President and Chief Executive Officer. Further, on September 13, 2005, the Company entered into an employment agreement with Mr. Blake and he was elected to the Board of Directors. The employment agreement provides for Mr. Blake to receive an annual base salary of $540, and eligibility for an annual performance bonus of up to 100% of his annual base salary upon achievement of target performance objectives.

On September 13, 2005, Mr. Blake received options to purchase 250 shares of the Company’s common stock at an exercise price of $7.50 per share, vesting 40% on December 31, 2006, 30% on December 31, 2007, and 30% on December 31, 2008. The closing price of the Company’s common stock on the grant date was $6.15. On February 22, 2006, the Company granted Mr. Blake restricted stock unit awards entitling him to receive 250 shares of the Company’s common stock, with 186 shares vesting on December 31, 2006, and the remaining 64 shares vesting on December 31, 2007. On January 9, 2006, Mr. Blake granted a waiver to the Company deferring the issuance of these restricted stock unit awards from no later than January 1, 2006 until no later than March 1, 2006. The Company will also grant to Mr. Blake after June 1, 2006, restricted stock unit awards entitling Mr. Blake to receive 215 shares of the Company’s common stock, with 75.5 shares vesting on December 31, 2007, and the remaining 139.5 shares vesting on December 31, 2008. The stock options and restricted stock units vest only if Mr. Blake remains employed by the Company as of each vesting date, and the restricted stock units vest only if the Company attains applicable performance goals. All equity compensation awards granted to Mr. Blake are subject to the approval of the Compensation Committee and will fully vest upon a change of control, as defined in the employment agreement. The employment agreement also provides for non-competition, non-solicitation and confidentiality obligations of Mr. Blake.

Mr. Blake will receive a continuation of his base salary for a period of twelve months if he is terminated without cause, as defined in the employment agreement, or if he voluntarily terminates his employment for good reason, as defined in the employment agreement. Such salary continuation will be extended to eighteen months if such termination without cause or voluntary termination for good reason occurs within twelve months after a change in control, as defined in the employment agreement. The term of Mr. Blake’s employment pursuant to the employment agreement expires on December 31, 2008, and after the expiration of the employment term Mr. Blake will continue as an “at will” employee, provided that certain provisions of the employment agreement will remain in effect after the expiration of the employment term, including provisions related to termination and salary continuation, non-competition, non-solicitation and confidentiality.

On March 29, 2005, George S. Wiedemann, the former President and Chief Executive Officer, resigned. As part of his severance agreement, Mr. Wiedemann will receive $807 of severance payments over a period of

F-15

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

twelve months following his resignation and COBRA reimbursement for a period of twelve months. Mr. Wiedemann also resigned from the Board of Directors. The entire amount relating to the severance was recorded during the year ended December 31, 2005. At December 31, 2005, $220 of Mr. Wiedemann’s severance remained unpaid and is included in accounts payable-trade.

(3) Revolving Credit Facility

On November 3, 2004, the Company entered into an unsecured revolving credit facility with Bank of America, N.A., as Administrative Agent and Letter of Credit Issuer, and the other lender party thereto, allowing the Corporation to borrow up to $50,000 prior to July 13, 2008. Up to $5,000 of the facility can be used for letters of credit. The interest rates under the credit facility vary and are based on the federal funds rate, the prime rate and/or LIBOR and the Corporation’s ratio of indebtedness to earnings before interest, taxes, depreciation and amortization. Advances under the credit facility are subject to certain conditions precedent, including the accuracy of certain representations and warranties and the absence of any default or unmatured default. The Company paid origination fees and expenses aggregating $283.

The credit facility has financial covenants that the Company will maintain a ratio of indebtedness to earnings before interest, taxes, depreciation and amortization that do not exceed a stated amount and that the Corporation will maintain a minimum net worth. The credit facility contains customary representations, warranties and covenants and includes customary events of default, including a change of control provision.

On April 25, 2005, the Company, Bank of America, N.A., and the lenders party thereto entered into a Waiver (“Waiver”) to the Credit Agreement among the Company, Bank of America, N.A., as Administrative Agent and Letter of Credit Issuer, and the other lenders party thereto (“Credit Agreement”). Pursuant to the Waiver, the lenders agreed to waive any default having occurred or to occur as a result of a breach of certain sections of the Credit Agreement, which require the Company to maintain positive net income and a ratio of indebtedness to earnings before interest, taxes, depreciation and amortization that does not exceed a stated amount.

On July 19, 2005, the Company, Bank of America, N.A., and the lenders party thereto entered into an Amendment (“Amendment”) to the Credit Agreement. Pursuant to the Amendment, the Company and the lenders modified the Credit Agreement by reducing the facility to $25,000, accelerating the maturity to June 30, 2006, revising the ratio of senior indebtedness to earnings before interest, taxes, depreciation and amortization, as further defined in the Amendment (“EBITDA”), establishing a minimum threshold of EBITDA and providing for a security interest in substantially all of the Company’s assets at the time the Company makes a borrowing under the Credit Agreement. At December 31, 2005, the Company was in compliance with the covenants.

Issue 98-14 of the Emerging Issues Task Force of the FASB (EITF No. 98-14) states that if the borrowing capacity of the new arrangement is less than the borrowing capacity of the old arrangement, any fees paid to the creditor and any third-party costs incurred should be associated with the new arrangement (that is, deferred and amortized over the term of the new arrangement). In addition, any unamortized deferred costs relating to the old arrangement at the time of the change should be written off in proportion to the decrease in borrowing capacity of the old arrangement. The remaining unamortized deferred costs relating to the old arrangement should be deferred and amortized over the term of the new arrangement. As a result of the amendment, the Company amortized an additional $268 of deferred financing costs relating to the old arrangement during the three months ended September 30, 2005. The remaining $61 of deferred financing costs is being amortized over the maturity date of June 30, 2006. As of December 31, 2005, the Company did not have any borrowings outstanding under the Credit Agreement.

F-16

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

(4) Goodwill Impairment

In 1997, the Company started the systematic reacquisition of its franchised territories, which it completed by mid-2000. At the time of the reacquisition, the Company accounted for the excess of cost over fair value of assets acquired as goodwill. During the first quarter of 2005, certain of these reacquired territories experienced a significant decline in sales related to unanticipated competition and the loss of key salespersons in these territories, which contributed to an operating loss for the quarter. These financial results, coupled with several changes in senior sales management in the first quarter, gave rise to the Company’s need to reassess the goodwill related to the reacquired franchises.

In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards “SFAS” No. 142 “Goodwill and Other Intangible Assets”, the Company prepared a discounted cash flow analysis which indicated that the book value of certain reporting units exceeded their estimated fair value and that all of the goodwill associated with these reporting units had been impaired. Accordingly, the Company recognized a non-cash impairment loss of $1,554 during the year ended December 31, 2005.

(5) Convertible Subordinated Debentures

On October 15, 2003, the Company completed a private placement of $70,000 principal amount of its 3.25% Convertible Subordinated Debentures with a final maturity date of October 15, 2023. The debentures bear interest at 3.25% per annum, payable on April 15 and October 15 of each year. All required interest payments have been made as of December 31, 2005. The net proceeds from the offering were $67,500, and the issuance costs of $2,500 will be amortized over five years. Holders of the debentures may require the Company to repurchase for cash all or part of their debentures on October 15, 2008, October 15, 2013 and October 15, 2018 or upon a change of control at a price equal to 100% of the principal amount of the debentures, together with accrued and unpaid interest. The Company may redeem the debentures, in whole or in part, at any time after October 15, 2008 at a price equal to 100% of the principal amount of the debentures, together with accrued and unpaid interest. The debentures are convertible prior to the maturity date into shares of the Company’s common stock at an initial conversion price of $17.89 per share, subject to adjustment for certain events, upon the occurrence of any of the following: (i) the closing price of the Company’s common stock on the trading day prior to the conversion date was 110% or more of the conversion price of the debentures on such trading day; (ii) the Company has called the debentures for redemption; (iii) the average of the trading prices of the debentures for any five consecutive trading day period was less than the average conversion value for the debentures during that period, subject to certain limitations; or (iv) the Company makes certain distributions to holders of the Company’s common stock or enters into specified corporate transactions.

(6) Securitization of Dining Credits

Using part of the proceeds from the private placement described in Note 3, on October 15, 2003 the Company paid down the balance on its revolving securitization to zero and reduced the facility limit to $50,000. In connection therewith, a portion of the securitization renewal fees were expensed and the balance was amortized over the remainder of the renewal term, which ended on May 13, 2004. The Company chose not to renew the securitization and replaced it with the revolving credit facility described in Note 3. As of December 31, 2005, the Company has no further obligations under the revolving securitization.

(7) Equity Private Placement and Preferred Stock Tender Offer and Conversion

On June 12, 2002, the Company sold 3,000 shares of its common stock at $9.50 per share in a private placement to a group of 15 unaffiliated institutional investors from which the Company received $26,280, net of financial advisory, agent and legal fees.

F-17

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

The entire net proceeds from the stock issuance were used to repurchase shares of the Company’s outstanding Series A Convertible Preferred Stock issued in connection with a rights offering on November 30, 1999. The Company commenced a cash tender offer on June 13, 2002 to purchase up to a maximum of 2,475 shares, or 61.1%, of its outstanding Series A Convertible Preferred Stock at a price of $10.62 per share. The tender offer expired on July 15, 2002, and a total of 3,177 shares of Series A Convertible Preferred Stock were tendered. Since more than the 2,475 shares were tendered, the Company accepted and paid for shares on a pro rata basis from among the validly tendered shares. In addition to the purchase price, tendering stockholders also received a payment in lieu of cash dividends for the period July 1 through July 15, 2002 equal to $0.006 per share of Series A Convertible Preferred Stock accepted.

On December 24, 2002, the Company gave notice to holders of Series A Preferred Stock of the Company’s intention to exercise its right to convert all of the issued and outstanding shares of Series A Preferred Stock into shares of the Company’s common stock. On January 23, 2003, 1,329 shares of Series A Preferred Stock, the total amount then issued and outstanding, were converted into 1,586 shares of the Company’s common stock. Each share of Series A Preferred Stock was converted into 1.19316 shares of the Company’s common stock. Each holder of record of Series A Preferred Stock on January 23, 2003 also received a partial quarterly cash dividend prorated for the period from January 1, 2003 through January 23, 2003.

On November 16, 2004, the Company filed with the Delaware Secretary of State a Certificate of Elimination eliminating the Company’s Series A Preferred Stock. No shares of the Company’s Series A Preferred Stock were issued and outstanding as of December 31, 2003 and 2004.

(8) Certain Relationships and Related Party Transactions (square footage not in thousands)

On August 30, 1999, the Company entered into an office lease agreement with EOP—Northwest Properties, L.L.C., an affiliate of Equity Office Properties Trust. Samuel Zell, the Company’s Chairman of the Board of Directors through September 13, 2005, is Chairman of the Board of Trustees and a shareholder of Equity Office Properties Trust. The lease is for office space at 999 Third Avenue, Suite 3800, Seattle, Washington. The term of the lease commenced on September 1, 1999, and the lease was terminated effective August 31, 2005. The Company paid rent of $11, $18 and $18 for the years ended December 31, 2005, 2004 and 2003, respectively.

On May 5, 2003, the Company entered into an office lease agreement with Equity Office Properties Management Corp., the agent for Two North Riverside Plaza Joint Venture Limited Partnership, a limited partnership comprised in part of trusts established for the benefit of Samuel Zell and members of his family. The trustees of these trusts is Chai Trust Company, L.L.C., and Donald J. Liebentritt, the current Chairman of the Board of Directors of the Company, is President of Chai Trust Company, L.L.C. The lease initially provided for 10,000 square feet of office space at Two North Riverside Plaza, Chicago, Illinois and, effective July 1, 2004, the Company exercised its option to increase this space to 14,324 square feet. The term of the lease is from September 1, 2003 through August 31, 2008. The Company paid rent of $287, $212 and $62 for the years ended December 31, 2005, 2004 and 2003, respectively.

On November 2, 2005, the Company has entered into two storage space lease agreement with Equity Office Properties Management Corp., the agent for Two North Riverside Plaza Joint Venture Limited Partnership, one dated November 2, 2005 and one dated October 22, 2003. The leases provides for an aggregate of 1,130 square feet of storage space at Two North Riverside Plaza, Chicago, Illinois. The term of the November 2, 2005 lease is from November 7, 2005 through August 31, 2008 and the term of the October 22, 2003 lease is month-to-month. The Company paid rent for these storage spaces of $2 for the year ended December 31, 2005.

F-18

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

On October 20, 2005, the Company entered into an office sublease agreement with Equity Group Investments, L.L.C. (“EGI”). Donald J. Liebentritt, the Company’s Chairman, is a Senior Advisor with EGI and Nils E. Larsen, a director of the Company, is a Managing Director of EGI. The sublease provides for 1,112 square feet of office space at Two North Riverside Plaza, Chicago, Illinois. The term of the sublease is from October 21, 2005 and continues on a month-to-month basis. The Company paid rent of $5 for the year ended December 31, 2005.

On June 25, 2004, the Company entered into an office lease agreement with Equity Office Management, L.L.C., as indirect manager of San Felipe Plaza, Ltd., a limited partnership. Equity Office Management, L.L.C. is an affiliate of Equity Office Properties Trust. The lease provides for 827 square feet of office space at 5847 San Felipe, Suite 1675, Houston, Texas. The term of the lease is from July 1, 2004, through June 30, 2009. The Company paid rent of $21 and $8 for the years ended December 31, 2005 and 2004.

On June 20, 2005, the Company entered into an office lease agreement with CA Shorebreeze Limited Partnership, an affiliate of Equity Office Properties Trust. The lease is for office space at 255 Shoreline Drive, Suite 145, Redwood City, California. The term of the lease is from August 10, 2005 through February 9, 2009. The Company paid rent of $11 for the year ended December 31, 2005.

On August 4, 2005, the Company entered into an office license agreement with WA-Columbia Center, L.L.C., an affiliate of Equity Office Properties Trust. The license is for office space at 701 Fifth Avenue, Suite 1410, Seattle, Washington. The term of the license is from August 1, 2005 through July 31, 2008. The Company paid rent of $12 for the year ended December 31, 2005.

The future minimum lease obligation for these five leases is as follows:

Year ending December 31,	(in thousands)
2006		352
2007		361
2008		257
Thereafter (through June 30, 2009)		8
Total minimum lease payments	$	978

Equity Group Investments, L.L.C. (“EGI”), an affiliate of Samstock, L.L.C., the Company’s largest stockholder, provided investment and other financial advisory services to the Company in 2004 and 2003. The Company paid $188 and $250, respectively, to EGI for these services for each of the years ended December 31, 2004 and 2003. Samuel Zell serves as Chairman of EGI. This arrangement was terminated as of September 30, 2004.

On October 11, 2004, the Company entered into an agreement with EGI for administrative services beginning October 18, 2004 and continuing on a month-to-month basis, with a 30-day written notice required for cancellation. The administrative services consist of rent for 1,251 square feet of additional office space at Two North Riverside Plaza, Chicago, Illinois, utilities and maintenance service. The Company paid $9 and $4, respectively, to EGI for these services for each of the years ended December 31, 2005 and 2004. This agreement was terminated as of April 30, 2005.

F-19

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

(9) Property and Equipment

Property and equipment consist of the following:

	As of December 31,
	2005			2004
Furniture, fixtures and equipment	$	17,905		$	16,503
Computer hardware and software		6,468			5,826
Leasehold improvements		1,329			1,315
		25,702			23,644
Less accumulated depreciation and amortization		(17,137	)		(13,194	)
Property and equipment, net	$	8,565		$	10,450

Depreciation and amortization expense was $4,212, $4,157 and $4,140 for the years ended December 31, 2005, 2004 and 2003, respectively. Loss on disposal of assets was $179 for the year ended December 31, 2005. There were no losses on disposal of assets in 2004 and 2003.

(10) Fair Values of Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of cash and cash equivalents, net accounts receivable, net dining credits, prepaid expenses, accounts payable—trade, accounts payable—member benefits, accrued compensation, and other accrued expenses approximate fair value because of the short maturity of those instruments. Marketable securities are stated at fair value with unrealized gains and losses included as a component of shareholders’ equity until realized. The carrying value of convertible subordinated debentures at December 31, 2005 and 2004 was $70,000. The estimated fair value of the convertible subordinated debentures based on quoted market prices at December 31, 2005 and 2004 was $56,525.

(11) Stock Option and Warrant Summary

Stock Option Plan

In May, 2004, the Company’s stockholders approved the 2004 Long-Term Incentive Plan (the “Plan”) which represented an amendment and restatement of the Company’s 1996 Long-Term Incentive Plan (the “1996 Plan”). The Plan increased the number of shares of common stock that may be subjected to outstanding awards at any point in time to 4,540. The Non-Employee Director Awards Program (the “NED Program”), adopted pursuant to the Plan allows for non-employee directors to choose to take directors fees in either cash or a current or deferred stock award. The NED Program also provides for the payment of $30 per year to each non-employee director, a payment of $40 per year to the Chairman of the Board or Directors, a payment of $20 per year to the Chairman of the Audit Committee and a payment of $10 per year to each other member of the Audit Committee. In 2004, the NED Program provided for the automatic grant to non-employee directors of options to purchase 10 shares of the Company’s common stock following each annual meeting of the Company’s stockholders, and was amended in the fourth quarter of 2004 to provide for quarterly grants of 2 restricted stock units in lieu of the stock option grant.

For the year ended December 31, 2005, the Company granted 70 restricted stock units to non-employee directors with a weighted average grant date fair value of $5.17 per restricted stock unit. No restricted

F-20

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

stock awards were granted to non-employee directors for the year ended December 31, 2004 and 2003. At December 31, 2005, 150 shares of the Company’s common stock were reserved for issuance as deferred stock awards, 70 shares of the Company’s common stock were reserved for issuance as restricted stock units to directors as compensation for serving on the Company’s Board of Directors and 10 shares of the Company’s common stock were reserved for issuance as stock awards to certain executives as incentive compensation. Also, during the year ended December 31, 2005, 10 restricted stock units that were unvested at the time were canceled for certain individuals who no longer serve on the Board or Directors. Under the Plan, the Company may grant awards, which may include stock options, stock appreciation rights, restricted stock, deferred stock, stock granted as a bonus or in lieu of other awards, dividend equivalents and other stock based awards to directors, officers and other key employees and consultants of the Company. Options are exercisable beginning not less than one year after date of grant. All options expire either five or ten years after the date of grant. Restricted stock unit grants to executives are first subject to a financial performance test and then vest ratably over a three year period, commencing with the performance test year.

At December 31, 2005 and 2004 there were 820 and 1,626 shares, respectively, available for grant under the 2004 Plan and the 1996 Plan. The Company uses the Black Scholes Model to calculate the estimated fair value of options granted. The following represents the estimated fair value of options granted and the weighted-average assumptions used in calculating such estimate:

	Years ended December 31,
	2005		2004		2003
Weighted average fair value per option granted	$3.05		$6.10		$6.27
Stock volatility	60	%	43	%	54	%
Risk-free interest rate	4.0	%	4.3	%	3.6	%
Expected stock dividend yield	0	%	0	%	0	%
Expected life of options	4 - 7 years		5 - 10 years		5 - 10 years

Stock option activity during the periods indicated is as follows:

	Within Plan Options				Non Plan Options
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Balance at December 31, 2002	2,478			4.57	150			3.00
Granted	1,292			9.01	750			9.58
Exercised	(654	)		5.57	—			—
Cancellations	(35	)		8.06	—			—
Balance at December 31, 2003	3,081			6.15	900			8.48
Granted	340			10.09	—			—
Exercised	(434	)		4.04	(150	)		3.00
Cancellations	(248	)		6.00	—			—
Balance at December 31, 2004	2,739		$	6.99	750		$	9.58
Granted	340			6.62	—			—
Exercised	(496	)		2.90	—			—
Cancellations	(1,132	)		9.15	(750	)		9.58
Balance at December 31, 2005	1,451		$	6.63	—		$	—

F-21

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

Options were granted outside the 1996 Plan to a member of the Company’s Board of Directors in 2001 and to the Company’s President and Chief Executive Officer in 2003.

During the year ended December 31, 2005, the Company issued 250 options with the exercise price higher than the market price of the Company’s stock on the date of grant. The weighted average exercise price on these options was $7.50 per share and the weighted average grant date fair value was $3.33 per share. Also, during the year ended December 31, 2003, the Company issued 1,000 options with the exercise price lower than the market price of the Company’s stock on the date of grant. The weighted average exercise price on these options was $9.58 per share and the weighted average grant date fair value was $6.45 per share. All options granted during the year ended December 31, 2004 were issued at the market price of the Company’s stock on the grant date.

The following table summarizes information about stock options outstanding and exercisable at December 31, 2005:

	Options Outstanding			Options Exercisable
Range Of Exercise Prices	Number Outstanding	Remaining Contractual Life (Years)	Average Exercise Price	Number Exercisable	Average Exercise Price
$ 2.38 to $ 4.25	357	5.34	$3.35	316	$3.24
$ 4.26 to $ 7.49	273	5.40	5.63	218	5.56
$ 7.50 to $ 7.50	250	9.70	7.50	—	—
$ 7.51 to $ 8.00	310	7.26	7.87	212	7.81
$ 8.01 to $10.55	261	7.88	9.86	227	9.85
Total	1,451	6.97	$6.63	973	$6.30

At December 31, 2005 and 2004, the number of options exercisable was 973 and 1,827, respectively, and the weighted-average exercise price of those options was $6.30 and $6.13, respectively.

Warrants

The Company has issued warrants for its Common Stock, par value $0.02 per share common stock. A summary of warrants outstanding is as follows:

	Warrant Shares		Warrant Price Per Share		Expiration Date
Balance at December 31, 2002	4,926
Warrants exercised	(95	)	$	6.00 - $8.00	March 3, 2003
Warrants expired/cancelled	(2	)	$	6.00 - $8.00	March 3, 2003
Warrants exercised	(2,808	)	$	5.93 - $7.30	April 28, 2005
Balance at December 31, 2003	2,021
Warrants exercised	(949	)	$	2.48	November 9, 2004
Warrants exercised	(110	)	$	5.93 - $7.30	April 28, 2005
Balance at December 31, 2004	962
Warrants expired/cancelled	(962	)	$	5.93 - $7.30	April 28, 2005
Balance at December 31, 2005	—

F-22

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

As of December 31, 2005, the Company had no warrants outstanding. A total of 962 warrants expired during the year ended December 31, 2005.

(12) Income Taxes

Income tax expense attributable to income from continuing operations for the periods listed below consists of:

	Years ended December 31,
	2005		2004			2003
Current:
U.S. federal	$	34	$	7,957		$	8,798
State and local		286		2,039			1,954
Total Current		320		9,996			10,752
Deferred:
U.S. federal		213		(949	)		(249	)
State and local		208		(16	)		(33	)
Total Deferred		421		(965	)		(282	)
Total Provision	$	741	$	9,031		$	10,470

Income tax expense attributable to income from continuing operations differed from the amounts computed by applying the statutory federal income tax rate of 34% for the year ended December 31, 2005 and 35% for the years ended December 31, 2004 and 2003 to pre-tax income from continuing operations as a result of the following:

	Years ended December 31,
	2005			2004			2003
Expected federal tax	$	41		$	7,787		$	9,163
State and local taxes, net of federal income tax benefit		119			1,235			1,248
Valuation allowance change		251			245			—
Change in rate		375			—			—
Unrealized foreign tax benefit		(187	)		(245	)		—
Other		142			9			59
Total	$	741		$	9,031		$	10,470

F-23

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

The tax effects of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2005 and 2004 are as follows:

	December 31, 2005			December 31, 2004
Deferred tax assets:
Reserve for dining credits losses	$	6,301		$	7,708
Foreign operating loss carryforward		432			245
Severance expense		256			—
Reserve for sales commissions		205			360
Deferred directors compensation		387			412
Other		237			160
Gross deferred tax assets		7,818			8,885
Less valuation allowance		(496	)		(245	)
Deferred tax assets		7,322			8,640
Deferred tax liabilities:
Property and equipment		1,244			1,827
Other		(238	)		77
Deferred tax liabilities		1,006			1,904
Net deferred tax asset	$	6,316		$	6,736

The Company believes that it is more likely than not that the results of future domestic operations will generate sufficient taxable income to realize the deferred tax assets. The valuation allowance for deferred tax assets as of December 31, 2005 and 2004 was $496 and $245, respectively. The Company established a valuation allowance on the foreign operating loss carryforward included in deferred tax assets. The Company also established a valuation allowance against the Capital Loss carryforwards generated beginning in the 2002 tax year. These capital loss carryforwards begin expiring in the 2007 tax year.

(13) Leases

The Company leases several office spaces, including those discussed in Note 8, under long-term lease agreements. Future minimum lease payments under non-cancelable operating leases as of December 31, 2004 are as follows:

Year ended December 31,
2006	$	1,644
2007		1,146
2008		679
2009		201
Thereafter (through December 3, 2010)		126
Total minimum lease payments	$	3,796

Effective December 5, 2005, the Company subleased its New York sales office and moved that sales office to a new location. The term of the sublease coincides with the term of our current lease on this property, both of which expire on October 31, 2006. The sublease calls for monthly rent payment of $12 and the monthly rent payment the Company is required to make under the original lease agreement is $12. Both obligations are included in the table above.

F-24

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

Rent expense charged to operations was $1,687, $1,488 and $1,281 for the years ended December 31, 2005, 2004 and 2003, respectively.

Capital leases, included in net property and equipment at December 31, 2005, consist of an obligation for certain computer equipment and software with options for the Company to purchase the leased property at the end of the lease terms which is March 2007. At December 31, 2005 and 2004, the Company had $910 recorded as capital leases and accumulated amortization of $643 and $442, respectively. Amortization of assets recorded under capital leases, included in depreciation and amortization expense, amounted to $200, $197 and $164 for the years ended December 31, 2005, 2004 and 2003, respectively. Future minimum lease payment on this capital lease for 2006 and 2007 is $208 and $49, respectively.

(14) Business and Credit Concentrations

As of December 31, 2005, the Company had contracts or relationships with nine major airlines that offer frequent flyer miles as rewards. Also, for the year ended December 31, 2005, members of each of the United Airlines, Delta Airlines and Upromise Inc. programs represented 10% or more of the Company’s sales and for the years ended December 31, 2004 and 2003 members of each of the United Airlines and Upromise Inc. programs represented 10% or more of the Company’s sales. The following table illustrates the Company’s partner sales concentration as a percentage of total sales:

	2005		2004		2003
Airlines	57	%	57	%	57	%
All partners that represent 10% or more of sales	46	%	34	%	33	%

(15) Minimum Vendor Obligations

The Company has agreements with various partners and vendors that obligate the Company, among other things, to certain minimum benefit currency purchases as well as minimum thresholds of marketing activities. These marketing activities may include advertising and promotion, award currency purchases and/or dining program size. The advertising and promotion and award currency purchases are generally measured over a twelve month period. The Company periodically evaluates whether its minimum partner obligations with respect to each partner will be satisfied.

At December 31, 2005, the Company determined that there was a $644 shortfall in its minimum benefit currency purchase requirement. The contract allows for the Company to purchase the required shortfall in benefit currency by March 1, 2006. The Company recorded a liability of $644 for this amount for the year ended December 31, 2005 and a corresponding prepaid asset. The additional benefit currency purchased from the partner was used to satisfy awards to members for the two months ended February 2006. We remain obligated to future annual minimum payments through December 2008. In the event the Company’s benefit currency purchases are less than the contractual minimum, the additional benefit currency purchased from the partner may be used to satisfy awards to members in the subsequent period. The Company does not believe that any such liability would have a material impact on its consolidated financial position, results of operations or cash flows.

At December 31, 2005, the Company had vendor contract commitments totaling $32,674.

(16) Litigation

On May 25, 2004, a complaint was filed in the Los Angeles County Superior Court against the Company and certain of its subsidiaries by Bistro Executive, Inc., Westward Beach Restaurant Holdings, LLC and MiniBar Lounge, all of which were participants in the Company’s dining credits Purchase Plan (the “Dining Plan”), and their respective owners.

F-25

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

The complaint was brought as a putative class action and alleges that amounts paid by the Company under the Dining Plan constituted loans in violation of California usury laws and the California Unfair Competition Law. The complaint seeks, among other relief, damages and equitable and injunctive relief, including disgorgement of all purported “interest” and profits earned by the Company from the Dining Plan in California, which plaintiffs allege to be a significant portion of an amount in excess of $300 million, and treble damages for all purported “interest” paid within one year prior to the filing of the complaint.

On June 25, 2004, the action was removed to the United States District Court for the Central District of California.

On October 11, 2005, plaintiffs’ motion for class certification was granted certifying two classes as follows: (i) all California restaurants which, from May 25, 2000 to May 25, 2004, participated in the Dining Plan and which took a cash advance from the Company pursuant to its California Dining Plan agreements, and (ii) all persons who, from May 25, 2000 to May 25, 2004, guaranteed payment of cash advances underlying the Company’s California Dining Plan agreements. Trial had been set for April 24, 2006, but the date was continued and a new trial date has been set for October 3, 2006. The Company disputes the allegations of wrongdoing in this complaint, and will continue to defend itself vigorously in this matter. The ultimate cost to the Company from this action is not possible to predict and may not be determined for a number of years.

On October 1, 2004, a complaint was filed in the United States District Court for the Eastern District of Texas against Rewards Network Inc. by Source Inc. The complaint claims that the Company is infringing four patents owned by Source Inc. The complaint seeks, among other relief, treble damages due to willful infringement and equitable relief. The Company disputes the allegations of wrongdoing in this complaint, and will continue to defend itself vigorously in this matter. The ultimate cost to the Company from this action is not possible to predict and may not be determined for a number of years.

(17) Subsequent Event

On February 22, 2006, the Compensation Committee of the Board of Directors of the Company (“Compensation Committee”) approved the grant of a restricted stock unit award pursuant to the Company’s 2004 Long-Term Incentive Plan to Ronald L. Blake as set forth in the Employment Agreement between the Company and Mr. Blake dated as of September 13, 2005 (“Blake Employment Agreement”). The Compensation Committee approved the grant to Mr. Blake of a restricted stock unit award entitling Mr. Blake to receive 250 shares of the Company’s common stock, with 186 shares vesting on December 31, 2006, and the remaining 64 shares vesting on December 31, 2007. This restricted stock unit award vests only if Mr. Blake remains employed by the Company as of each vesting date and the Company attains applicable performance goals based on the Company’s earnings before interest, income taxes, depreciation and amortization, excluding unusual and non-recurring gains and losses (“EBITDA”). This restricted stock unit award will fully vest upon a change in control, as defined in the Blake Employment Agreement.

In addition, the Compensation Committee approved the grant of restricted stock unit awards to certain members of the Company’s management. These employees received restricted stock units entitling them to receive a total of 221 shares of the Company’s common stock. These restricted stock unit awards vest in three equal installments beginning on the first anniversary of the date of grant if the Company attains applicable performance goals based on the Company’s EBITDA in 2006 (“2006 Performance Target”). If the Company does not achieve the 2006 Performance Target, but achieves a cumulative EBITDA target for 2006 and 2007 (“2007 Cumulative Performance Target”), these restricted stock unit awards will vest two-thirds on the second anniversary of the date of grant and one-third on the third anniversary of the date of grant. If the Company does not achieve the 2007 Cumulative Performance Target, but achieves a cumulative EBITDA target for 2006, 2007 and 2008, these restricted stock unit awards will vest in their entirety on the third anniversary of the date of grant. If the 2008 Cumulative Performance Target is not achieved, the restricted stock unit awards will not vest.

F-26

REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(amounts in thousands, except per share data)

The Compensation Committee and the Board of Directors adopted the Rewards Network Inc. 2006 Long-Term Incentive Plan, subject to the approval of the stockholders of the Company. The Compensation Committee also approved the grant of an additional restricted stock unit award to Mr. Blake entitling Mr. Blake to receive 50,000 shares of the Company’s common stock, subject to the approval of the 2006 Plan by the stockholders of the Company. This restricted stock unit award will fully vest upon a change in control, as defined in the 2006 Plan. This restricted stock unit award will have the same terms as the restricted stock unit awards granted to the other management as mentioned above.

The fair value of the awards, which is the same as the closing price of the Company’s common stock on February 22, 2006, was $7.98 per share.

(18) Selected Quarterly Financial Data (Unaudited)

Selected financial data for the quarter ended is as follows:

	December 31, 2005		September 30, 2005		June 30, 2005	March 31, 2005
Sales	$	69,023	70,317		73,041	74,764
Operating revenue		22,485	18,433		19,796	16,337
Operating income (loss)		5,119	232		2,968	(5,446	)
Income (loss) before income tax		4,542	(663	)	2,383	(6,142	)
Income tax provision (benefit)		2,451	(179	)	944	(2,475	)
Net income (loss)	$	2,091	(484	)	1,439	(3,667	)
Earnings (loss) per share:
Basic	$	0.08	(0.02	)	0.05	(0.14	)
Diluted	$	0.08	(0.02	)	0.05	(0.14	)
	December 31, 2004		September 30, 2004		June 30, 2004	March 31, 2004
Sales	$	82,031	86,818		90,580	88,649
Operating revenue		22,621	21,622		24,520	24,484
Operating income		4,900	5,638		8,112	6,402
Income before income tax		4,199	5,017		7,423	5,609
Income tax provision		1,721	2,028		3,010	2,272
Net income	$	2,478	2,989		4,413	3,337
Earnings per share:
Basic	$	0.10	0.12		0.18	0.14
Diluted	$	0.10	0.11		0.16	0.13

F-27

REWARDS NETWORK INC. AND SUBSIDIARIES

Schedule II—Valuation and Qualifying Accounts

(in thousands)

Description	Balance, beginning of year		Charged to expenses	Net Write-offs		Other Adjustments		Balance, end of year
Year ended December 31, 2005
Allowance for doubtful merchant accounts—dining credits	$	26,943	19,827	(25,578	)	—		$	21,192
Allowance for doubtful merchant accounts—Accounts Receivable	$	2,793	2,695	(2,990	)	—		$	2,498
Valuation allowance on deferred taxes	$	245	251	—		—		$	496
Year ended December 31, 2004
Allowance for doubtful merchant accounts—dining credits	$	19,253	19,711	(11,730	)	(291	)(1)	$	26,943
Allowance for doubtful merchant accounts—Accounts Receivable	$	2,502	2,113	(1,822	)	—		$	2,793
Valuation allowance on deferred taxes	$	—	245	—		—		$	245
Year ended December 31, 2003
Allowance for doubtful merchant accounts—dining credits	$	13,492	16,502	(10,699	)	(42	)(1)	$	19,253
Allowance for doubtful merchant accounts—Accounts Receivable	$	2,460	2,036	(1,994	)	—		$	2,502
Valuation allowance on deferred taxes	$	—	—	—		—		$	—

Notes:

(1) Reclassed to accounts receivable

F-28

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported accurately within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (pursuant to Exchange Act Rule 13a-15). Based upon this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of such date. The conclusions of the CEO and CFO from this evaluation were communicated to the Audit Committee.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act). Under the supervision and with the participation of our management, including our CEO and CFO, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management has concluded that our internal control over financial reporting was effective at December 31, 2005.

Management’s assessment of the effectiveness of our internal controls over financial reporting as of December 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm. KPMG LLP has issued an attestation report on our controls over financial reporting. The report is included in Item 8 of this Form 10-K.

Item 9B. Other Information

On March 13, 2006, Rewards Network Services Inc., a subsidiary of Rewards Network Inc., entered into an Amendment (the “Amendment”) to the Agreement, dated as of September 19, 2005, between Rewards Network Services Inc. and American Express Travel Related Services Company, Inc. (“American Express”). The Amendment provides for additional terms and conditions regarding the receipt of data regarding American Express card transactions at merchants that participate in the Company’s programs directly from American Express. This summary is qualified in its entirety by reference to the Amendment, a copy of which is attached hereto as Exhibit 10.39.

On March 13, 2006, Rewards Network Services Inc. entered into a Second Amended and Restated Agreement with Upromise, Inc. (the “Upromise Agreement”). The Upromise Agreement sets forth the terms and conditions upon which the Company provides a dining rewards program to Upromise members. The term of the Upromise Agreement expires on December 31, 2007, after which the Upromise Agreement continues on a year-to-year basis until either party gives at least 120 days notice of non-renewal. This summary is qualified in its entirety by reference to the Upromise Agreement, a copy of which is attached hereto as Exhibit 10.40.

35

PART III

Item 10. Directors and Executive Officers of the Registrant

Information included under the captions “Election of Directors,” “Board of Director Meetings and Committees of Board of Directors,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2006 (our “Proxy Statement”) is incorporated herein by reference. See also the section captioned “Executive Officers of the Registrant” in Part I, Item 1 of this Annual Report on Form 10-K.

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer and principal accounting officer or controller or persons performing similar functions. A copy of our code of ethics is available on our website at www.rewardsnetwork.com. We will disclose any amendment to, or waiver from, our code of ethics for senior financial officers and the chief executive officer on our website in lieu of filing a Form 8-K with the Securities and Exchange Commission.

Item 11. Executive Compensation

Information included under the captions “Director Compensation,” “Executive Compensation and Related Information” and “Compensation Committee Interlocks and Insider Participation” in our Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information included under the captions “Equity Compensation Plan Information” and “Beneficial Ownership of Common Stock” in our Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Information included under the caption “Certain Relationships and Related Transactions” in our Proxy Statement is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Information included under the caption “Independent Accountants” in our Proxy Statement is incorporated herein by reference.

36

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) 1. FINANCIAL STATEMENTS:

The following financial statements are filed as part of this annual report on Form 10-K:

• Consolidated Balance Sheets at December 31, 2005 and 2004

• Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003

• Consolidated Statements of Stockholders’ Equity and Comprehensive Income (loss) for the years ended December 31, 2005, 2004 and 2003

• Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003

• Notes to consolidated financial statements

Selected quarterly financial data under the caption “Note 18 Selected Quarterly Financial Data (Unaudited)” are also filed as part of this annual report on Form 10-K.

2. FINANCIAL STATEMENT SCHEDULE:

Schedule II—Valuation and Qualifying Accounts is filed as part of this annual report on Form 10-K.

3. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K AND PARAGRAPH (b) BELOW

Exhibit No.	Description
3.1	Restated Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 4.1 to Rewards Network Inc.’s Registration Statement on Form S-3 (File No. 333-111390), filed on December 19, 2003.
3.2	By-Laws of Rewards Network Inc., as amended, are incorporated herein by reference to Exhibit 3.2 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on March 12, 2004.
4.1	Letter Agreement, dated as of June 12, 2002, between iDine Rewards Network Inc. and Samstock, L.L.C. is incorporated herein by reference to Exhibit 4.11 to Amendment No. 1 to iDine Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.
4.2	Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia Investors, L.L.C. and Robert M. Steiner, as trustee, is incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to Transmedia Network Inc.’s Registration Statement on Form S-2 (File No. 333-84947), filed on October 5, 1999.
4.3	Amendment, dated February 5, 2003, to the Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among iDine Rewards Network Inc., Samstock, L.L.C., and the former members and distributees of EGI-Transmedia Investors, L.L.C., is incorporated herein by reference to Exhibit 4.13 to Amendment No. 1 to iDine Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.
4.4	Indenture, dated as of October 15, 2003, as amended and restated as of February 4, 2004, between Rewards Network Inc. and LaSalle Bank National Association is incorporated herein by reference to Exhibit 4.15 to Rewards Network Inc’s Annual Report on Form 10-K (File No. 001-13806), filed on March 12, 2004.

37

Exhibit No.	Description
4.5	Registration Rights Agreement, dated October 8, 2003, between iDine Rewards Network Inc. and Credit Suisse First Boston LLC is incorporated herein by reference to Exhibit 4.18 to iDine Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on November 14, 2003.
10.1	Stock Purchase and Sale Agreement, dated as of November 6, 1997, among Transmedia Network Inc., Samstock, L.L.C. and Transmedia Investors L.L.C. is incorporated herein by reference to Exhibit 10.1 to Transmedia Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on November 17, 1997.
10.2	Amended and Restated Agreement Among Stockholders, dated as of March 3, 1998, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia Investors L.L.C., Melvin Chasen and Iris Chasen and Halmostock Limited Partnership is incorporated herein by reference to Exhibit 10.5 to Transmedia Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on March 17, 1998.
10.3	Stockholders Agreement, dated as of March 3, 1998, among Transmedia Network Inc., EGI—Transmedia Investors, L.L.C., Samstock, L.L.C., and Halmostock Limited Partnership is incorporated herein by reference to Exhibit 10.6 to Transmedia Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on March 17, 1998.
10.4	Transmedia Network Inc. 1987 Stock Option and Rights Plan is incorporated herein by reference to Exhibit 10.2 to Transmedia Network Inc.’s Annual Report on Form 10-K (File No. 000-4028), filed on December 29, 1994.
10.5	Form of Stock Option Agreement (as modified) between iDine Rewards Network Inc. and certain directors is incorporated herein by reference to Exhibit 10.3 to Transmedia Network Inc.’s Annual Report on Form 10-K (File No.001-13806), filed on December 29, 1995.
10.6	iDine Rewards Network Inc. 1996 Long-Term Incentive Plan, including amendments through June 1, 2002, is incorporated herein by reference to Exhibit 10.13 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed March 12, 2004.
10.7	Rewards Network Inc. 2004 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on August 5, 2004.
10.8	Amendment No. 1 to the Rewards Network Inc. 2004 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10.3 to Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on August 5, 2004.
10.9	2006 Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on January 25, 2005.
10.10	Form of Restricted Stock Unit Award Agreement is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on February 28, 2006.
10.11	Rewards Network Inc. 2004 Non-Employee Director Awards Program is incorporated herein by reference to Exhibit 10.4 to Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on August 5, 2004.
10.12	Amendment Number One to the Rewards Network Inc. 2004 Non-Employee Director Awards Program is incorporated herein by reference to Exhibit 10.5 to Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on November 8, 2004.

38

Exhibit No.		Description
10.13		Lease by and between Equity Office Properties Management, as agent for Two North Riverside Plaza Joint Venture Limited Partnership, and iDine Rewards Network Inc., dated May 5, 2003 is incorporated herein by reference to Exhibit 10.16 to iDine Rewards Network Inc.’s Annual Report on Form 10-K/A (File No. 001-13806), filed on October 7, 2003.
10.14		Standard Office Building Lease, dated May 11, 2001, between Transmedia Network Inc. and Biscayne Centre, LLC is incorporated herein by reference to Exhibit 10.4 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on July 5, 2005.
10.15		First Amendment to Standard Office Building Lease, dated July 24, 2002, between Transmedia Network Inc. and Biscayne Centre, LLC is incorporated herein by reference to Exhibit 10.3 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on July 5, 2005.
10.16		Second Amendment to Standard Office Building Lease, dated January 24, 2005, between Rewards Network Inc. and Biscayne Centre, LLC is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on July 5, 2005.
10.17		Third Amendment to Standard Office Building Lease, dated June 28, 2005, between Rewards Network Inc. and 119 Partners, LLC is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on July 5, 2005.
10.18		Lease by and between Equity Office Management, L.L.C., as indirect manager of San Felipe Plaza, Ltd. and Rewards Network Inc., dated June 25, 2004, is incorporated herein by reference to Exhibit 10.6 to Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on November 8, 2004.
10.19		Lease by and between Insignia Corporate Establishments (U.S.) Inc. and Rewards Network Inc., dated August 30, 1999, and the amendment thereto, is incorporated herein by reference to Exhibit 10.14 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on March 14, 2005.
10.20		Employment Agreement, dated September 13, 2005, between Rewards Network Inc. and Ronald L. Blake is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on September 14, 2005.
10.21		Offer Letter, dated May 14, 2003, between iDine Rewards Network Inc. and Bryan Adel is incorporated herein by reference to Exhibit 10.25 to Amendment No. 1 to iDine Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.
10.22	*	Offer Letter, dated September August 10, 2000, between Transmedia Network Services Inc. and Megan E. Flynn.
10.23	*	Severance, Proprietary Interest Protection and Non-Solicitation Agreemend, dated as of March 18, 2005, between Rewards Network Services Inc. and Megan E. Flynn.
10.24	*	Offer Letter, dated April 14, 2005, between Rewards Network Services Inc. and Christopher J. Locke.
10.25		Offer Letter, dated June 14, 2005, between Rewards Network Establishment Services Inc. and Robert S. Wasserman is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on June 17, 2005.
10.26		Severance, Proprietary Interest Protection and Non-Solicitation Agreemend, dated as of June 14, 2005, between Rewards Network Establishment Services Inc. and Robert S. Wasserman is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on June 17, 2005.

39

Exhibit No.		Description
10.27		Severance and Release Agreement, dated as of November 28, 2005, between Gerald J. Hughes and Rewards Network Establishment Services Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on November 29, 2005.
10.28		Severance and Release Agreement, dated as of April 26, 2005, between George S. Wiedemann and Rewards Network Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on April 27, 2005.
10.29		Severance and Release Agreement, dated as of December 22, 2005, between Kenneth R. Posner and Rewards Network Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on December 23, 2005.
10.30		Severance and Release Agreement, dated as of February 10, 2005, between Anthony Priore and Rewards Network Services Inc. is incorporated herein by reference to Exhibit 10.21 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on March 14, 2005.
10.31		Severance and Release Agreement, dated as of April 11, 2005, between Domenic Rinaldi and Rewards Network Establishment Services Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on April 14, 2005.
10.32		Severance and Release Agreement, dated as of June 23, 2005, between Gregory J. Robitaille and Rewards Network Services Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on June 27, 2005.
10.33		Form of Directors’ and Officers’ Indemnity Agreement, dated as of May     , 2002, between iDine Rewards Network Inc. and the indemnitee stated therein is incorporated herein by reference to Exhibit 99 to iDine Rewards Network Inc.’s Registration Statement on Form S-3 (File No. 333-89406), filed on May 30, 2002.
10.34	*	Rewards Network Inc. Severance Plan.
10.35		Credit Agreement, dated as of November 3, 2004, by and among Rewards Network Inc., Bank of America, N.A., as Administrative Agent and Letter of Credit Issuer, and the other lenders party thereto is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on November 4, 2004.
10.36		Amendment No. 1 and Waiver to Credit Agreement, dated as of July 19, 2005, by and among Rewards Network Inc., Bank of America, N.A., as Administrative Agent and Letter of Credit Issuer, the other lenders party thereto, and the subsidiaries of Rewards Network Inc. party thereto is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on July 20, 2005.
10.37		Services Agreement, dated March 24, 2004, between First Data Merchant Services Corporation and Rewards Network Inc. is incorporated herein by reference to Exhibit 10.27 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on March 14, 2005.
10.38		Agreement, dated as of September 19, 2005, by and between Rewards Network Services Inc. and American Express Travel Related Services Company, Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on September 23, 2005.
10.39	*	Amendment to Agreement, dated as of March 13, 2006, by and between Rewards Network Services Inc. and American Express Travel Related Services Company, Inc.
10.40	*	Second Amended and Restated Agreement, dated as of March 13, 2006, by and between Rewards Network Services Inc. and Upromise, Inc.

40

Exhibit No.		Description
12.1	*	Statement regarding calculation of earnings to fixed charges
21.1	*	List of Subsidiaries
23.1	*	Consent of KPMG LLP
24.1	*	Power of Attorney (contained in the signature page to this annual report on Form 10-K)
31.1	*	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2	*	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1	*	Section 1350 Certification of Chief Executive Officer
32.2	*	Section 1350 Certification of Chief Financial Officer

* Filed herewith

41

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 15^th day of March 2006.

REWARDS NETWORK INC.
By:	/s/    RONALD L. BLAKE
Name:	Ronald L. Blake
Title:	President and Chief Executive Officer

Power Of Attorney

Each person whose signature appears below, being a director of Rewards Network Inc., a Delaware corporation (the “Company”), hereby constitutes and appoints Ronald L. Blake and Christopher J. Locke, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign one or more Annual Reports for the fiscal year ended December 31, 2005 on Form 10-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or such other form as any such attorney-in-fact may deem necessary or desirable, any amendments thereto, and all additional amendments thereto, each in such form as they or either of them may approve, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done so that such Annual Report shall comply with the Exchange Act and the applicable rules and regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated below, and on the 15^th day of March, 2006.

Signature	Title
/s/    DONALD J. LIEBENTRITT          Donald J. Liebentritt	Chairman of the Board
/s/    RONALD L. BLAKE         Ronald L. Blake	Director, President and Chief Executive Officer (Principal Executive Officer)
/s/    CHRISTOPHER J. LOCKE          Christopher J. Locke	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

42

Signature	Capacity In Which Signed
/s/    ADAM M. ARON         Adam M. Aron	Director
/s/    PETER C.B. BYNOE         Peter C.B. Bynoe	Director
/s/    RAYMOND A. GROSS         Raymond A. Gross	Director
/s/    F. PHILIP HANDY         F. Philip Handy	Director
/s/    NILS E. LARSEN         Nils E. Larsen	Director
/s/    HAROLD I. SHAIN         Harold I. Shain	Director
/s/    JOHN A. WARD, III         John A. Ward, III	Director
/s/    FRANK E. WOOD         Frank E. Wood	Director

43

REWARDS NETWORK INC.

LISTING OF EXHIBITS

Exhibit No.	Description
3.1	Restated Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 4.1 to Rewards Network Inc.’s Registration Statement on Form S-3 (File No. 333-111390), filed on December 19, 2003.
3.2	By-Laws of Rewards Network Inc., as amended, are incorporated herein by reference to Exhibit 3.2 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on March 12, 2004.
4.1	Letter Agreement, dated as of June 12, 2002, between iDine Rewards Network Inc. and Samstock, L.L.C. is incorporated herein by reference to Exhibit 4.11 to Amendment No. 1 to iDine Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.
4.2	Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia Investors, L.L.C. and Robert M. Steiner, as trustee, is incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to Transmedia Network Inc.’s Registration Statement on Form S-2 (File No. 333-84947), filed on October 5, 1999.
4.3	Amendment, dated February 5, 2003, to the Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among iDine Rewards Network Inc., Samstock, L.L.C., and the former members and distributees of EGI-Transmedia Investors, L.L.C., is incorporated herein by reference to Exhibit 4.13 to Amendment No. 1 to iDine Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.
4.4	Indenture, dated as of October 15, 2003, as amended and restated as of February 4, 2004, between Rewards Network Inc. and LaSalle Bank National Association is incorporated herein by reference to Exhibit 4.15 to Rewards Network Inc’s Annual Report on Form 10-K (File No. 001-13806), filed on March 12, 2004.
4.5	Registration Rights Agreement, dated October 8, 2003, between iDine Rewards Network Inc. and Credit Suisse First Boston LLC is incorporated herein by reference to Exhibit 4.18 to iDine Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on November 14, 2003.
10.1	Stock Purchase and Sale Agreement, dated as of November 6, 1997, among Transmedia Network Inc., Samstock, L.L.C. and Transmedia Investors L.L.C. is incorporated herein by reference to Exhibit 10.1 to Transmedia Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on November 17, 1997.
10.2	Amended and Restated Agreement Among Stockholders, dated as of March 3, 1998, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia Investors L.L.C., Melvin Chasen and Iris Chasen and Halmostock Limited Partnership is incorporated herein by reference to Exhibit 10.5 to Transmedia Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on March 17, 1998.
10.3	Stockholders Agreement, dated as of March 3, 1998, among Transmedia Network Inc., EGI—Transmedia Investors, L.L.C., Samstock, L.L.C., and Halmostock Limited Partnership is incorporated herein by reference to Exhibit 10.6 to Transmedia Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on March 17, 1998.
10.4	Transmedia Network Inc. 1987 Stock Option and Rights Plan is incorporated herein by reference to Exhibit 10.2 to Transmedia Network Inc.’s Annual Report on Form 10-K (File No. 000-4028), filed on December 29, 1994.

Exhibit No.	Description
10.5	Form of Stock Option Agreement (as modified) between iDine Rewards Network Inc. and certain directors is incorporated herein by reference to Exhibit 10.3 to Transmedia Network Inc.’s Annual Report on Form 10-K (File No.001-13806), filed on December 29, 1995.
10.6	iDine Rewards Network Inc. 1996 Long-Term Incentive Plan, including amendments through June 1, 2002, is incorporated herein by reference to Exhibit 10.13 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed March 12, 2004.
10.7	Rewards Network Inc. 2004 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on August 5, 2004.
10.8	Amendment No. 1 to the Rewards Network Inc. 2004 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10.3 to Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on August 5, 2004.
10.9	2006 Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on January 25, 2005.
10.10	Form of Restricted Stock Unit Award Agreement is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on February 28, 2006.
10.11	Rewards Network Inc. 2004 Non-Employee Director Awards Program is incorporated herein by reference to Exhibit 10.4 to Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on August 5, 2004.
10.12	Amendment Number One to the Rewards Network Inc. 2004 Non-Employee Director Awards Program is incorporated herein by reference to Exhibit 10.5 to Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on November 8, 2004.
10.13	Lease by and between Equity Office Properties Management, as agent for Two North Riverside Plaza Joint Venture Limited Partnership, and iDine Rewards Network Inc., dated May 5, 2003 is incorporated herein by reference to Exhibit 10.16 to iDine Rewards Network Inc.’s Annual Report on Form 10-K/A (File No. 001-13806), filed on October 7, 2003.
10.14	Standard Office Building Lease, dated May 11, 2001, between Transmedia Network Inc. and Biscayne Centre, LLC is incorporated herein by reference to Exhibit 10.4 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on July 5, 2005.
10.15	First Amendment to Standard Office Building Lease, dated July 24, 2002, between Transmedia Network Inc. and Biscayne Centre, LLC is incorporated herein by reference to Exhibit 10.3 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on July 5, 2005.
10.16	Second Amendment to Standard Office Building Lease, dated January 24, 2005, between Rewards Network Inc. and Biscayne Centre, LLC is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on July 5, 2005.
10.17	Third Amendment to Standard Office Building Lease, dated June 28, 2005, between Rewards Network Inc. and 119 Partners, LLC is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on July 5, 2005.
10.18	Lease by and between Equity Office Management, L.L.C., as indirect manager of San Felipe Plaza, Ltd. and Rewards Network Inc., dated June 25, 2004, is incorporated herein by reference to Exhibit 10.6 to Rewards Network Inc.’s Quarterly Report on Form 10-Q (File No. 001-13806), filed on November 8, 2004.

Exhibit No.	Description
10.19	Lease by and between Insignia Corporate Establishments (U.S.) Inc. and Rewards Network Inc., dated August 30, 1999, and the amendment thereto, is incorporated herein by reference to Exhibit 10.14 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on March 14, 2005.
10.20	Employment Agreement, dated September 13, 2005, between Rewards Network Inc. and Ronald L. Blake is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on September 14, 2005.
10.21	Offer Letter, dated May 14, 2003, between iDine Rewards Network Inc. and Bryan Adel is incorporated herein by reference to Exhibit 10.25 to Amendment No. 1 to iDine Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.
10.22*	Offer Letter, dated September August 10, 2000, between Transmedia Network Services Inc. and Megan E. Flynn.
10.23*	Severance, Proprietary Interest Protection and Non-Solicitation Agreement, dated as of March 18, 2005, between Rewards Network Services Inc. and Megan E. Flynn.
10.24*	Offer Letter, dated April 14, 2005, between Rewards Network Services Inc. and Christopher J. Locke.
10.25	Offer Letter, dated June 14, 2005, between Rewards Network Establishment Services Inc. and Robert S. Wasserman is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on June 17, 2005.
10.26	Severance, Proprietary Interest Protection and Non-Solicitation Agreemend, dated as of June 14, 2005, between Rewards Network Establishment Services Inc. and Robert S. Wasserman is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on June 17, 2005.
10.27	Severance and Release Agreement, dated as of November 28, 2005, between Gerald J. Hughes and Rewards Network Establishment Services Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on November 29, 2005.
10.28	Severance and Release Agreement, dated as of April 26, 2005, between George S. Wiedemann and Rewards Network Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on April 27, 2005.
10.29	Severance and Release Agreement, dated as of December 22, 2005, between Kenneth R. Posner and Rewards Network Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on December 23, 2005.
10.30	Severance and Release Agreement, dated as of February 10, 2005, between Anthony Priore and Rewards Network Services Inc. is incorporated herein by reference to Exhibit 10.21 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on March 14, 2005.
10.31	Severance and Release Agreement, dated as of April 11, 2005, between Domenic Rinaldi and Rewards Network Establishment Services Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on April 14, 2005.
10.32	Severance and Release Agreement, dated as of June 23, 2005, between Gregory J. Robitaille and Rewards Network Services Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on June 27, 2005.

Exhibit No.	Description
10.33	Form of Directors’ and Officers’ Indemnity Agreement, dated as of May     , 2002, between iDine Rewards Network Inc. and the indemnitee stated therein is incorporated herein by reference to Exhibit 99 to iDine Rewards Network Inc.’s Registration Statement on Form S-3 (File No. 333-89406), filed on May 30, 2002.
10.34*	Rewards Network Inc. Severance Plan.
10.35	Credit Agreement, dated as of November 3, 2004, by and among Rewards Network Inc., Bank of America, N.A., as Administrative Agent and Letter of Credit Issuer, and the other lenders party thereto is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on November 4, 2004.
10.36	Amendment No. 1 and Waiver to Credit Agreement, dated as of July 19, 2005, by and among Rewards Network Inc., Bank of America, N.A., as Administrative Agent and Letter of Credit Issuer, the other lenders party thereto, and the subsidiaries of Rewards Network Inc. party thereto is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on July 20, 2005.
10.37	Services Agreement, dated March 24, 2004, between First Data Merchant Services Corporation and Rewards Network Inc. is incorporated herein by reference to Exhibit 10.27 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on March 14, 2005.
10.38	Agreement, dated as of September 19, 2005, by and between Rewards Network Services Inc. and American Express Travel Related Services Company, Inc. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on September 23, 2005.
10.39*	Amendment to Agreement, dated as of March 13, 2006, by and between Rewards Network Services Inc. and American Express Travel Related Services Company, Inc.
10.40*	Second Amended and Restated Agreement, dated as of March 13, 2006, by and between Rewards Network Services Inc. and Upromise, Inc.
12.1*	Statement regarding calculation of earnings to fixed charges
21.1*	List of Subsidiaries
23.1*	Consent of KPMG LLP
24.1*	Power of Attorney (contained in the signature page to this annual report on Form 10-K)
31.1*	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2*	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1*	Section 1350 Certification of Chief Executive Officer
32.2*	Section 1350 Certification of Chief Financial Officer

* Filed herewith

EX-10.22

Exhibit 10.22

Gene M. Henderson

President & CEO

August 10, 2000

Megan E. Flynn

98 West 45 Street

Bayonne, New Jersey 07002

Dear Megan:

On behalf of Transmedia Network Inc. (“the Company”), I am very pleased to offer you the position of Vice President, Partner Relationship Management. In this position you will initially report to me, but the reporting relationship may change as the marketing organization at Transmedia evolves.

The terms of the offer include the following:

1. Duties and Responsibilities – As Vice President, Partner Relationship Management, you will immediately assume responsibility for the management and care of several of Transmedia’s large partnerships including organizations such as AOL-AA, United Air Lines, MBNA, AT&T, and others. Further, you will be tasked with spearheading the design, staffing and execution of a partner relationship management process within the Company and generally contributing to the overall marketing and member stimulation efforts within Transmedia and its affiliates.

2. Starting Date – You will begin your employment on September 5, 2000. You will receive a signing bonus of $10,000 on your first day.

3. Base Salary – Your annual base salary is $112,000 and is paid weekly. Your compensation will be reviewed after six months, annually thereafter.

4. Annual Bonus – You will be eligible for a cash bonus in fiscal 2001 (October 1, 2000- September 30,2001), of up to 25% of base salary at plan. 50% of the bonus potential at plan ($14,000) is guaranteed in the first year . Bonus metrics will be established within 30 days of the start of the fiscal year. If the Company exceeds plan, bonus potential will increase linearly.

5. Stock Options – Subject to the terms and conditions of the Company’s existing 1996 Long Term Incentive Plan (“LTIP”), you will receive ten thousand (10,000) stock

11900 Biscayne Boulevard, North Miami. Florida 33181-9915 • (305) 892-3321 • (800) 438-9013 • FAX (305) 892-3342

options upon the starting date of your employment. The strike price of the options will be the closing price of Transmedia stock on your first day of employment with the company.

• Vesting – These options will vest ratably on each of the first through the fourth anniversaries of your starting date. Vested options will remain exercisable by you for ten years following the date of their grant or, in the event of the termination of your employment, for the period provided in the LTIP. If you are terminated for any reason other than “cause” (as defined below), that period is ninety days from the date of termination. All unvested options will terminate upon the termination of your employment for any reason.

• Annual Grants – You will be eligible for annual option grants at the discretion of the CEO and the Compensation Committee of the Board.

6. Employee Benefits – You will be entitled to all standard Transmedia benefits including a free iDine Prime membership with an employee discount of 33% of dining spend in all iDine restaurants.

7. Additional Benefits – Any reasonable relocation expenses incurred by you as a result of your move from New York/New Jersey to Florida will be reimbursed by the Company, including, but not limited to the physical move of your household contents, house hunting and temporary living expenses.

8. Non-Compete – In the event you voluntarily or involuntarily leave Transmedia’s employ, for a period of one year following your termination date or, if longer, for as long as you are receiving severance payments and benefits, you will not directly of indirectly (i) be employed by or perform work as a director, officer, independent contractor, partner or consultant for any business in which the Company or any of its affiliates is engaged at such date in any geographic region in which the Company conducts business (“business” shall be defined as the marketing and sale of any program substantially similar to the Transmedia program and/or the marketing and sale of discount restaurant, hotel, resort, travel or leisure products or services as more particularly set forth in the Company’s 10-K filing effective as the date of this offer).

9. Confidentiality – You shall treat as confidential and not disclose to any person not affiliated with Transmedia all non-public and proprietary information and data about the business, operations, employees, programs, plans and financial results, projections and budgets of Transmedia and its affiliates which are disclosed to you during your employment. You will be asked to sign the Company’s standard confidentiality agreement which agreement shall survive the termination of your employment for any reason.

On behalf of Transmedia Network Inc., I am delighted to offer you the position of Vice President, Partner Relationship Management and I look forward to your joining our team. If you have any questions, please contact me directly at 305-892-3314.

Sincerely,	Agreement Accepted:
/s/ Gene M. Henderson	/s/ Megan E. Flynn
Gene M. Henderson	Megan E. Flynn
President and CEO
	Date:	8/14/00

EX-10.23

Exhibit 10.23

This SEVERANCE, PROPRIETARY INTEREST PROTECTION AND NON-SOLICITATION AGREEMENT dated as of March 18, 2005 (the “Agreement”) is made by and between REWARDS NETWORK SERVICES INC., a Delaware corporation (the “Company”), and MEGAN E. FLYNN (the “Executive”).

WHEREAS, the Company wishes to continue to employ the Executive as its Senior Vice President, Business Development reporting directly to the Company’s Chief Executive Officer;

WHEREAS, the Company wishes to provide the benefits under this Agreement as an inducement for the Executive to continue such employment; and

WHEREAS, the Executive wishes to continue such employment on the condition that the Company provide the benefits under this Agreement;

NOW, THEREFORE, the Company and the Executive hereby agree as follows:

1. Termination without Cause/Change of Control/Changed Circumstances.

(a) If (i) Executive’s employment is terminated by the Company for any reason other than Cause (as defined below), disability or death, (ii) there is a change of control event (as defined in the Company’s LTIP) and a diminution in Executive’s duties resulting from such change of control event, (iii) at the direction of the Company, Executive no longer reports directly to the Chief Executive Officer, (iv) at the direction of the Company, Executive is no longer a member of the Company’s executive management team (e.g., Strategy Council or its functional equivalent), (v) without Executive’s prior consent, Executive is no longer the top executive in the Business Development Department (or its functional equivalent), or (vi) Executive no longer has any employees reporting directly to her; then Executive will be entitled to twelve (12) month’s base salary (at the Executive’s salary rate on the termination date) and twelve (12) month’s COBRA reimbursement from the termination date; provided, that Employee executes and delivers a Severance and Release Agreement in form and substance satisfactory to Employer (a “Severance Agreement”) which will contain a general unconditional release of Employer, non-compete and non-solicit covenants similar to those found in Section 9 hereof, and a non-disparagement covenant.

(b) “Cause” shall mean an event where the Executive (i) commits any act of fraud, willful misconduct or dishonesty in connection with this employment or which injures the Company or its direct or indirect subsidiaries; (ii) commits a material violation of law, rule or regulation of any governmental authority (federal, state or foreign) or any securities exchange or association or regulatory or self-regulatory body; (iii) is charged with a crime involving moral turpitude, dishonesty, fraud or unethical business conduct, or a felony; or (iv) gives or accepts undisclosed commissions or other payments in cash or in kind in connection with the affairs of the Company or any of its direct or indirect subsidiaries or their respective clients.

2. Limited Circumstances in Which Benefits are Payable Hereunder. No benefits shall be payable under this Agreement in the event that the Executive’s employment with the Company ceases for any reason other than termination by the Company without Cause or any of the changed circumstances set forth in Section 1(a) above. Without limiting the generality of the foregoing, no benefits shall be payable hereunder in the event that the

Executive’s employment with the Company ceases as the result of termination by the Company for Cause, termination by the Executive, or the death or disability of the Executive. In the case of termination of the Executive’s employment as a result of the death or disability of the Executive, benefits will be provided in accordance with the Company’s compensation and benefit plans in which the Executive participated immediately prior to her termination of employment.

3. At-Will Employment. This Agreement is not an employment contract for a definite period. Executive is still an at-will employee. Executive or Rewards Network may terminate the employment relationship at any time without notice.

4. Disclosure of Confidential Information. Executive will not, without the Company’s prior permission, directly or indirectly disclose to anyone outside of the Company, either during or after her employment, trade secrets or other confidential information of the Company, or any information received in confidence from third parties by the Company or about third parties by the Company, as long as such matters remain trade secrets or confidential. The term “Company” as used in this Agreement shall include Rewards Network Services Inc. and its affiliated, parent and subsidiary corporations as well as its successors and assigns. Trade secrets and other confidential information shall include any information or material which has not been made available generally to the public and which (a) is generated or collected by or utilized in the operations of the Company and relates to the actual or anticipated business or research or development of the Company; or (b) is suggested by or results from any task assigned to Executive by the Company or work performed by her for or on behalf of the Company. The confidentiality obligations herein shall not prevent Executive from revealing evidence of criminal wrongdoing to law enforcement or prohibit her from divulging confidential information or trade secrets by order of court or agency of competent jurisdiction; however, Executive shall promptly inform the Company of any such situations and shall take such reasonable steps to prevent disclosure of confidential information or trade secrets until the Company has been informed of such requested disclosure and the Company has had an opportunity to respond to the court or agency.

5. Return of Property and Copying. Executive agrees that all tangible materials (whether originals or duplicates), including, but not limited to, drawings, notebooks, reports, proposals, price lists, list of actual or potential customers or suppliers, formulae, prototypes, tools, equipment, models, specifications, methodologies, blueprints, financial data, contracts, agreements, correspondence, documents, computer disks, software, computer printouts, information stored electronically on a computer, memoranda, and notes, in her possession or control which in any way relate to the Company’s business and which are furnished to Executive by the Company or which are prepared, compiled or acquired by Executive while employed by the Company shall be the sole property of the Company. Executive will at any time upon the request of the Company and in any event promptly upon termination of her employment, deliver all such materials to the Company and will not retain any originals or copies of such materials. Executive also agrees that she will not copy or remove from the Company’s place of business property or information belonging to the Company or entrusted to the Company without the express written consent of the Company.

6. Assignment of IP. Executive hereby assigns to the Company her entire right, title and interest in any idea, formula, invention, discovery, design, drawing, process, method, technique, device, improvement, computer program and related documentation, technical

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and non-technical data and work of authorship (all hereinafter called “Developments”), which Executive may solely or jointly conceive, write or acquire during the period Executive is employed with the Company and which relate in any way to the actual or anticipated business or research or development of the Company, or which are suggested by or result from any task assigned to Executive or work performed by Executive for or on behalf of the Company, whether or not such Developments are made, conceived, written or acquired during normal hours of employment or using the Company facilities, and whether or not such Developments are patentable, copyrightable or susceptible to other forms of protection. The foregoing provision regarding assignment of right, title and interest does not apply to a Development for which no equipment, supplies, facilities or trade secret information of the Company was used and which was developed entirely on Executive’s own time, unless (a) the Development relates (i) to the business of the Company or (ii) to the Company’s actual or demonstrably anticipated research or development or (b) the Development results from any work performed by Executive for the Company. Executive acknowledges that the copyright and any other intellectual property right in any Developments and related documentation, and work of authorship, which are created within the scope of her employment with the Company, belong to the Company.

7. Disclosure of IP. In connection with any of the Developments referred to in Section 6, Executive will promptly disclose them to the management of the Company and Executive will, on the Company’s request, promptly execute a specific assignment of title to the Company and such other documents as may reasonably be requested by the Company for the purpose of vesting, confirming or securing the Company title to the Developments, and Executive will do anything else reasonably necessary to enable the Company to secure a patent, copyright or other form of protection thereof in the United States and Canada and in other countries even after the termination of her employment with the Company.

8. Identification of IP. Executive has identified on Exhibit A all Developments not assigned by Section 6 in which she has any right, title or interest, and which were made, conceived or written wholly or in part by Executive prior to her employment with the Company and which relate to the actual or anticipated business or research or development of the Company. If Executive does not have any to identify, Executive will write “none” on this line:                    . Executive represents that she is not a party to any agreements which would limit her ability to assign Developments as provided for in Section 6.

9. Protection of Proprietary Interests.

A. Executive agrees that during her employment with the Company, and for a period of 12 months thereafter, Executive will not, directly or indirectly, on behalf of the companies listed on Exhibit B, or any of their subsidiaries or affiliates, solicit or participate in soliciting, products or services competitive with or similar to products or services offered by, manufactured by, designed by or distributed by the Company to any person, company or entity which was an the Company customer, restaurant, member or partner for such products or services and with which Executive had contact regarding those products or services at any time during the last 12 months of her the Company employment.

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B. Executive agrees that that during her employment by the Company and for 12 months thereafter, she will not directly or indirectly, on behalf of the companies listed on Exhibit B, or any of their subsidiaries or affiliates, in any capacity, provide products or services competitive with or similar to products or services offered by the Company to any person, company or entity which was an the Company customer, restaurant, hotel, retail merchant, member or partner for such products or services and with which Executive had contact regarding those products or services at any time during the last 12 months of her the Company employment.

C. Executive agrees that during her employment with the Company and for a period of 12 months thereafter, she will not, directly or indirectly, on behalf of the companies listed on Exhibit B, or any of their subsidiaries or affiliates, hire, solicit, attempt to persuade or communicate with any employee of the Company, or any person who was an employee of the Company within the two months preceding contact between herself and that person, to leave the employ of the Company or otherwise interfere with the performance of their duties for the Company.

D. Executive agrees that during her employment and for a period of 12 months thereafter, she will not directly or indirectly, on behalf of the companies listed on Exhibit B, or any of their subsidiaries or affiliates, participate in the development of any products or services similar to or competitive with products or services of the Company with which Executive had product or service research or development responsibilities during the last 12 months of her the Company employment.

10. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given by the party giving such notice or other communication and to have been duly received by the other party (a) on the date on which such notice or other communication shall be delivered by hand to and receipted for by such other party, or (b) three business days after the date on which such notice or other communication shall be mailed by certified mail with postage prepaid:

(i)	If to the Executive, to:	Megan E. Flynn 643 W Roscoe Street; Apt D1 Chicago, IL 60657
(ii)	If to the Company, to:	Rewards Network Services Inc. c/o Rewards Network Inc. Two North Riverside Plaza Suite 950 Chicago, Illinois 60606 Attention: General Counsel

or such other address as may have been furnished to the Company by the Executive or to the Executive by the Company, as the case may be.

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11. Successors.

A. The Company shall require that this Agreement be binding on any successor, assign, or acquirer (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to agree in writing to assume the Company’s obligations under this Agreement and to perform such obligations in the same manner and to the same extent that the Company is required to perform them. As used in this Agreement, “Company” shall mean the Company as hereinabove defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Company’s obligations under this Agreement by operation of law or otherwise.

B. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amounts would still be payable to her in accordance with the terms of this Agreement if she had continued to live, all such amounts shall be paid to her devisee, legatee or other designee or, if there is no such designee, to her estate.

12. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Illinois, without regard to the choice of law provisions.

13. Modification and Waiver. No provision of this Agreement may be amended, modified, waived or discharged except pursuant to a written agreement signed by the Company and the Executive.

14. Entire Agreement. This Agreement and the Agreement dated March 7, 2005 between Executive and Company, constitute the entire agreement between Executive and Company, and supersedes any and all oral or written agreements or understandings between the parties.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written.

EXECUTIVE	REWARDS NETWORK SERVICES INC.
/s/ Megan E. Flynn	By:	/s/ Bryan R. Adel
Megan E. Flynn	Name:	Bryan R. Adel
	Title:	Senior Vice President, General Counsel and Secretary

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EX-10.24

Exhibit 10.24

President and Chief Executive Officer

April 14, 2005

Christopher J. Locke

930 Jackson Boulevard

River Forest, Illinois 60305

Re: Employment

Dear Chris:

We are pleased to offer you employment with Rewards Network Services Inc. (“Rewards Network”) as Senior Vice President - Business Planning, Analysis and Assurance, with a start date of May 2, 2005. In this position, you will report to me, and will perform duties as we discussed including financial due diligence, sales compensation design and business plan development and such other duties as we may from time to time specify. Should you accept this offer, your gross annual salary initially will be $175,000 (less any withholdings and deductions required by law or authorized by you), which generally will be payable in biweekly installments. In 2005 and beyond, you will be entitled to participate in the senior management bonus program, the specific terms of which are approved annually by the Compensation Committee of the Board of Directors. For the 2005 bonus program, you will be eligible for a bonus that is equal to up to 50% of your annual base salary pro rated for the amount of actual time employed by Rewards Network. You also will be eligible to participate in the 2004 Long Term Incentive Plan, as amended, subject to the terms and conditions of such plan and approval of any awards by the Compensation Committee.

Furthermore, you will be eligible to participate in such Rewards Network’s employee benefit plans and policies including plans and policies relating to health, life, severance, disability, etc. benefits that Rewards Network may make available generally to its employees in comparable positions, subject to the terms and conditions of any such plans and policies as they may exist from time to time. In addition, you will be entitled to three weeks vacation per year. Rewards Network reserves the right to modify, amend, suspend, or terminate any or all such senior management bonus program, incentive compensation and employee benefit plans and polices at any time.

Please note that the purpose of this letter is merely to describe the terms of our offer. This letter does not constitute a contract of employment and does not create any right to continued employment for any period of time. If you accept this offer, your employment with Rewards Network at all times will be “at will”. This means that either you or Rewards Network may end your employment at any time for any or no reason.

Christopher J. Locke

April 14, 2005

Page 2

As a condition of employment with Rewards Network, you will be required to sign a Proprietary Interest Protection and Non-Solicitation Agreement, a copy of which is attached to this letter for you to review while you consider our offer of employment. We also are extending this offer to you on the condition that you not use or disclose to Rewards Network any confidential information of anyone that you previously worked for, and with the understanding that your Rewards Network employment will not violate or be restricted by any noncompetition or other agreement with anyone else. If this is not the case, please inform us immediately.

We congratulate you on your offer and sincerely hope that you will accept.

To indicate your acceptance should you decide to do so, please sign this letter and the attached Proprietary Interest Protection and Non-Solicitation Agreement where indicated and return them to me. In the meantime, please do not hesitate to call me should you have any questions.

Very truly yours,

/s/ Ronald L. Blake

Ronald L. Blake

President and Chief Executive Officer

Enclosure

cc: Personnel File

AGREED TO AND ACCEPTED:

/s/ Christopher J. Locke

Christopher J. Locke

Dated: April 14, 2005

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EX-10.34

EXHIBIT 10.34

REWARDS NETWORK INC.

SEVERANCE PLAN

(Effective January 1, 2006)

REWARDS NETWORK INC.

SEVERANCE PLAN

(Effective January 1, 2006)

1. PURPOSE OF THE PLAN

The Rewards Network Inc. Severance Plan, as set forth herein (the “Plan”), is effective as of January 1, 2006 (the “Effective Date”). The Plan provides severance benefits to eligible employees of Rewards Network Inc. (“Rewards Network”) and its subsidiaries (collectively, the “Corporation”) whose employment terminates pursuant to the terms hereof. The Plan shall apply solely to persons who satisfy the applicable eligibility criteria in Section 2 and all the criteria for participation in Section 3. The Plan supersedes all severance plans and policies previously adopted and maintained by the Corporation, other than Individual Severance Agreements.

This document serves as both the Plan document and the summary plan description which is required to be provided to participants under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

Capitalized terms used in the Plan are defined in Section 6.

2. ELIGIBILITY

Each individual who (i) is employed by the Corporation and treated in its employment records as (a) a part-time employee with at least one Year of Service or (b) a regular full-time employee, and (ii) is not a party to an Individual Severance Agreement (an “Eligible Employee”) is eligible to participate in the Plan.

3. PARTICIPATION

An Eligible Employee shall become a participant in the Plan (a “Participant”) only if (i) such Eligible Employee’s employment with the Corporation terminates under circumstances that constitute a Qualifying Termination and (ii) such Eligible Employee executes, not later than his or her Termination Date or, if later, such date indicated by the Plan Administrator, a waiver and release of claims against the Corporation (“Waiver and Release”) in the form prescribed by the Plan Administrator, and does not revoke such Waiver and Release within the revocation period, if any, made available to such Eligible Employee by the Plan Administrator (the “Revocation Period”). The Corporation shall have no obligation to an Eligible Employee under this Plan unless and until the Eligible Employee executes the Waiver and Release. If a court determines that an Eligible Employee has breached any Restrictive Covenant, the Corporation shall not be obligated to pay any severance benefits under this Plan.

4. SEVERANCE BENEFITS

4.1. Payment of Benefit. Each Participant shall receive as severance pay the continued payment of such Participant’s Base Salary during the Salary Continuation Period set forth in Section 4.2. Such severance pay shall commence as soon as administratively practicable after the Participant’s Termination Date, but in no event earlier than the expiration of the Participant’s Revocation Period, if any, and shall be paid in accordance with the Corporation’s payroll schedule applicable to active employees. The Plan Administrator, in his or her sole discretion, may elect to pay the aggregate

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amount of severance pay to the Participant in a single lump sum payment not earlier than the expiration of the Participant’s Revocation Period, if any. Participants shall not be considered employees of the Corporation for any purpose during the Salary Continuation Period, including without limitation for purposes of participation in, or the accrual of benefits under, any employee benefit plan maintained by the Corporation.

4.2. Qualifying Termination.

(a) A Participant shall receive severance pay during the Salary Continuation Period set forth below, based on the Participant’s employment position immediately prior to his or her Termination Date, if the Participant’s employment is terminated for the reasons set forth in Section 6.6(i) or (ii):

Employment Position	Salary Continuation Period
Vice President and above	Two months, plus three weeks for each Year of Service, not to exceed six months
Exempt Non-Officer Management	One month, plus two weeks for each Year of Service, not to exceed six months
Exempt (Non-Management) Staff (including, without limitation, sales representatives/account executives)	One month, plus one week for each Year of Service, not to exceed three months
Non-Exempt Staff	Two weeks, plus one week for each Year of Service, not to exceed three months

(b) A Participant shall receive severance pay during the Salary Continuation Period set forth below, based on the Participant’s employment position immediately prior to his or her Termination Date, if the Participant’s employment is terminated for the reasons set forth in Section 6.6(iii):

Employment Position	Salary Continuation Period
Vice President and above	One month, plus two weeks for each Year of Service, not to exceed six months
Exempt Non-Officer Management	One month, plus one week for each Year of Service, not to exceed six months
Exempt (Non-Management) Staff (including, without limitation, sales representatives/account executives)	Two weeks, plus one week for each Year of Service, not to exceed three months
Non-Exempt Staff	One week, plus one week for each Year of Service, not to exceed three months

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4.3. Other Terminations of Employment by the Corporation or a Participant. An Eligible Employee whose employment terminates for any reason other than a Qualifying Termination shall have no rights to any severance benefits under this Plan. The remaining applicable provisions of this Plan (including the Restrictive Covenants) shall continue to apply.

4.4. Offset for Statutory Payments. The severance benefits payable to a Participant under the Plan shall be reduced by any payments required to be made to such Participant by the Corporation pursuant to any federal, state or local law in connection with such Participant’s termination of employment, including without limitation, payments during any advance notice period pursuant to the Worker Adjustment and Retraining Notification Act.

4.5. Acceleration of Payments to Avoid Application of Section 409A. If the payment of a Participant’s severance benefit pursuant to the schedule set forth above would cause such benefit to constitute nonqualified deferred compensation, within the meaning of Section 409A of the Code, then the full amount of such severance benefit shall be paid prior to March 15^th of the calendar year following the year in which the Participant’s employment terminates.

5. TERMINATION OF PARTICIPATION; CESSATION OF BENEFITS

A Participant’s benefits under Section 4 of the Plan shall terminate on the last day of the Participant’s Salary Continuation Period; provided that a Participant’s right to benefits shall terminate immediately on the date the Participant first breaches any of the Restrictive Covenants, in which case the Corporation may require the repayment of amounts paid under the Plan prior to the discovery of such breach, and shall discontinue the payment of any additional amounts under the Plan.

6. DEFINITIONS

In addition to terms previously defined, when used in the Plan, the following capitalized terms shall have the following meanings unless the context clearly indicates otherwise:

6.1. “Base Salary” means the base salary paid or payable to a Participant by the Corporation immediately prior to the Participant’s Termination Date.

6.2. “Board” means the Board of Directors of Rewards Network.

6.3. “Cause” means, with respect to an Eligible Employee:

(a) the refusal to perform or disregard of the Eligible Employee’s duties or responsibilities, or of specific directives of the officer or other executive of the Corporation to whom the Eligible Employee reports, including, without limitation, failure to comply with a performance improvement plan;

(b) the Eligible Employee’s willful, reckless or negligent commission of act(s) or omission(s) which have resulted in or are likely to result in, a loss to, or damage to the reputation of, the Corporation or any of its affiliates, or that compromise the safety of any employee or other person;

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(c) an Eligible Employee’s act of fraud, embezzlement or theft in connection with the Eligible Employee’s duties to the Corporation or in the course of his or her employment, or the Eligible Employee’s commission of a felony or any crime involving dishonesty or moral turpitude;

(d) an Eligible Employee’s violation of the Corporation’s policies or standards or of any statutory or common law duty of loyalty to the Corporation;

(e) any breach by the Eligible Employee of any one or more of the Restrictive Covenants; or

(f) the Corporation’s loss of confidence in the Eligible Employee’s ability to satisfactorily perform the Eligible Employee’s duties and responsibilities, as documented by the Corporation in accordance with the Corporation’s policies.

6.4. “Code” means the Internal Revenue Code of 1986, as amended.

6.5. “Individual Severance Agreement” means an individual employment or severance agreement between the Corporation and an employee of the Corporation that provides for the payment of severance benefits in connection with such employee’s termination of employment.

6.6. “Qualifying Termination” means an involuntary termination of an Eligible Employee’s employment with the Corporation pursuant to a written notice to such Eligible Employee of a decision by the Corporation:

(i) to eliminate such Eligible Employee’s employment position; or

(ii) to terminate such Eligible Employee’s employment in connection with a program intended to reduce the size of the Corporation’s workforce; or

(iii) to terminate such Eligible Employee’s employment for a reason other than Cause.

A Qualifying Termination shall not mean termination of employment with the Corporation for any reason other than as set forth in clauses (i), (ii) and (iii) above, including, but not limited to: (A) a termination of employment for Cause, (B) an Eligible Employee’s resignation or voluntary termination of employment for any reason, including retirement, (C) an Eligible Employee’s death or disability, or (D) the cessation of an Eligible Employee’s employment with the Corporation as the result of the sale, spin-off or other divestiture of a plant, division, business unit or subsidiary, a merger or other business combination, or an outsourcing of a business unit of the Corporation, followed by employment or reemployment with the purchaser or successor in interest to the Eligible Employee’s employer with regard to such plant, division, business unit or subsidiary, or an offer of employment by such purchaser or successor in interest on terms and conditions reasonably comparable to the terms and conditions of the Eligible Employee’s employment with the Corporation immediately prior to such transaction. Whether a termination of employment constitutes a Qualifying Termination shall be determined by the Plan Administrator in his or her sole discretion.

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6.7. “Restrictive Covenant” means any non-competition, non-solicitation, confidential information or intellectual property covenants applicable to the Eligible Employee.

6.8. “Salary Continuation Period” means the period indicated in Section 4 during which severance benefits are payable to a Participant under the Plan.

6.9. “Taxes” means the federal, state, local and foreign income, employment, excise and other taxes payable by a Participant with respect to any applicable item of income.

6.10. “Termination Date” means the effective date of an Eligible Employee’s termination of employment with the Corporation.

6.11. “Year of Service” means a Participant’s period of continuous, regular, employment with the Corporation immediately preceding his or her Termination Date, including continuous employment with a predecessor employer purchased by the Corporation to the extent the Corporation recognized such service for benefit plan purposes at the time of the acquisition. Such period of employment shall measured in whole years, with partial years rounded down to the nearest whole year.

7. FUNDING

Nothing in the Plan shall be interpreted as requiring the Corporation to set aside any of its assets for the purpose of funding its obligations under the Plan. No person entitled to benefits under the Plan shall have any right, title or claim in or to any specific assets of the Corporation, but shall have the right only as a general creditor to receive benefits from the Corporation on the terms and conditions provided in the Plan.

8. ADMINISTRATION OF THE PLAN

The Plan shall be administered by the Senior Vice President, Human Resources of Rewards Network (the “Plan Administrator”), which shall be the “named fiduciary” of the Plan for purposes of ERISA. The Plan Administrator has the sole and absolute power and authority to interpret and apply the provisions of this Plan to a particular circumstance, make all factual and legal determinations, construe uncertain or disputed terms and make eligibility and benefit determinations in such manner and to such extent as the Plan Administrator, in his or her sole discretion may determine. Benefits under the Plan will be paid only if the Plan Administrator, in his or her sole discretion, determines that an individual is entitled to them.

The Plan Administrator shall promulgate any rules and regulations necessary to carry out the purposes of the Plan or to interpret the terms and conditions of the Plan. The rules, regulations and interpretations made by the Plan Administrator shall be applied on a uniform basis and shall be final and binding on any Eligible Employee or former Eligible Employee and any successor in interest.

The Plan Administrator may delegate any administrative duties, including, without limitation, duties with respect to the processing, review, investigation, approval and payment of severance pay, to designated individuals or committees.

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9. CLAIMS PROCEDURE

The Plan Administrator shall determine the status of an individual as an Eligible Employee and the eligibility and rights of any Eligible Employee or former Eligible Employee as a Participant to any severance pay hereunder. Any Eligible Employee or former Eligible Employee who believes that he or she is entitled to receive severance pay under the Plan, including severance pay other than those initially determined by the Plan Administrator, may file a claim in writing with the Plan Administrator. No later than 90 days after the receipt of the claim the Plan Administrator shall either allow or deny the claim in writing.

A denial of a claim, in whole or in part, shall be written in a manner calculated to be understood by the claimant and shall include the specific reason or reasons for the denial; specific reference to pertinent Plan provisions on which the denial is based; a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and an explanation of the claims review procedure.

A claimant whose claim is denied (or his or her duly authorized representative) may, within 60 days after receipt of the denial of his or her claim, request a review upon written application to the Corporation’s General Counsel; review pertinent documents; and submit issues and comments in writing.

The General Counsel shall notify the claimant of his or her decision on review within 60 days after receipt of a request for review unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of a request for review. Notice of the decision on review shall be in writing. The General Counsel’s decision on review shall be final and binding on any claimant or any successor in interest.

In reviewing a claim or an appeal of a claim denial, the Plan Administrator or General Counsel shall have all of the powers and authority granted to the Plan Administrator pursuant to Section 8.

10. ARBITRATION

Any dispute, controversy or claim between the parties hereto arising out of or in connection with or relating to Section 4 (other than disputes related to an alleged breach of the Restrictive Covenants) or any breach or alleged breach thereof, or any benefit or alleged benefit hereunder, shall be settled by arbitration in Chicago, Illinois, before an impartial arbitrator pursuant to the rules and regulations of the American Arbitration Association (“AAA”) pertaining to the arbitration of commercial disputes. Any party may invoke the right to arbitration. The arbitrator shall be selected by means of the parties striking alternatively from a panel of seven arbitrators supplied by the Chicago office of AAA. The arbitrator shall have the authority to interpret and apply the provisions of this Section, consistent with Section 12.6 below. The decision of the arbitrator shall be final and binding upon the parties and a judgment thereon may be entered in the highest court of a forum, state or federal, having jurisdiction. No arbitration shall be commenced after the date when institution of legal or equitable proceedings based upon such subject matter would be barred by the applicable statutes of limitations. Notwithstanding anything to the contrary contained in this Section or elsewhere in this Plan, any party may bring an action in the District Court of Cook County, or the United States District

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Court for the Northern District of Illinois, if jurisdiction there lies, in order to maintain the status quo ante of the parties. The “status quo ante” is defined as the last peaceable, uncontested status between the parties. However, neither the party bringing the action nor the party defending the action thereby waives its right to arbitration of any dispute, controversy or claim arising out of or in connection or relating to this Plan. Notwithstanding anything to the contrary contained in this Section or elsewhere in this Plan, any party may seek relief in the form of specific performance, injunctive or other equitable relief in order to enforce the decision of the arbitrator. The parties agree that in any arbitration commenced pursuant to this Plan, the parties shall be entitled to such discovery (including depositions, requests for the production of documents and interrogatories) as would be available in a federal district court pursuant to Rules 26 through 37 of the Federal Rules of Civil Procedure. In the event that either party fails to comply with its discovery obligations hereunder, the arbitrator shall have full power and authority to compel disclosure or impose sanctions to the full extent of Rule 37 of the Federal Rules of Civil Procedure.

11. AMENDMENT OR TERMINATION OF PLAN

The Corporation may amend, modify or terminate the Plan at any time and without notice by written instrument adopted by the Compensation Committee of the Board or the Plan Administrator; provided, however, that no amendment, modification or termination shall deprive any Participant of any benefit that the Plan Administrator previously has determined is payable under the Plan.

12. MISCELLANEOUS

12.1. Limitation on Rights. Participation in the Plan is limited to the individuals described in Sections 2 and 3, and the Plan shall not apply to any voluntary or involuntary termination of employment that is not a Qualifying Termination.

12.2. No Mitigation. A Participant shall not have any duty to mitigate the amounts payable by the Corporation under this Plan by seeking new employment following termination. Except as specifically otherwise provided in this Plan, all amounts payable pursuant to this Plan shall be paid without reduction regardless of any amounts of salary, compensation or other amounts which may be paid or payable to the Participant as the result of the Participant’s employment by another employer.

12.3. Headings. Headings of sections in this document are for convenience only, and do not constitute any part of the Plan.

12.4. Severability. If any one or more Sections, subsections or other portions of this Plan are declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any Section, subsection or other portion not so declared to be unlawful or invalid. Any Section, subsection or other portion so declared to be unlawful or invalid shall be construed so as to effectuate the terms of such Section, subsection or other portion to the fullest extent possible while remaining lawful and valid.

12.5. Governing Law. The Plan shall be construed and enforced in accordance with ERISA and the internal laws of the State of Illinois (without regard to conflicts of law principles) to the extent such laws are not preempted by ERISA.

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12.6. No Right to Continued Employment. Nothing in this Plan shall guarantee the right of an Eligible Employee to continue in employment, and the Corporation retains the right to terminate an Eligible Employee’s employment at any time for any reason or for no reason.

12.7. Successors and Assigns. This Plan shall be binding upon and inure to the benefit of the Corporation and its successors and assigns and shall be binding upon and inure to the benefit of a Participant and his or her legal representatives, heirs and assigns. Any successor to the business or assets of the Corporation which assumes or agrees to perform this Plan by operation of law, contract, or otherwise shall be jointly and severally liable with the Corporation under this Plan as if such successor were the Corporation.

No rights, obligations or liabilities of a Participant hereunder shall be assignable without the prior written consent of Rewards Network. In the event of the death of a Participant prior to receipt of severance pay to which he or she is entitled hereunder (and after the Participant has signed the Waiver and Release), the severance pay described in Section 4 shall be paid to his or her estate; provided that the estate or other successor of the Participant has not revoked such Waiver and Release.

12.8. Notices. All notices and other communications under this Plan shall be in writing and delivered by hand, by nationally-recognized delivery service that promises overnight delivery, or by first-class registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

(i) if to a Participant, to such Participant at his or her most recent home address on file with the Corporation,

(ii) if to the Corporation, to the Plan Administrator,

or to such other address as either party shall have furnished to the other in writing. Notice and communications shall be effective when actually received by the addressee.

12.9. Number and Gender. Wherever appropriate, the singular shall include the plural, the plural shall include the singular, and the masculine shall include the feminine.

12.10. Tax Withholding. The Corporation may withhold from any amounts payable under this Plan or otherwise payable to a Participant any Taxes the Corporation determines to be appropriate under applicable law and may report all such amounts payable to such authority as is required by any applicable law or regulation.

12.11. Compliance with Section 409A. The timing under which a Participant has a right to receive any payment under the Plan will automatically be modified, and a Participant’s rights under the Plan shall be limited as necessary, to conform to any requirements under Section 409A of the Code, to the extent applicable to this Plan.

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13. ADMINISTRATIVE INFORMATION

Plan Sponsor:	Rewards Network Inc.
Address:	2 North Riverside Plaza, Suite 950 Chicago, IL 60606
Employer Identification Number:	84-6028875
Plan Administrator:	Senior Vice President, Human Resources
Address and Telephone:	Rewards Network Inc. 2 North Riverside Plaza, Suite 950 Chicago, IL 60606 312-521-6747
Agent for Service of Legal Process:	General Counsel Rewards Network Inc. 2 North Riverside Plaza, Suite 950 Chicago, IL 60606
Plan Number:	503
Type of Plan:	Severance benefit plan (welfare)
Plan Year:	Calendar year

14. ERISA RIGHTS

As a Participant in the Plan, you are entitled to certain rights and protections under ERISA. ERISA provides that all Participants shall be entitled to:

• Examine, without charge, at the Plan Administrator’s office all Plan documents and copies of all documents filed by the Plan with the U.S. Department of Labor; and

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

As a participant in this Plan you are entitled to certain rights and protections under 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 documents governing the Plan and a copy of the latest annual report (Form 5500 Series) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration.

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• Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan and copies of the latest annual report (Form 5500 series) and updated summary plan description. The Plan Administrator may make a reasonable charge for the copies.

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the 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 or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA.

If your claim for a benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.

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 $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan 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 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 should pay court costs 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.

If you have any questions about this statement or about your rights under ERISA, you should contact:

• the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory; or

• the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210.

• You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.

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EX-10.39

Exhibit 10.39

AMENDMENT

This Amendment, effective as of March 13, 2006, amends the Agreement effective September 19, 2005 (Agreement) between American Express Travel Related Services Company, Inc., a New York corporation (AXP), and Rewards Network Services Inc., a Delaware corporation (RN).

Capitalized terms used but not defined herein have the meaning ascribed to them in the Agreement. Except as specifically set forth herein, the provisions of the Agreement remain unchanged.

A. RN operates a rewards/loyalty program in the United States and Canada that entitles (i) individuals to earn rewards by spending at Service Establishments and other merchants that participate in RN’s Frequency Programs and (ii) Service Establishments and other merchants to obtain services, including but not limited to one or more of the following: marketing, access to capital, business intelligence reporting and loyal customers, through direct contractual relationships with RN. Individuals apply to become Frequency Program members, among several things, by registering, designating their payment cards to receive credits under the Frequency Program, by agreeing to RN’s terms of membership, and by granting all required consent (either directly to RN or directly to AXP, depending upon the applicable Frequency Program) to the collection, use, and disclosure of their personal information (such individuals who have become members of RN’s Frequency Programs and registered their American Express^® Cards, RN Program Cardmembers).

B. The parties shall safeguard this information through an agreed upon enciphering method and hereby amend the terms of the Agreement to provide additional safeguards for all Cardmember information.

The parties agree as follows:

1. Scope of Agreement

The Agreement applies to RN’s Frequency Programs in the United States and Canada.

2. RN Disclosures and Consents

a. RN represents and warrants to AXP that RN makes the following disclosures to Cardmembers who become RN Program Cardmembers: (i) description of all personal information and all Cardmember and transactional data that RN collects, including indication of all potential sources of such data including that such data is collected from Service Establishments and other merchants, payment card processors, or credit card companies, or any or all of them, (ii) identity of the collector of personal information, (iii) purposes for which personal information will be used (including for administration of RN’s Frequency Programs), (iv) to whom the personal information, or portions thereof, may be disclosed, including the applicable RN partner and the recipients or categories of recipients of the personal information, (v) whether providing personal information is voluntary or obligatory, and (vi) right of access and right to correct personal information. RN shall provide to RN Program Cardmembers a method to update and correct their personal information (and, with respect to RN’s Frequency Programs in Canada, the right of access to their personal information).

b. RN shall obtain, from Cardmembers who enroll directly with RN to become RN Program Cardmembers, all consents required by applicable law for its collection, use, and disclosure of personal information. RN shall archive evidence of such consent, and provide AXP, on request from time to time, evidence that RN has provided disclosure to such a RN Program Cardmember and that such a RN Program Cardmember has given the required consent.

3. Transmission of the Shadow File

The parties shall follow the procedures set forth in Exhibit A hereto for transmitting and handling the Shadow File.

4. Insurance

RN shall provide and maintain in effect at all times during the term of this Agreement, at its sole expense, the minimum insurance coverage set forth in Schedule B hereto to protect the parties from any liability that may arise out of or result from the Agreement, whether such liability arises during RN’s performance or subsequent to completion of its performance thereunder. These insurance requirements shall not in any way limit RN’s indemnity obligations to AXP, nor shall they relieve or decrease the liability of RN in any way. AXP does not in any way represent that the insurance or limits of insurance specified herein are sufficient or adequate to protect RN’s interests or liabilities. RN is responsible at RN’s sole expense for providing any additional insurance that it deems necessary to protect those interests and liabilities.

5. Data Security

Notwithstanding anything to the contrary, RN shall abide by the information protection contract requirements (IPCR) set forth in Schedule C hereto. RN acknowledges that AXP’s current Data Security Operating Policies are appended to the IPCR.

6. Audit

a. Without waiving AXP’s other audit rights under the Agreement, RN shall provide to AXP, its auditors (including

1

internal staff and independent auditors), inspectors, regulators, and other representatives as AXP may from time to time designate in writing upon fifteen days advance notice, not more often than two times per year, access at reasonable times (and in the case of regulators at any time required by such regulators) to any facility at which RN performs the Agreement, to RN personnel, and to data and records for the purpose of performing audits and inspections of RN. The scope of these audits and inspections shall be at AXP’s sole cost and expense and shall be limited to examining RN’s performance of the Agreement and conformance to the terms thereof, including, to the extent applicable, by performing audits: (i) of practices and procedures; (ii) of systems, equipment, and software; (iii) of supporting information and calculations regarding compliance with service level standards; (iv) of general controls and security practices and procedures; (v) of disaster recover and back-up procedures; and (vi) as reasonably necessary to enable AXP to meet, or to confirm that RN is meeting, applicable regulatory and other legal requirements.

b. RN shall provide to such auditors, inspectors, regulators, and other representatives such reasonable assistance as they request and cooperate with AXP or its designees in connection with audit functions and with regard to examinations by regulators.

c. AXP’s auditors and other representatives shall comply with RN’s reasonable security requirements and shall use commercially reasonable efforts to schedule and conduct audits in a manner that does not unreasonably interfere with RN’s ordinary business operations.

d. Following an audit or examination, AXP will provide RN on request with a copy of the final audit report. In addition, AXP may conduct, or request its independent auditors or examiners to conduct, an exit conference with RN to obtain factual concurrence with issues identified in the report. AXP may disclose the results of any such audit report, review, and examination to its regulators. The parties shall meet promptly to review each audit report after its issuance and to agree upon the appropriate manner, if any, in which to respond to the changes suggested by the audit report. If RN determines in its sole discretion that suggested changes contained in an audit report will require an unreasonable amount of personnel time or expense to resolve to AXP’s reasonable satisfaction, then RN may terminate the Agreement upon 30 days’ advance written notice to AXP.

7. Termination

a. Nothing to the contrary withstanding, AXP may terminate the Agreement effective immediately by notice to RN if RN breaches any of the information protection requirements in Schedule B, or the covenants in Sections 2 and 3 above, and such breaches are not cured within thirty days after receipt of notice thereof.

b. All provisions of the Agreement that by their context are intended to survive termination, including Sections 8.b (Confidential Information), 8.d (Limitation of Liability), 8.e (Indemnification), and 8.m (Dispute Resolution, as added below), as well as RN’s liability for any fees assessed against RN pursuant to this Amendment, shall survive termination of the Agreement.

8. Notices – AXP’s address to receive notices is changed as follows:

To American Express at:

American Express Travel Related Services Company, Inc.

18850 North 56^th Street

Phoenix, AZ 85054

Attn: Vice President, Network Development

with a copy to:

American Express Travel Related Services Company, Inc.

3 World Financial Center

200 Vesey Street, Floor 49

New York, NY 10285-4902

Attn: General Counsel’s Office, ES Counsel

9. Miscellaneous

a. The fourth sentence of Section 8.b (Confidential Information) of the Agreement is deleted and the following sentence inserted at the end of that subsection:

“The confidentiality obligations contained in this subsection shall not apply to information that: (i) is already known to a party prior to disclosure by the other party; (ii) is or becomes available to the public through no breach of this subsection by the other party; (iii) is rightfully received from a third party by the other party without a duty of confidentiality; (iv) is independently developed by a party; or (v) is required to be disclosed by law, regulation, or court order, provided that the disclosing party shall use reasonable efforts to notify the other party prior to disclosure.”

b. Section 8.l of the Agreement is replaced in its entirety with the following subsection.

“l. Governing Law - This Agreement is governed by and will be construed according to the laws of the State of New York without regard to internal principles of conflicts of law. Any action by either party shall be brought in the appropriate federal or state court located in the County and State of New York. Each party consents to the exclusive jurisdiction of such court and waives any claim of lack of jurisdiction or forum non conveniens.”

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c. Section 8.m (Negotiation/Mediation of Disputes) of the Agreement is replaced in its entirety with the following subsection.

“m. Dispute Resolution

i. All Claims arising out of or in connection with this Agreement will be resolved pursuant to this section rather than by litigation. Claim means any claim (including initial claims, counterclaims, cross-claims, and third party claims), dispute, or controversy between the parties arising from or relating to this Agreement, or the relationship resulting from this Agreement, whether based in contract, tort (including negligence, strict liability, fraud, or otherwise), or statutes, regulations, or any other theory. In the event of any Claim, the parties will use commercially reasonable efforts to settle the Claim. To this effect, the party asserting the Claim will provide notice thereof to the other party, and they will meet and negotiate with each other and, recognizing their mutual interests, attempt, in good faith, to reach a solution satisfactory to both parties. If they do not reach a solution within a period of sixty days from the first meeting of the parties in negotiation, then the parties will attempt to settle the Claim through mediation, as described in subsection ii. below.

ii. Any Claim that has not been resolved pursuant to subsection a. above will be resolved, upon the election by either party, through mediation administered by an entity or organization located in New York, New York mutually agreed upon by the parties. The parties will share equally in the costs of mediation. If they do not reach a solution within a period of sixty days from the first meeting of the parties in mediation, then the parties will settle the Claim through binding arbitration, as described in subsection iii. below.

iii. Any Claim that has not been resolved pursuant to subsection i. or ii. above will be resolved, upon the election by either party, through arbitration. The party asserting the Claim will select one of the following arbitration organizations, which will apply its rules in effect at the time the Claim is filed. In the event of an inconsistency between this section and any rule or procedure of the arbitration organization, this section will control. The party asserting the Claim will simultaneously notify the other party of its selection. If AXP’s selection is not acceptable to RN, then RN may select another of the following organizations within thirty days after it receives notice of our initial selection. Any arbitration hearing that RN attends will take place in the federal judicial district where its headquarters is located.

• National Arbitration Forum (NAF); P.O. Box 50191, Minneapolis, MN 55404-0191; 1-800-474-2371; www.arbitration-forum.com

• American Arbitration Association (AAA): 335 Madison Avenue, New York, NY 10017; 1-800-778-7879; www.adr.org

iv. IF ARBITRATION IS CHOSEN BY ANY PARTY WITH RESPECT TO A CLAIM, NEITHER PARTY WILL HAVE THE RIGHT TO LITIGATE THAT CLAIM IN COURT OR HAVE A JURY TRIAL ON THAT CLAIM, OR TO ENGAGE IN PRE-ARBITRATION DISCOVERY EXCEPT AS PROVIDED FOR IN THE RULES OR PROCEDURES OF NAF OR AAA, AS APPLICABLE. FURTHER, RN WILL NOT HAVE THE RIGHT TO PARTICIPATE IN A REPRESENTATIVE CAPACITY OR AS A MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION. NOTE THAT OTHER RIGHTS THAT IT WOULD HAVE IN COURT MAY ALSO NOT BE AVAILABLE IN ARBITRATION.

v. All parties to the arbitration must be individually named. There will be no right or authority for any Claims to be arbitrated or litigated on a class-action or consolidated basis, on behalf of the general public or other parties, or joined or consolidated with claims of other parties, and the parties are specifically barred from doing so. The arbitrator’s authority to resolve Claims is limited to Claims between the parties alone, and the arbitrator’s authority to make awards is limited to awards to the parties alone.

vi. The arbitrator will have the power and authority to grant equitable relief (e.g., injunction, specific performance) and, cumulative with all other remedies, will grant specific performance whenever possible. The arbitrator will have no power or authority to alter this Agreement or any of its separate provisions, including this section, nor to determine any matter or make any award except as provided in this section.

vii. Injunctive relief sought to enforce the confidentiality provisions of this Agreement will not be subject to the requirements of this section. This section is not intended to, and does not, substitute for AXP’s ordinary business practices, policies, and procedures, including its rights to impose fees.

viii. This section is made pursuant to a transaction involving interstate commerce and will be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16 (FAA). The arbitrator will apply New York law and applicable statutes of limitations, honor claims of privilege recognized by law and, at the timely request of either party, provide a written and reasoned opinion explaining his or her decision. The arbitrator will apply the rules of the arbitration organization selected, as applicable to matters relating to evidence and discovery, not the federal or any state rules of civil procedure

3

or rules of evidence. The arbitrator’s decision will be final and binding, except for any rights of appeal provided by the FAA or if the amount of the award exceeds US$100,000, any party can appeal that award to a three-arbitrator panel administered by NAF or AAA, as applicable, which will reconsider de novo any aspect of the initial award requested by majority vote and will be final and binding. The decision of that three person panel may be appealed as provided by the FAA. The costs of such an appeal will be borne by the appellant regardless of the outcome of the appeal. The arbitration proceeding and all testimony, filings, documents, and any information relating to or presented during the proceedings will be deemed to be confidential information not to be disclosed to any other party. Judgment upon the award rendered by the arbitrator may be entered in any state or federal court in the federal judicial district where RN’s headquarters is located.

ix. All offers, promises, conduct, and statements, whether written or oral, made in the course of the negotiations, mediations, arbitrations, and proceedings to confirm arbitration awards by either party, its agents, employees, experts or attorneys, or by the mediator or arbitrator, are confidential, privileged, and inadmissible for any purpose, including impeachment or estoppel, in any other litigation or proceeding involving any of the parties, provided that evidence that is otherwise admissible or discoverable will not be rendered inadmissible or non-discoverable as a result of its use in the negotiation, mediation, or arbitration.

x. Either party may seek equitable relief in arbitration prior to arbitration on the merits to preserve the status quo pending completion of such process. This section may be enforced by any court of competent jurisdiction, and the party seeking enforcement will be entitled to an award of all costs, including legal fees, to be paid by the party against whom enforcement is ordered.”

d. A new Section 14.n is added to the Agreement as follows:

“n. Interpretation - In construing this Agreement, unless the context requires otherwise: (i) the singular includes the plural and vice versa; (ii) the term or is not exclusive; (iii) the term including means “including, but not limited to;” (iv) the term day means calendar day; (v) any reference to any agreement (including this Agreement), instrument, contract, policy, procedure, or other document refers to it as amended, supplemented, modified, suspended, replaced, restated, or novated from time to time; and (vi) all captions, headings, and similar terms are for reference only.”

10. Press Releases and Public Announcements

Except as required by law, RN shall not make any disclosure to the public, whether in the form of a press release or otherwise, in respect of this Agreement or AXP except with the prior written consent of AXP. RN shall notify AXP reasonably in advance of any filings containing references to AXP that RN intends to make with regulatory or governmental agencies.

11. Compliance with Law

Each party shall comply with all applicable laws, regulations, and rules, including all applicable privacy and data security laws.

The parties have caused their duly authorized representatives to execute this Amendment as of the date first written above.

AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC.

By:	/s/ Seana Pitt
	Seana Pitt
	Vice President, Network Development
REWARDS NETWORK SERVICES INC.
By:	/s/ Ronald L. Blake
Name:	Ronald L. Blake
Title:	President and Chief Executive Officer

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EX-10.40

Exhibit 10.40

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

SECOND AMENDED AND RESTATED AGREEMENT

This Second Amended and Restated Agreement (the “Agreement”) dated as of March 13, 2006 (the “Amendment Date”), is made by and between Upromise, Inc., a corporation having offices at 117 Kendrick Street, Suite 200, Needham, Massachusetts 02494 (“Upromise”), and Rewards Network Services Inc. , a corporation having offices at Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606 (“RN”) and amends and restates the Prior Agreement (as defined below), effective as of the Amendment Date. Upromise and RN are referred to collectively as the “Parties” and individually as a “Party”.

WHEREAS, the Parties are currently parties to that certain First Amended and Restated Agreement dated as of February 4, 2003 (the “Original Agreement”), as amended by that certain First Amendment to First Amended and Restated Agreement dated June 17, 2005 (the “First Amendment”), that certain Second Amendment to First Amended and Restated Agreement dated January 31, 2006 (the “Second Amendment”), and that certain VISA CISP Compliance Agreement dated November 5, 2004 (the “CISP Agreement” and, collectively with the Original Agreement, the First Amendment and the Second Amendment, the “Prior Agreement”); and

WHEREAS, the Parties desire to amend and restate the Prior Agreement in order to set forth in this single Agreement all the terms and conditions governing their relationship.

NOW, THEREFORE, in consideration for the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, RN and Upromise hereby agree as follows:

1. Definitions.

As used in this Agreement, the following terms (and all conjugations thereof) have the respective meanings set forth below. Certain other terms are defined elsewhere in this Agreement:

1.1 “Activity Request Reports” has the meaning set forth in Section 4.3 of this Agreement.

1.2 ***

1.3 ***

1.4 “Affiliate” means, with respect to either Party, any individual or entity that, by virtue of a majority ownership interest, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with that Party.

1.5 “Base Hot Deals Purchase” means a Qualified Purchase that on the date of such purchase (a) is listed on the Dining Program Web Page as a “hot deal” (or such other name mutually agreed to by the Parties), and (b) has a Upromise Member Incentive, *** equal to the percentage of the Qualified Purchase Amount of such Qualified Purchase set forth on Exhibit F.

1.6 “Base Purchase” means a Qualified Purchase that on the date of such purchase has a Upromise Member Incentive, *** equal to the percentage of the Qualified Purchase Amount of such Qualified Purchase set forth on Exhibit F.

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

1.7 “Bonus Hot Deals Purchase” means a Qualified Purchase that on the date of such purchase (a) is listed on the Dining Program Web Page as a “hot deal” (or such other name mutually agreed to by the Parties), and (b) has a Upromise Member Incentive, *** equal to the percentage of the Qualified Purchase Amount of such Qualified Purchase set forth on Exhibit F.

1.8 ***

1.9 “Bonus Purchase” means a Qualified Purchase that on the date of such purchase has a Upromise Member Incentive, *** equal to the percentage of the Qualified Purchase Amount of such Qualified Purchase set forth on Exhibit F.

1.10 “CISP Agreement” has the meaning set forth in the recitals to this Agreement.

1.11 “Click Through Requirement” means a Requirement that Upromise Members indicate through the Upromise Website an intent to dine at a restaurant prior to dining there.

1.12 “Commerce Partner” means any manufacturer, retailer, restaurateur, service company, financial institution or other business that enters into an agreement with Upromise pursuant to which such business offers cash rebates or other cash awards to Upromise Members through the Upromise Service.

1.13 “Confidential Information” means, except as otherwise specifically provided in this Agreement, each Party’s (i) trade secrets under applicable law (including, without limitation, financial information, processes, formulae, specifications, programs, instructions, technical know-how, methods and procedures for operation, and benchmark test results); (ii) any confidential or other proprietary information, whether of a technical, business or other nature, that is of value to the owner of such information and is treated as confidential (including, without limitation, information about employees, customers, marketing strategies, services, business or technical plans and proposals, in any form); (iii) any other information identified by a Party as “Confidential Information”; (iv) any other information relating to a Party that is or should be reasonably understood to be confidential or proprietary; and (v) the terms of this Agreement.

1.14 “Dining Program Web Pages” has the meaning set forth in Section 2.2(c) of this Agreement.

1.15 “Eligible RN Restaurant” means an RN Restaurant with locations in the United States or Canada that is not a ***, an Inappropriate Restaurant, *** (each as defined in Section 2.2(a)).

1.16 “Emergency Modification” has the meaning set forth in Section 2.2(c)(iii) of this Agreement.

1.17 “Enrollment Request Report” has the meaning set forth in Section 4.2 of this Agreement.

1.18 “First Amendment” has the meaning set forth in the recitals to this Agreement.

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

1.19 “Inappropriate Restaurant” has the meaning set forth in Section 2.2(a)(iii) of this Agreement.

1.20 “Intellectual Property Rights” means any patent, copyright, trademark, trade secret, trade dress, mask work, moral right, right of attribution or integrity or other intellectual or industrial property rights or proprietary rights arising under the laws of any jurisdiction (including, without limitation, all claims and causes of action for infringement, misappropriation or violation thereof and all rights in any registrations and renewals).

1.21 “Loyalty Program” means the portion of the Upromise Service in which Upromise Members may earn rebates from Commerce Partners when they purchase products and/or services from such Commerce Partners.

1.22 ***

1.23 ***

1.24 “Marks” means trade names, trademarks, service marks and other proprietary marks and copyrightable material.

1.25 “Member Adjustment” has the meaning set forth in Section 5 of this Agreement.

1.26 ***

1.27 “Monthly Invoice” has the meaning set forth in Section 4.4 of this Agreement.

1.28 ***

1.29 “Original Agreement” has the meaning set forth in the recitals to this Agreement.

1.30 “Participating RN Restaurant” means an RN Restaurant at which Participating Members may earn Upromise Member Incentives.

1.31 “Participating Member” means a Upromise Member who has successfully registered a Payment Card in the Upromise Service and has not subsequently opted out of receiving Member Incentives with respect to Qualified Purchases at Participating RN Restaurants via RN or Upromise.

1.32 “Payment Card” shall mean a VISA, MasterCard, American Express or Discover credit card, charge card or debit card for an account in good standing that has been registered with the Upromise Service by a Participating Member and is not separately registered with any RN Rewards Program or any RN Partners Program.

1.33 “Purchase Price” means the total purchase price for all food and beverages charged to a Participating Member’s Payment Card, including taxes, tips and any service charges.

1.34 “Qualified Purchase” means any purchase by a Participating Member at a Participating RN Restaurant using a Payment Card that is in good standing with the financial institution that issued the Payment Card to the extent such purchase meets the Requirements (if any) for which a Participating Member may receive Upromise Member Incentives.

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

1.35 “Qualified Purchase Amount” means the total Purchase Price of a Qualified Purchase, reduced in accordance with any spending limit Requirement in effect.

1.36 “Qualified Restaurant” means, with respect to a given calendar month, a Participating RN Restaurant located in the United States that offered Upromise Member Incentives ***.

1.37 ***

1.38 ***

1.39 “Ratings” has the meaning set forth in Section 6.2 of this Agreement.

1.40 “Requirements” means the requirements a Participating Member must satisfy in order to make a Qualified Purchase, which requirements may include, among other things, a restriction on availability to the first time such Participating Member dines at a Participating RN Restaurant in a calendar month, with a maximum, monthly, cumulative Purchase Price of $600 per Participating RN Restaurant, availability on certain days of the week, or other requirements.

1.41 “Restaurant Aggregator’” means a person or entity that brings together restaurants and restaurant customers in either an online (registered card technology) or offline (coupon) capacity for the administration of discounted dining or other dining-related benefits in each case for commercial benefit.

1.42 “Restaurant Program” means a Upromise Dining Program (other than the program administered by RN pursuant to the terms of this Agreement) offered to Upromise Members on the Dining Program Web Pages or elsewhere on the Upromise Site that uses the Upromise name for branding purposes.

1.43 “Reviews” has the meaning set forth in Section 6.2 of this Agreement.

1.44 “RN Content” has the meaning set forth in Section 2.2(c)(ii) of this Agreement.

1.45 “RN Members” means those persons who subscribe to one of the RN Rewards Programs or to an RN Partners Program but specifically excludes Participating Members.

1.46 “RN Partners” means those entities (i) for which RN develops, markets and/or administers dining rewards programs on a co-branded or private label basis and/or (ii) from which RN Members may earn rewards under an RN Rewards Program.

1.47 “RN Partners Programs” means the dining rewards programs RN develops, markets and/or administers for RN Partners. An RN Partners Program may be incorporated into, and/or a subset of, an RN Rewards Program.

1.48 “RN Program” means an entry-level, no-fee RN Rewards Program in which RN Members accumulate, at their discretion and in exchange for dining at the restaurants participating in that program, such reward currencies that RN, at its sole discretion, includes in the program.

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

1.49 “RN Qualified Purchase Payments” means the *** Upromise Member Incentives *** paid by RN in accordance with the terms of this Agreement.

1.50 “RN Restaurant” means any eating or drinking establishment that participates in an RN Rewards Program and/or an RN Partners Program.

1.51 “RN Rewards Program” means the RN Programs and the for-fee Rewards Network Prime branded dining rewards programs developed and administered by RN and any successor or additional dining rewards programs developed by RN on behalf of itself and RN Partners.

1.52 “RN Site” means the web site identified by the URL www.rewardsnetwork.com and any successors or replacements maintained by or for RN.

1.53 “Second Amendment” has the meaning set forth in the recitals to this Agreement.

1.54 “Surveys” has the meaning set forth in Section 6.2 of this Agreement.

1.55 “Template Element Modification” has the meaning set forth in Section 2.2(c)(ii) of this Agreement.

1.56 “Template Layout Modification” has the meaning set forth in Section 2.2(c)(i) of this Agreement.

1.57 “Upromise Dining Templates” means any HTML, other software code or graphical elements provided by Upromise that establish a “look and feel” environment in which Upromise or RN may display content under the terms of this Agreement.

1.58 “Upromise Dining Program” means that portion of the Upromise Service that enables Upromise Members to earn rebates and other cash awards on purchases and transactions with restaurants that participate directly or indirectly in the Upromise Service, excluding Upromise’s quick serve restaurant Commerce Partner at such time.

1.59 “Upromise Links” means any logos, advertisements or other content on the RN Site that hyperlink to web pages within the Upromise Site.

1.60 “Upromise Member” means a person or entity that has enrolled in the Upromise Service as determined in accordance with the terms and conditions of the Upromise Service (as they may be modified from time to time).

1.61 “Upromise Member Incentive” means the cash award paid by RN to Participating Members who make Qualified Purchases, which award shall be equal to a percentage of the Qualified Purchase Amount of each Qualified Purchase. The actual percentage will vary depending on the type of Qualified Purchase that is made, as set forth on Exhibit F.

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

1.62 “Upromise Release Date” means the date that Upromise effects a major upgrade in Upromise Site functionality (e.g., implements custom Commerce Partner integrations, introduces significant additional features (e.g., family and friends functionality), etc.).

1.63 “Upromise Site” means the web site identified by the URL www.upromise.com and any successors or replacements thereof.

2. Upromise Dining Program.

2.1 Upromise Rights and Obligations.

(a) Operating the Upromise Dining Program and the Upromise Service. During the Term, Upromise shall, subject to RN’s obligations set forth in this Agreement, establish, operate and maintain the Upromise Dining Program as part of the Upromise Service. Upromise may from time to time modify the Upromise Dining Program and/or the terms and conditions of the Upromise Service, in each case in its sole discretion, provided that without RN’s consent no such modification or amendment shall affect RN’s obligations under this Agreement or the amount of RN Qualified Purchase Payments generated by Qualified Purchases at Participating RN Restaurants.

2.2 RN Rights and Obligations.

(a) Participating RN Restaurants.

(i) General. Beginning on June 12, 2005, and continuing until the expiration or termination of the Term, RN shall provide Upromise with a national base of Participating RN Restaurants that ***.

(ii) Additional Requirements. ***.

(iii) Inappropriate Restaurants. RN shall endeavor to select as Participating RN Restaurants RN Restaurants that will not reflect unfavorably on Upromise’s reputation and that are not inconsistent with Upromise’s values. Nevertheless, if RN has included as a Participating RN Restaurant an RN Restaurant that Upromise reasonably determines will reflect unfavorably on Upromise’s reputation or is inconsistent with Upromise’s values (an “Inappropriate Restaurant”), RN will remove such restaurant from the list of Participating RN Restaurants upon thirty (30) days’ prior written notice by Upromise; provided, however, that ***.

(iv) Reporting. Each week, RN shall provide Upromise with a data feed containing the name and address (including street number and name, city, state and zip code) of each Participating RN Restaurant located in the United States. *** Within no more than one hundred eighty (180) days following its receipt of a summary report provided by RN, Upromise may request to receive the raw data used to comprise such report. In the event that Upromise requests the underlying raw data, RN would produce the details in no more than sixty (60) days following the request from Upromise.

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

(b) Qualified Purchase Types.

(i) General. RN will offer the following types of Qualified Purchases: Base Purchases, Bonus Purchases, Base Hot Deals Purchases, Bonus Hot Deals Purchases and any other Qualified Purchase types as are mutually agreed to by the Parties. Participant will pay a Upromise Member Incentive, *** with respect to each Qualified Purchase. The Upromise Member Incentive, *** paid by Participant for each Qualified Purchase will depend on the type of Qualified Purchase that is made, as set forth on Exhibit F.

(ii) Hot Deals. RN will make available and promote to Members on the Dining Program Web Pages certain Base Hot Deals Purchases and Bonus Hot Deals Purchases from time to time as determined in RN’s sole discretion.

(iii) ***

(c) Dining Program Web Pages. During the Term, RN shall accept Upromise Dining Templates generated by Upromise and post and maintain the same on RN’s servers for purposes of creating and maintaining certain web pages solely for the use of Upromise Members who participate in the Upromise Dining Program (the “Dining Program Web Pages”) and who will link to those web pages from the Upromise Site.

(i) Template Layout Modifications. Periodically, Upromise may desire to alter or modify the overall layout of the Upromise Dining Templates in such a way that would require RN to reload and integrate such changes onto the Dining Program Web Pages (each a “Template Layout Modification”). RN agrees to accept up to two (2) Template Layout Modifications and make the appropriate revisions to the Dining Program Web Pages in any given calendar year, at no additional cost to Upromise. RN agrees to use commercially reasonable good faith efforts to make such revisions as soon as possible, but in any event, such revisions shall be finalized on or before the later of (a) eleven (11) weeks after Upromise has notified RN of the general nature of such Template Layout Modification requests, and (b) six (6) weeks after Upromise has provided RN with such Template Layout Modifications.

(ii) Template Element Modification. Periodically, Upromise may desire to modify, alter, or replace various discrete elements of the Upromise Dining Templates or the RN content included on the Dining Program Web Pages (the “RN Content”), including, but not limited to, logos, banners, and/or functionality such as site navigation (each a “Template Element Modification”). For purposes of this Agreement, to the extent any Template Element Modification requires reloading or integration, it shall be deemed a Template Layout Modification rather than a Template Element Modification and shall be governed by the terms of subparagraph (i) above. RN agrees to accept and effect up to eight (8) such Template Element Modifications in any given calendar year, at no additional cost to Upromise. RN agrees to use commercially reasonable good faith efforts to effect such modifications as soon as possible, but in any event, such modifications shall be effected on or before the later of (a) four (4) weeks after Upromise has notified RN of the general nature of such modifications and one (1) week after Upromise has provided RN with such Template Element Modifications.

(iii) Emergency Modifications. It is foreseeable that Upromise may run across unanticipated circumstances that would require the immediate modification or alteration of the Dining Program Web Pages (each an “Emergency Modification”). Because time will be of the essence in making appropriate revisions to the foregoing, RN agrees to use its best efforts to implement such Emergency Modifications promptly and within such timeframes and manner as the Parties hereto shall agree to on a case-by-case basis.

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

(iv) Access to and Format of Dining Program Web Pages. RN agrees that any and all of the Dining Program Web Pages which are accessible to Upromise Members through the Upromise Dining Program will incorporate a Upromise Dining Template as specified by Upromise and that all RN Content to be additionally incorporated into any such web pages shall not obscure, alter, or modify the relevant Upromise Dining Template for that web page. RN further agrees that none of the Dining Program Web Pages that are specifically created for Upromise, nor any aspect of the Upromise Dining Templates, will be accessible or viewable in any form to RN Members who are not also Upromise Members. RN agrees to post the same types and quality of information and functionality regarding Participating RN Restaurants onto the Dining Program Web Pages as it posts on the RN Site; provided, however, that (i) the inclusion of such RN Content does not violate the contractual obligations or restrictions of any third-party agreements to which RN is a party, and (ii) RN Content also shall contain the correct Upromise Member Incentive terms for each Participating RN Restaurant and shall not contain any information regarding an RN Restaurant that is not participating in, or is otherwise inapplicable to, the Upromise Dining Program, except as to those restaurants that may be designated as “Coming Soon”. Notwithstanding the foregoing, at Upromise’s request, RN will use good faith efforts to obtain a waiver of any contractual obligations or restrictions that prevent RN from including certain RN Content on the Dining Program Web Pages.

(d) ***

(e) Payment Card Industry Data Security Standard Compliance Agreement. Concurrently with the execution of this Agreement, RN shall execute a Payment Card Industry Data Security Standard Compliance Agreement substantially in the form attached hereto as Exhibit G.

2.3 Licenses/Ownership of Content. Upromise hereby grants RN a limited, non-exclusive, non-transferable, royalty-free, fully paid-up license to post and maintain the Upromise Dining Templates on the RN servers; provided, however, that the Upromise Dining Templates shall only be posted on the Dining Program Web Pages. In exchange for the foregoing license, RN hereby grants Upromise permission to link to the Dining Program Web Pages, including the RN Content contained therein. RN shall retain all rights and interest to the RN Content posted on the Dining Program Web Pages.

2.4 Service Level Standards and Requirements. *** at all times to comply with the terms of the service level standards and requirements attached hereto as Exhibit A.

2.5 Technical Liaisons/Escalation Procedures. Each Party will assign one or more technical liaison(s) in its respective organization to respond to technical inquiries and issues (including website and service related issues) of the other Party relating to this Agreement. Each Party’s technical liaison(s) shall be knowledgeable about RN’s participation in the Upromise Service, and shall promptly respond to and resolve inquiries from the other Party. Each Party’s initial technical liaison(s) are set forth on Exhibit B. Either Party may change its technical liaison(s) during the Term by providing the other with written notice of such change, but each Party shall exercise discretion in an effort to maintain continuity to such positions. Within thirty (30) days after the Amendment Date, the Parties will establish escalation procedures pursuant to which they will provide each other technical support (including support with respect to website and service related issues) outside of normal business hours.

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

2.6 Management Meetings. The Parties agree that members of each Party’s senior management team, ***, shall meet not less than quarterly to discuss ongoing marketing commitments and opportunities for the Upromise Dining Program.

2.7 ***

3. Promotion and Marketing.

3.1 Upromise Rights and Obligations.

(a) The first time Upromise uses the term “Upromise Dining” in any marketing or promotional materials, including any page of the Upromise Site but excluding any webpage navigation bars and any email subject lines or direct mail subject lines, Upromise will either use the co-branded logo set forth on Exhibit C or use the phrase “Upromise Dining by Rewards Network”, unless alternative branding is agreed to by the Parties.

(b) Subject to subsection (c) below, each calendar year during the Term, commencing with the 2003 calendar year, Upromise will ***. Upromise also will promote the Upromise Dining Program for a ***. RN understands and agrees that during the Term, Upromise may modify its website and/or navigation to remove one or both of the “letterbox” features. To the extent Upromise does so, the Upromise Dining Program will receive substantially similar exposure as set forth in the preceding sentence for the reminder of the Term.

(c) Upromise agrees to use commercially reasonable efforts to notify RN at least five (5) days before it features RN in any letterboxes and at least twenty (20) days before it distributes any emails or direct mail pieces that specifically promote the Upromise Dining Program. In the event Upromise provides RN with fewer than twenty (20) but more than three (3) days prior notice of its intent to distribute an email or direct mail piece specifically promoting the Upromise Dining Program, RN may, up to ***, request that Upromise not distribute the piece during the days specified in the notice; provided, that *** Upromise may determine to distribute such piece during the days specified in the notice despite RN’s request not to, provided, however, that in the event RN can show that it did not meet the Uptime Guarantee (as defined on Exhibit A) as direct result of Upromise’s determination to distribute such piece during such period, Upromise agrees to pay to RN, at RN’s request, $*** for each 24-hour period in which the Uptime Guarantee is not maintained (after the first 24-hour period in a given calendar month in which the Uptime Guarantee is not maintained) as appropriate damages for Upromise’s determination to distribute such piece despite RN’s request not to do so; provided, however, that the maximum amount of damages Upromise shall be required to pay in any calendar month is $***. In addition to the foregoing, to the extent Upromise does not notify RN at least three (3) days before it distributes an email or direct mail piece that specifically promotes the Upromise Dining Program or to the extent any letterboxes, emails or direct mail pieces that specifically promote the Upromise Dining Program contain any incorrect links, and RN can show that it did not meet the Uptime Guarantee as direct result of the foregoing, Upromise agrees to pay to RN, at RN’s request, $*** for each 24-hour period in which the Uptime Guarantee is not maintained (after the first 24-hour period in a given calendar month in which the Uptime Guarantee is not maintained) as appropriate damages therefor; provided, however, that the maximum amount of damages Upromise shall be required to

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pay in any calendar month is $***. For purposes of clarification, a letterbox, email or direct mail piece will not be deemed to “feature” or “specifically promote” the Upromise Dining Program to the extent it merely lists “restaurants”, including the number of restaurants, as a location at which Members may earn cash rebates or other cash awards.

3.2 Participating Members. RN acknowledges that Participating Members are Upromise Members and, notwithstanding anything contained in this Agreement to the contrary, Upromise reserves the right to communicate with such members in the normal course of its business. Both Parties acknowledge that Participating Members are not RN Members and that RN may not initiate direct communication with such members, except to the extent specifically agreed to by Upromise in writing.

3.3 Liaisons. Each Party shall appoint a program manager (“Program Manager”) who will coordinate activities relating to the Upromise Service. As of the Amendment Date, the Program Manager for Upromise shall be *** for business and contractual matters and *** for marketing matters, and the Program Manager for RN shall be *** for all such matters. Each Party may change its Program Manager during the Term by notifying the other Party in writing.

3.4. ***

4. Administration and Processing of Payments; Accounting and Compliance; Reports; Financial Information.

4.1 RN Qualified Purchase Payments. RN will be obligated to make RN Qualified Purchase Payments with respect to each Qualified Purchase made during the Term. The amount of each RN Qualified Purchase Payment will equal a percentage of the Qualified Purchase Amount of each Qualified Purchase, and will vary depending on the type of Qualified Purchase that is made, as set forth on Exhibit F. This obligation will be independent of any obligation a Participating RN Restaurant has with RN, including any obligation to make payments to RN or to continue to be an RN Restaurant. RN Qualified Purchase Payments shall be paid by RN in accordance with the provisions of this Section 4.

4.2 Enrollment Reports. Each business day, Upromise will send to RN an enrollment request (the “Enrollment Request Report”) that will contain the following information with ***. Upon receipt of the Enrollment Request Report, RN will, send to Upromise an enrollment response report which will indicate ***.

4.3 Tracking Qualified Purchases. RN, or its designee, shall be responsible for tracking Qualified Purchases and determining the associated RN Qualified Purchase Payments. To the extent a Qualified Purchase was made outside the United States, RN will calculate the RN Qualified Purchase Payments using the exchange rate in effect at the time the transaction is posted, and payment to Upromise shall be in U.S. dollars. In addition to the foregoing, RN shall provide Upromise with weekly transaction reports (“Activity Request Reports”) listing the information set forth on Exhibit D for each Qualified Purchase tracked during the prior week’s process.

4.4 Invoices. Upromise will calculate the Upromise Member Incentives *** due based upon the information set forth in the Transaction Reports and on a monthly basis will provide RN an invoice (“Monthly Invoice”) setting forth the total amount of Upromise Member

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Incentives due *** for the period covered by such Monthly Invoice. The Monthly Invoice will also set forth, as a separate item, any amounts due to Upromise for Member Adjustments that are reimbursable to Upromise in accordance with the terms of Section 5, ***. ***.

4.5 Payment Schedule. Within fifteen (15) days following delivery to RN of a Monthly Invoice, RN shall cause to be deposited in the account(s) designated by Upromise, or its designee, through electronic funds transfer of immediately available funds, an amount equal to the total Upromise Member Incentives owed, ***. Any payments not received within the time period set forth herein will accrue interest at a rate of one percent (1%) per month, or the highest rate allowed by applicable law, whichever is lower. All payments made to Upromise, or its designee, shall be final and non-refundable.

4.6 Allocation and Distribution of *** and Upromise Member Incentives. Upromise shall be responsible for allocating and distributing *** and Upromise Member Incentives payments among Upromise and Participating Member accounts, posting Qualified Purchase transaction information to Participating Members’ account statements and transferring Upromise Member Incentives into the appropriate Participating Members’ accounts.

4.7 ***

4.8 ***

4.9 Accounting and Compliance. During the Term and for three (3) years thereafter, each Party shall maintain true and complete books of account at its principal place of business containing an accurate record of all data necessary to confirm such Party’s compliance with its financial and other obligations under this Agreement including, in the case of RN, RN’s obligations under Section 2.2(a), and the other Party shall have the right, at its own expense, to examine such books at all reasonable times (but no more than once per calendar year) for the purpose of verifying compliance with the terms of this Agreement. Upon reasonable advance notice, such examination shall be made during normal business hours at the location of the Party whose records are being examined where such records are normally kept. The examining Party will have the right to copy or make abstracts from any and all relevant books and records of the other Party, and all such copies or extracts shall be considered Confidential Information. In the event any such examination shows that the Party being examined failed to make payments or fulfill financial obligations and the aggregate amount of such shortfalls for the period under examination is ***% or more of the total payments and financial obligations for such period, such Party will pay all costs of such examination. In addition to the foregoing, upon request from either Party (but no more than twice per calendar year), the other will allow the requesting Party with reasonable access to its employees, accountants and counsel for the purpose of conducting, at the requesting Party’s expense, periodic reviews of the Party’s operations relating to the subject matter of this Agreement.

4.10 Member Reports. At the request of RN, on no more than a monthly basis, Upromise will provide RN with an RN partner report which will contain the following information with respect to the prior applicable period: ***.

4.11 Financial Information. Each Party shall have the right to meet with the other Party’s Chief Financial Officer or other senior executive on a semi-annual basis to discuss the other Party’s most recent and year to date income statements, balance sheets and cash flow statements.

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4.12 Membership Reconciliation Process. The Parties agree to implement by no later than June 12, 2005 a membership reconciliation process whereby the Parties shall exchange agreed upon fields and agreed upon records from the full database of membership records to ensure completeness and accuracy in the administration of Qualified Purchases. More specifically, on a quarterly basis Upromise will forward to RN a complete Participating Member file (“Quarterly Membership Reconciliation File”) containing the following information for each Participating Member: ***. Within ten (10) business days of receipt of the Quarterly Membership Reconciliation File, RN will send to Upromise a file reconciliation response report for the same quarter which will indicate for each Participating Member and Payment Card whether it was accepted or rejected for the Upromise Dining Program.

5. Customer Service and Member Adjustments. Upromise, or its designee, shall be responsible for responding to inquiries regarding the Upromise Dining Program and Upromise Member Incentives including, without limitation, whether a Upromise Member was entitled to, and did not receive, a Upromise Member Incentive and whether a Upromise Member Incentive has been improperly allocated within the Upromise Service; provided, however, that RN shall cooperate fully with and promptly respond to any reasonable Upromise request for assistance in connection with a Member inquiry regarding Upromise Member Incentives. Notwithstanding anything to the contrary set forth in this Agreement, the Parties agree that in the event a Upromise Member claims that he or she is entitled to, but did not receive, a Upromise Member Incentive, Upromise may, at its sole discretion, deposit into such Member’s Upromise account the amount claimed by the Member to be owed (a “Member Adjustment”) with or without researching such claim. Each month, RN will reimburse Upromise for all Member Adjustments paid by Upromise during the prior month ***; provided that the maximum amount that RN shall be required to reimburse to Upromise in a given month for Member Adjustments shall be ***% of the amount of Upromise Member Incentives paid or owing by RN for such month (excluding Member Adjustments that Upromise verifies are due and owing to a Member based upon research conducted by Upromise or RN, which Member Adjustments shall be paid by RN and not counted toward the ***% per month cap.

6. Participating Member Information.

6.1 General. Except as expressly provided herein, RN shall have no rights and shall claim no rights in any data relating to Participating Members. Accordingly, RN shall not use, sell, transfer or disclose any data or other information relating to Participating Members (including, without limitation, any credit card, enrollment, contact and transaction data or information) except to the necessary to fulfill its obligations hereunder. In addition to the foregoing, RN shall take commercially reasonable steps to secure Upromise Member transaction data, and Upromise shall have the right to audit RN’s handling of such data. *** RN may use such Personal Information only for the purposes set forth in this Section. In addition, except as otherwise explicitly set forth in this Section, RN may not store in its database, weblogs or any other persistent storage any such Personal Information. *** RN shall not share Personal Information with any third parties. In addition, RN shall delete from its database all email addresses it stores in accordance with this Section by the end of the calendar month following the month in which the Click Through Requirement dine or the promotion dine, as applicable, occurred or was scheduled to occur.

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

6.2 Surveys. Notwithstanding Section 6.1, Upromise agrees that Upromise will include a link to the RN Site in Participating RN Restaurant confirmation emails that a Participating Member may click on to complete a survey (each a “Survey”) to rate his/her experience at Participating RN Restaurants. Each Survey will include a ratings component containing closed-end questions (“Ratings”) and a review component containing open-ended questions (“Reviews”). RN may use the Ratings solely for reporting to Participating RN Restaurants aggregate information collected therefrom and for establishing a ratings component to the RN Site. RN may use the Reviews solely for reporting such Reviews to Participating RN Restaurants. The Parties understand and agree that in no event shall RN provide any Personal Information to Participating RN Restaurants. Upromise will have the right to review and approve the Survey questions and format and any modifications thereto, which approval will not be unreasonably withheld or delayed. *** The Parties agree that prior to using such data for any other purpose, the Parties will reach written agreement regarding the parameters of such use.

6.3 Participating RN Restaurant Reporting. RN may share aggregate Participating Member information with Participating RN Restaurants related to correlations between (a) Participating Member activity and the Participating Member’s associated zip code (provided to RN by Upromise at the time the Participating Member registers a credit or debit card that is forwarded to RN) and/or block group assignment (as defined by the U.S Census Bureau), and (b) Participating Member activity on the Dining Program Web Pages and Qualified Purchases at Participating RN Restaurants, in each case in such a manner as to ensure that such Participating RN Restaurants cannot determine any Personal Information about any particular Participating Member. Upromise may also, upon reasonable request and within a reasonable amount of time, receive copies of the portions of such reports that pertain to the Upromise Dining program. To facilitate the foregoing, on a monthly basis, Upromise will send to RN ***. During the period between the time a Upromise Member becomes a Participating Member and the time the monthly block group code is sent to RN, RN will use the Participating Member’s zip code for all mapping and reporting purposes.

7. ***

8. Representations and Warranties. Each Party represents and warrants to the other that (i) it has the power and authority to enter into and perform its obligations under this Agreement, (ii) in its performance of this Agreement, it will comply with all applicable laws, regulations, orders and other requirements, now or hereafter in effect, of governmental authorities having jurisdiction, (iii) its performance of its obligations under this Agreement will not violate any third-party rights, including any third-party Intellectual Property Rights. Without limiting the generality of the foregoing, each Party will pay, collect, and remit such taxes as may be imposed with respect to any compensation, royalties or transactions under this Agreement. Each Party represents and warrants that (i) its Site and all actions occurring thereon are in compliance with all applicable laws, and (ii) it operates its Site in material compliance with its privacy policies and terms and conditions concerning its Site.

9. Indemnification.

9.1 RN’s Obligations. RN will defend and indemnify Upromise and its Affiliates (and their respective employees, officers, directors, stockholders and representatives) against any claim or action brought by a third party, to the extent arising from or relating to: (i) the operation

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of the Dining Program Web Pages or the RN Site, (ii) RN’s, or a participating RN restaurant’s, sale and distribution of products and services to customers, (iii) any negligent act, omission or misrepresentation by RN, its agents or employees, (iv) any breach of its obligations under this Agreement (including, without limitation, any alleged breach of the representations and warranties contained in this Agreement), (v) the violation of third-party Intellectual Property Rights or proprietary rights by any content or other materials included in the Dining Program Web Pages or the RN Site, unless such content or materials were provided by Upromise, or (vi) any content or materials provided by RN to Upromise.

9.2 Upromise’s Obligations. Upromise will defend and indemnify RN and its Affiliates (and their respective employees, officers, directors, and representatives) against any claim or action brought by a third-party, to the extent arising from or relating to: (i) the operation of the Upromise Site (excluding for these purposes the operation of the Dining Program Web Pages), (ii) Upromise’s operation of the Upromise Service (excluding for these purposes the operation of the Dining Program Web Pages), (iii) any negligent act, omission or misrepresentations by Upromise, its agents or employees, (iv) any breach of its obligations under this Agreement (including, without limitation, any alleged breach of the warranties contained in this Agreement), (v) the violation of third-party Intellectual Property Rights or proprietary rights by any content or other materials included on the Upromise Site, unless such content or materials were provided by RN, or (vi) any content or material provided by Upromise to RN.

9.3 Indemnification Procedures. In connection with any claim or action described in this Section, the Party to be indemnified: (i) will give the other Party prompt written notice of the claim, (ii) will cooperate with the indemnifying Party (at the indemnifying Party’s expense) in connection with the defense and settlement of the claim, (iii) will permit the indemnifying Party to control the defense and settlement of the claim, provided (a) that the indemnifying party diligently defends such claim and (b) that the indemnifying party may not settle the claim without the prior written consent (which consent will not be unreasonably withheld or delayed) of the Party to be indemnified, and (iv) may, at its expense, participate in the defense and settlement of the claim.

10. Intellectual Property Rights.

10.1 RN Use of Upromise Marks. RN understands and agrees that all RN marketing efforts which bear Upromise’s name or any Upromise Marks or which refer to the Upromise Service (including the Upromise Dining Program) are subject to review and approval by Upromise. Upromise agrees that it will review all such RN marketing materials in a timely fashion and shall notify RN in writing of the results of such review within ten (10) days of receipt of such materials. Upromise agrees that approval of the marketing materials shall not be unreasonably withheld. Notwithstanding the foregoing, in the event that Upromise fails to provide such written notice within five (5) days of receipt by Upromise, Upromise agrees that such failure shall constitute an approval by Upromise. Once Upromise approves any RN marketing materials, RN may reuse the RN marketing materials without need for further submission and approval, unless otherwise specifically stated in writing by Upromise at the time of the initial approval or thereafter.

10.2 Upromise Use of RN Marks. Except to the extent set forth below, Upromise understands and agrees that all Upromise marketing efforts which bear RN’s name or any RN Marks or which specifically promote the Upromise Dining Program are subject to review and

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approval by RN. RN agrees that it will review all such Upromise marketing materials in a timely fashion and shall notify Upromise in writing of the results of such review within five (5) days of receipt of such materials. RN agrees that approval of the marketing materials shall not be unreasonably withheld. Notwithstanding the foregoing, in the event that RN fails to provide such written notice within five (5) days of receipt by RN, RN agrees that such failure shall constitute an approval by RN. Once RN approves any Upromise marketing materials, Upromise may reuse the Upromise marketing materials without need for further submission and approval, unless otherwise specifically stated in writing by RN at the time of the initial approval or thereafter. In addition to the foregoing and notwithstanding anything in this Agreement to the contrary, RN agrees that Upromise may reuse previously approved copy that includes RN’s name or RN Marks or that specifically promotes the Upromise Dining Program in other Upromise marketing and/or promotional materials on the Upromise Site and in Upromise Member emails and direct mail pieces without the need for further submission and approval. The Parties understand and agree that a promotion will not be deemed to “specifically promote” the Upromise Dining Program to the extent it merely lists “restaurants”, including the number of restaurants, as a location at which Members may earn cash rebates or other cash awards. Upon termination of this Agreement, neither Party shall produce any new marketing materials that include the other Party’s name; provided, however, that the Parties may continue to use and distribute existing printed marketing materials that include the other Party’s name, any Upromise Mark or RN Marks or which specifically promote the Upromise Dining Program until the inventory of such marketing materials is depleted.

10.3 Use Restrictions. Upromise and RN shall not use the other Party’s Marks in a manner that (i) disparages the other Party or its products or services, (ii) portrays the other Party or its products or services in a false, competitively adverse or poor light; or (iii) diminishes the value of the other Party’s Marks. If Upromise or RN is not complying with such use restrictions in the sole discretion of the other Party, Upromise or RN shall promptly comply with the other Party’s requests as to the use of the other Party’s Marks.

10.4 Improper Uses. Except as contemplated by this Agreement, a Party shall not: (i) register any domain name which incorporates the other Party’s Marks, unless otherwise agreed to by that Party (and the Party seeking to register the domain name hereby agrees to transfer such domain name to the other Party if it breaches this provision); (ii) register any of the other Party’s Marks or any trademarks or service marks that are confusingly similar to any of that Party’s Marks, unless otherwise agreed to by the Party that owns the Marks; (iii) use the other Party’s ‘s name or Marks as part of its corporate name, (iv) modify or alter the other Party’s Site in any way; or (v) make any representations, either express or implied, or create an appearance that a visitor to the other Party’s Site is visiting its site, without the other Party’s prior written approval.

11. Confidentiality.

11.1 Protection of Confidential Information. Neither Party will use, disclose or grant use of the other Party’s Confidential Information except as expressly authorized by this Agreement. To the extent that disclosure is authorized by this Agreement, the Party receiving such Confidential Information (the “receiving Party”) will obtain the prior agreement from any third party to whom disclosure of Confidential Information is to be made to hold in confidence and not make use of the Confidential Information of the other Party (the “disclosing Party”) for any purpose other than those permitted by this Agreement. RN understands and agrees that the fact that an individual is a Upromise Member shall be deemed to be Upromise’s Confidential

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Information and that notwithstanding any other provision of this Agreement, RN may not use that information for any purpose other than to carry out its obligations under this Agreement. Each Party agrees that the Confidential Information of the other Party will be held in confidence at least to the same extent and the same manner as each Party protects its own Confidential Information, but each Party agrees that in no event will less than reasonable care be used to protect the other Party’s Confidential Information. Each Party will promptly notify the other Party upon discovery of any unauthorized use or disclosure of the Confidential Information of the other Party.

11.2 Exceptions. The obligations set forth in this Section do not apply if and to the extent the receiving Party establishes that: (i) the information disclosed to the receiving Party was already known to the receiving Party, without obligation to keep it confidential; (ii) the receiving Party received the information in good faith from a third party lawfully in possession thereof without obligation to keep such information confidential; (iii) the information was or becomes publicly known other than by a breach of this Agreement; (iv) the information was independently developed by the receiving Party without use of the disclosing Party’s Confidential Information; or (v) the information is required to be disclosed by applicable statute or regulation, by judicial or administrative process or by any other governing authority with appropriate jurisdiction. In addition to the foregoing: (a) either Party may disclose Confidential Information to its employees, directors, attorneys, agents and/or contractors who need to know such information for the purposes of fulfilling their obligations for or on behalf of such Party; provided, however, that such persons agree to use such Confidential Information only to the extent required to fulfill their obligations to the receiving Party; (b) Upromise may disclose the terms of this Agreement to potential lenders and investors in connection with their due diligence evaluations provided that any such entity to whom disclosure is to be made is subject to an agreement to hold such information in confidence and not make use of it for any purpose other than such evaluations; and (c) Upromise may use transactional data that it receives from RN or its designee for purposes relating to the Upromise Service.

11.3 Equitable Relief. The receiving Party acknowledges and agrees that due to the unique nature of the disclosing Party’s Confidential Information, there can be no adequate remedy at law for any breach of its obligations hereunder, that any such breach may allow the receiving Party or third parties to unfairly compete with the disclosing Party, resulting in irreparable harm to the disclosing Party, and therefore, that upon any such breach or any threat thereof, the disclosing Party may be entitled to appropriate equitable relief, without the requirement of posting a bond, in addition to whatever remedies it might have at law.

12. Term, Termination and Survival.

12.1 Term. The term of this Agreement shall commence on the Amendment Date and continue until December 31, 2007, unless earlier terminated in accordance with Section 12.2 below (the “Initial Term”). Upon expiration of the Initial Term, this Agreement will automatically be renewed for additional one-year terms (each a “Renewal Term” and collectively with the Initial Term, the “Term”) unless one Party gives the other Party written notice at least *** days prior to the scheduled expiration of such Initial Term or Renewal Term that it does not wish to renew this Agreement. Notwithstanding anything to the contrary set forth in this Agreement, to the extent the scheduled expiration date of this Agreement is not a Upromise Release Date, Upromise may upon *** days prior written notice to RN terminate this Agreement prior to the expiration of the Term so as to coincide with a Upromise Release Date; provided that the termination date shall not be more than *** days prior to the scheduled expiration date.

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12.2 Termination. Either Party may terminate this Agreement in the event (i) the other Party materially breaches this Agreement which breach continues after sixty (60) days of written notice of said breach (which notice shall, in reasonable detail, specify the nature of the breach) by the non-defaulting Party to the defaulting Party, (ii) the other Party becomes insolvent, makes an assignment for the benefit of creditors, or files a petition in bankruptcy, in which event this Agreement may terminate upon written notice or election to terminate, effective as of the date set forth in such notice, or (iii) Upromise determines, in its sole discretion, to terminate the Loyalty Program in its entirety, in which event this Agreement will terminate upon ninety (90) days’ prior written notice of the terminating Party. Upromise also shall have the right to terminate this Agreement upon written notice to RN in the event RN ***, any such termination to be effective as of the date set forth in such notice.

12.3 Member Notification. In connection with the expiration or any termination of this Agreement, the Parties agree to cooperate in good faith to ensure that any disruption or inconvenience to Upromise Members is kept to a minimum. In particular, the Parties agree that they will jointly agree on timing and content of any notices sent to Upromise Members. In the event that either Party terminates this Agreement because of a breach by the other Party, the breaching Party shall bear all costs of notifying Upromise Members of the termination of this Agreement. In all other instances, the Parties shall jointly bear the cost of notifying Upromise Members of termination of this Agreement.

12.4 ***

12.5 Survival. Section 6 (“ Upromise Originated Member Information”), Section 8 (“Representations and Warranties”), 9 (“Indemnification”), 10 (“Intellectual Property Rights”), 11 (“Confidentiality”), 12.4 ***, 12.5 (“Survival”), 13 (“Limitations”), 14 (“Dispute Resolution”), 15 (“General Provisions”) and the last sentence of Section 10.2 shall survive the termination or expiration of this Agreement. In addition, the terms of any RN Qualified Purchase Payments that have been earned through a Qualified Purchase made prior to the expiration or termination of this Agreement shall survive the termination or expiration of this Agreement.

13. Limitations.

13.1 NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR OTHER INDIRECT DAMAGES OR FOR LOST PROFITS OR LOSS OF DATA ARISING OUT OF THIS AGREEMENT (EXCEPT FOR LIABILITIES ARISING OUT OF A BREACH OF SECTION 7 (EXCLUSIVITY), SECTION 11 (CONFIDENTIALITY), WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE, EVEN IF A PARTY HAS BEEN MADE AWARE OF THE POSSIBILITY OF SUCH DAMAGES.

13.2 EACH PARTY’S (TOGETHER WITH ITS AFFILIATES’) ENTIRE LIABILITY ARISING FROM THIS AGREEMENT (EXCEPT FOR LIABILITIES ARISING OUT OF A BREACH OF SECTION 7 (EXCLUSIVITY), SECTION 11 (CONFIDENTIALITY) OR EACH PARTY’S PAYMENT OBLIGATIONS THAT BECOME DUE AND PAYABLE HEREUNDER) WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE, WILL NOT EXCEED ***.

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14. Dispute Resolution. The Parties shall follow the following dispute resolution processes in connection with all disputes, controversies or claims, whether based on contract, tort, statute, fraud, misrepresentation or any other legal theory, except as otherwise provided in this Section, arising out or relating to this Agreement or the breach or alleged breach hereof (collectively, “Disputes”).

14.1 The Parties will attempt to settle all Disputes through good faith negotiations. If those attempts fail to resolve the Dispute within forty-five (45) days of the date of initial demand for negotiation, then the Parties will attempt in good faith to settle the Dispute by mediation conducted in Boston, Massachusetts under the commercial mediation rules of the American Arbitration Association or JAMS/Endispute (the “Approved Body”). Each Party shall bear its own expenses; the Parties shall equally share the filing and other administrative fees of the Approved Body and the expenses of the mediator. The Parties shall be represented at the mediation by representatives having final settlement authority over the matter in dispute.

14.2 Any Dispute not finally resolved pursuant to this Section shall be determined and settled by arbitration in Boston, Massachusetts pursuant to the rules then in effect of the Approved Body chosen by the party submitting such Dispute, and each party hereby consents to the jurisdiction thereof. Any award rendered shall be final and conclusive upon the Parties and a judgment thereon may be entered in a court having competent jurisdiction. The party submitting such Dispute shall request the Approved Body to (i) appoint an arbitrator who is knowledgeable in commercial disputes and who will follow substantive rules of the law; (ii) allow for the Parties to request discovery pursuant to the rules then in effect under the Federal Rules of Civil Procedure for a period not to exceed sixty (60) days; (iii) require the testimony to be transcribed; and (iv) require the award to be accompanied by findings of fact and a statement of reasons for the decision. The arbitrator shall not have the power to award damages in excess of the limitations set forth in section 13.2 hereof, nor shall he or she have the power to award excluded under Section 13.1 hereof. All costs and expenses, including any attorney’s fees, of the Parties incurred in any Dispute shall be borne by the Party that is determined to be liable in respect of such Dispute; provided, however, that if complete liability is not assessed against any one Party, the Parties shall share the total costs in proportion to their respective amounts of liability as determined by the arbitrator. Except where clearly prevented by the area in Dispute, both Parties agree to continue performing their respective obligations under this Agreement while the Dispute is being resolved.

14.3 Disputes relating to either infringement, unauthorized use or misuse of a Party’s Marks, or other intellectual property, a violation of which would cause that Party irreparable harm for which damages would be inadequate, shall be exempt from the dispute resolution processes described in this Section to the extent necessary to seek preliminary injunctive or other judicial relief in a court of competent jurisdiction.

15. General Provisions.

15.1 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, UPROMISE HEREBY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES REGARDING THE UPROMISE SERVICE (INCLUDING THE UPROMISE DINING SERVICE), THE

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

UPROMISE SITE OR ANY PORTION THEREOF OR SERVICES RELATED THERETO, INCLUDING (WITHOUT LIMITATION) IMPLIED WARRANTIES OR MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, UPROMISE DOES NOT WARRANT THAT THE UPROMISE SERVICE (INCLUDING THE UPROMISE DINING SERVICE) OR THE UPROMISE SITE WILL BE UNINTERRUPTED OR ERROR-FREE AND DOES NOT WARRANT AGAINST FAILURE OF PERFORMANCE DUE TO FAILURE OF COMPUTER HARDWARE OR COMMUNICATION SYSTEMS.

15.2 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, RN HEREBY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES REGARDING THE RN SITE OR ANY PORTION THEREOF OR SERVICES RELATED THERETO, INCLUDING (WITHOUT LIMITATION) IMPLIED WARRANTIES OR MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, RN DOES NOT WARRANT THAT THE RN SERVICE (INCLUDING THE UPROMISE DINING SERVICE) OR THE RN SITE WILL BE UNINTERRUPTED OR ERROR-FREE AND DOES NOT WARRANT AGAINST FAILURE OF PERFORMANCE DUE TO FAILURE OF COMPUTER HARDWARE OR COMMUNICATION SYSTEMS.

15.3 Upromise Site. Except as expressly provided in this Agreement, Upromise will remain solely responsible for the operation of the Upromise Site. RN acknowledges that (i) the Upromise Site may be subject to temporary shutdowns due to causes beyond Upromise’s reasonable control, and (ii) subject to the specific terms of this Agreement, Upromise retains sole right and control over the programming, content, and conduct of transactions over the Upromise Site.

15.4 Relationship. Neither Upromise nor RN will have any authority to bind the other by contract or otherwise to make representations as to the policies and procedures of the other, other than as specifically authorized by this Agreement. Upromise and RN acknowledge and agree that the relationship arising from this Agreement does not constitute or create a general agency, joint venture, partnership, employee relationship or franchise between them and that each is an independent contractor with respect to the services provided by it under this Agreement.

15.5 Notices. All written notices required by this Agreement must be delivered to the addresses set forth above by a means evidenced by a delivery receipt and will be effective upon receipt. Notwithstanding the foregoing, facsimile receipt shall not be deemed a delivery receipt for purposes of this Agreement. Notices to each Party shall be addressed to the attention of its General Counsel.

15.6 Assignment. Neither Party may assign this Agreement, in whole or in part, without the other Party’s prior written consent (which will not be withheld unreasonably or delayed), except such consent shall not be required with respect to assignments to: (i) any Affiliate of the assigning Party; (ii) any entity resulting from any merger, consolidation, or other reorganization involving the assigning Party, or (iii) any individual or entity to which the assigning Party may transfer all or substantially all of its capital stock or assets related to the transactions contemplated by this Agreement; provided that the assignee agrees in writing to be bound by all the terms and conditions of this Agreement. Subject to the foregoing, this Agreement will be binding on and enforceable by the Parties and their respective successors and permitted assigns.

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

15.7 Commercially Reasonable Delays; Force Majeure. Neither Upromise nor RN will be liable for, or will be considered to be in breach of or default under this Agreement on account of, any delay or failure to perform as required by this Agreement (other than payment obligations) as a result of any causes or conditions that are beyond such Party’s reasonable control and that such Party is unable to overcome through the exercise of commercially reasonable diligence. If any force majeure event occurs, the affected Party will give prompt written notice to the other Party and will use commercially reasonable efforts to minimize the impact of the event.

15.8 Consents; Waiver. The failure of a Party hereto at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same unless the same is waived in writing. No waiver by a Party of any condition or breach of any term, covenant, representation or warranty contained in this Agreement shall be effective unless in writing, and no waiver of any one or more instances shall be deemed to be a further or continuing waiver of any such condition or breach in other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty.

15.9 Entire Agreement. This Agreement together with the attached Exhibits, (i) constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes any previous or contemporaneous oral or written agreements regarding such subject matter, and (ii) may be amended or modified only by a written instrument signed by a duly authorized agent of each Party.

15.10 Severability. If any provision of this Agreement is held to be invalid, such invalidity shall not effect the remaining provisions.

15.11 Choice of Law; Venue. This Agreement shall be interpreted and enforced in all respects in accordance with the laws of the Commonwealth of Massachusetts, without reference to its choice of law rules.

15.12 Counterparts. This Agreement shall be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT IS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION IS REPLACED WITH ASTERISKS.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement under seal as of the date first above written.

UPROMISE, INC.		REWARDS NETWORK SERVICES INC.
By:	/s/ Thomas N. Anderson	By:	/s/ Ronald L. Blake
Name:	Thomas N. Anderson	Name:	Ronald L. Blake
Title:	President and CEO	Title:	President and CEO
		Corporate Address:
		Two North Riverside Plaza, Suite 950
		Chicago, Illinois 60606

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EX-12.1

EXHIBIT 12.1

Calculation of Earnings to Fixed Charges

	Year ended December 31,								Year ended September 30,		Three months ended December 31,
	2005		2004		2003		2002		2001		2001		2000
Interest expensed	3,255		3,152		2,565		2,138		5,064		681		1,590
Capitalized securitization cost	—		—		625		200		600		—		600
Capitalized convertible debt costs	1,383		1,878		2,476		—		—		—		—
Capitalized line of credit costs	61		387
Preferred dividends adjusted to pre-tax at current tax rates	—		—		25		1,295		2,005		495		502
Fixed charges	4,699		5,417		5,691		3,633		7,669		1,176		2,692
Pretax income	120		22,248		26,180		17,907		1,419		1,156		(893	)
Add: Fixed charges	4,699		5,417		5,691		3,633		7,669		1,176		2,692
Less: Preferred dividends adjusted to current tax rate	—		—		(25	)	(1,295	)	(2,005	)	(495	)	(502	)
Adjusted earnings	4,819		27,665		31,846		20,245		7,083		1,837		1,297
Earnings to fixed charges ratio	103	%	511	%	560	%	557	%	92	%	156	%	48	%

EX-21.1

EXHIBIT 21.1

LIST OF REWARDS NETWORK SUBSIDIARIES

1 Rewards Network Inc.

2 Rewards Network Services Inc.

3 Rewards Network Establishment Services Inc.

4 TMNI International Inc.

5 iDine Media Group Inc.

6 Rewards Network International, Inc.

7 RTR Funding LLC

8 Rewards Network Canada GP Corporation

9 Rewards Network Canada LP

10 FFA Acquisition Corporation

11 Restaurant Cash LLC

12 Restaurant Cash California LLC

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Rewards Network Inc.:

We consent to the incorporation by reference into previously filed registration statements on Form S-3 (Registration Nos. 333-53147, 333-49366 and 333-111390) and on Form S-8 (Registration Nos. 333-101237, 333-72501, 333-06747 and 333-115903) of Rewards Network Inc. and subsidiaries (the Company) of our reports dated March 6, 2006, relating to the consolidated balance sheets of the Company as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2005, and the related financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005, annual report on Form 10-K of the Company.

/s/ KPMG LLP

March 15, 2006

Miami, Florida

Certified Public Accountants

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Ronald L. Blake, certify that:

1. I have reviewed this annual report on Form 10-K of Rewards Network Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2006	/s/ Ronald L. Blake
	Ronald L. Blake President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Christopher J. Locke, certify that:

1. I have reviewed this annual report on Form 10-K of Rewards Network Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2006	/s/ Christopher J. Locke
	Christopher J. Locke Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE

In connection with the Annual Report of Rewards Network Inc. (the “Company”) on Form 10-K for the period ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald L. Blake, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 15, 2006

/s/ Ronald L. Blake

Ronald L. Blake

President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE

In connection with the Annual Report of Rewards Network Inc. (the “Company”) on Form 10-K for the period ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher J. Locke, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 15, 2006

/s/ Christopher J. Locke

Christopher J. Locke

Senior Vice President and Chief Financial Officer