Vertrue Inc – IPO: ‘424B1’ on 10/21/96

As of:  Monday, 10/21/96   ·   Accession #:  950123-96-5810   ·   File #:  333-10541

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Initial Public Offering (IPO):  Prospectus   —   Rule 424(b)(1)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Memberworks Final Prospectus                          80    452K 

Document Table of Contents

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                                                  Pursuant to Rule 424(b)(1)
                                                  Registration No. 333-10541

MEMBERWORKS LOGO  

2,700,000 SHARES

COMMON STOCK

  Of the 2,700,000 shares of Common Stock offered hereby, 2,400,000 shares
are being sold by MemberWorks Incorporated ("MemberWorks" or the "Company") and 
300,000 shares are being sold by certain Selling Stockholders. See "Principal   
and Selling Stockholders." The Company will not receive any of the proceeds from
the sale of the shares by the Selling Stockholders. Prior to this offering,     
there has been no public market for the Common Stock of the Company. See        
"Underwriting" for information relating to the method of determining the initial
public offering price.                                                          
------------------------

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND  
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE  
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE   
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY  
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.   

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-------------------------------------------------------------------------------------------------------
                                                       UNDERWRITING                      PROCEEDS TO   
                                        PRICE TO      DISCOUNTS AND     PROCEEDS TO        SELLING     
                                         PUBLIC        COMMISSIONS       COMPANY(1)      STOCKHOLDERS  
-------------------------------------------------------------------------------------------------------
                                                                                                       
Per Share..........................      $17.00           $1.19            $15.81           $15.81     
-------------------------------------------------------------------------------------------------------
Total(2)...........................   $45,900,000       $3,213,000      $37,944,000       $4,743,000   
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------

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

(2) The Selling Stockholders have granted the Underwriters a 30-day option to   
   purchase up to an additional 405,000 shares of Common Stock solely to cover
   over-allotments, if any. See "Underwriting." If such option is exercised in
   full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Selling Stockholders will be $52,785,000, $3,694,950 and    
$11,146,050, respectively.                                              
------------------------

   The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made   
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about October 23, 1996.             

ROBERTSON, STEPHENS & COMPANY                                                   

HAMBRECHT & QUIST     

                                                        PAINEWEBBER INCORPORATED

The date of this Prospectus is October 18, 1996 

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THE MEMBERWORKS SOLUTION  

The Company's membership service programs create a synergistic relationship     
among members, vendors, clients and the Company.  

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

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

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

  UNTIL NOVEMBER 12, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR   
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD       
ALLOTMENTS OR SUBSCRIPTIONS.                                                    
------------------------

TABLE OF CONTENTS 

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                                                                                       PAGE
                                                                                       ----
                                                                                           
Summary...............................................................................   4 
Risk Factors..........................................................................   6 
Use of Proceeds.......................................................................  15 
Dividend Policy.......................................................................  15 
Capitalization........................................................................  16 
Dilution..............................................................................  17 
Selected Consolidated Financial Information...........................................  18 
Management's Discussion and Analysis of Financial Condition and Results of                 
  Operations..........................................................................  19 
Business..............................................................................  27 
Management............................................................................  40 
Certain Transactions..................................................................  48 
Principal and Selling Stockholders....................................................  49 
Description of Capital Stock..........................................................  51 
Shares Eligible for Future Sale.......................................................  54 
Underwriting..........................................................................  56 
Legal Matters.........................................................................  57 
Experts...............................................................................  57 
Additional Information................................................................  57 
Index to Consolidated Financial Statements............................................ F-1 

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

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

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

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

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SUMMARY 

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

THE COMPANY 

   MemberWorks Incorporated ("MemberWorks" or the "Company") believes, based
on its senior management's extensive knowledge of the industry and its          
relationships with major credit card issuers in banking, oil and retail, that it
is a leading designer and provider of innovative membership service programs.   
The Company addresses the needs of organizations seeking to leverage the        
expertise of an outside provider in offering these programs. MemberWorks offers 
its programs to increasingly sophisticated consumers seeking economy, efficiency
and convenience in their purchase of products and services. For participating   
vendors, the programs provide the opportunity to reach a large number of        
demographically attractive members at minimal incremental marketing cost. As of 
June 30, 1996, the Company had approximately 40 client organizations and        
approximately 1.5 million members.                                              

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

 The Company arranges with client financial institutions, retailers, oil
companies, and other credit card issuers to market membership programs to such  
clients' individual account holders and customers. Currently, the Company has 38
credit card issuer clients to whom it is obligated to pay royalties, including  
12 of the top 20 issuers of bank credit cards, such as Household Credit         
Services, Inc. and Capital One Financial Corp., four of the top five issuers of 
oil company credit cards, such as Shell Oil Company and Texaco Credit Card      
Services, and Sears, Roebuck and Co., the leading issuer of retail company      
credit cards.                                                                   

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

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

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THE OFFERING

                                                        [Enlarge/Download Table]
                                                                                                     
Common Stock offered by the Company........................ 2,400,000 shares                         
Common Stock offered by the Selling Stockholders........... 300,000 shares                           
Common Stock outstanding after the offering................ 14,550,177 shares(1)                     
Use of Proceeds............................................ Redemption of redeemable preferred stock 
                                                            and general corporate purposes, including
                                                            the acquisition of new members, program  
                                                            development, capital expenditures and    
                                                            working capital.                         
Nasdaq National Market symbol.............................. MBRS                                     

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

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                                                                               YEAR ENDED JUNE 30,       
                                                                         ------------------------------- 
                                                                          1994        1995        1996   
                                                                         -------     -------     ------- 
                                                                                                         
STATEMENT OF OPERATIONS DATA:                                                                            
Revenues................................................................ $25,830     $41,547     $57,012 
Total expenses..........................................................  31,846      52,279      62,259 
Net loss................................................................  (6,016)    (10,732)     (5,247)
Pro forma net loss per share(2).........................................                         $ (0.42)
Pro forma weighted average common and common equivalent shares                                           
  outstanding(2)........................................................                          12,741 

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                                                                          JUNE 30, 1996                 
                                                         -----------------------------------------------
                                                                          PRO              PRO FORMA    
                                                          ACTUAL        FORMA(3)       AS ADJUSTED(3)(4)
                                                         --------     ------------     -----------------
                                                                                                        
BALANCE SHEET DATA:                                                                                     
Cash and cash equivalents............................... $  4,312       $  4,312            $38,877     
Working capital (deficit)...............................  (18,977)       (18,977)            15,588     
Total assets............................................   41,927         41,927             76,492     
Long-term obligations...................................    1,089          1,089              1,089     
Redeemable preferred stock..............................   20,487          1,949                 --     
Total stockholders' equity (deficit)....................  (36,332)       (17,794)            18,720     

---------------                                                                 
(1) Based on the number of shares of Common Stock outstanding as of June 30,    
1996, exclusive of 173,830 treasury shares. Excludes 1,277,762 shares of
    Common Stock issuable pursuant to stock options outstanding at June 30, 1996
    (of which options to purchase 378,180 shares were exercisable) at a weighted
average exercise price of $2.62 per share, and 384,287 shares of Common 
 Stock issuable upon the exercise of warrants outstanding at June 30, 1996
(all of which warrants were exercisable) at a weighted average exercise 
price of $1.24 per share. Also excludes 310,140 shares of Common Stock  
 issuable pursuant to stock options granted on July 1, 1996 (none of which
were exercisable) at an exercise price of $8.00 per share. See          
 "Capitalization," "Management -- Stock Plans," "Certain Transactions" and
    "Principal and Selling Stockholders." Also excludes 129,600 shares of Common
   Stock issuable upon exercise of options that may be granted to an executive
  officer of the Company upon achievement of certain performance goals prior
 to December 31, 1996. All such options will be exercisable at an exercise
   price of $2.78 per share and will vest ratably over a four-year period. See
"Management -- Executive Compensation."                                 

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

(3) Gives effect to the conversion of all outstanding shares of the Company's   
    Class A Common Stock and Series A, Series B, Series C, Series D and Series H
Preferred Stock into an aggregate of 12,062,239 shares of Common Stock. 

(4) As adjusted to give effect to the sale of 2,400,000 shares of Common Stock  
 offered by the Company at an initial public offering price of $17.00, the
issuance of 3,533 shares of Common Stock pursuant to the exercise of a  
 warrant by a Selling Stockholder and the application of the estimated net
 proceeds therefrom, including the redemption of all outstanding shares of
    the Company's Series E and Series F Preferred Stock upon the closing of this
offering. See "Use of Proceeds."                                        

Except as otherwise indicated, all information in this Prospectus (i)   
reflects the conversion of all outstanding shares of the Company's Class B      
Common Stock into an aggregate of 84,405 shares of Common Stock, effected in    
August 1996; (ii) reflects a 7.2 for 1 stock split in issued shares of Common   
Stock, effected in September 1996; (iii) reflects the issuance of 3,533 shares  
of Common Stock pursuant to the exercise of a warrant by a Selling Stockholder  
concurrent with the closing of this offering, which shares will be sold in this 
offering by such Selling Stockholder; (iv) reflects the conversion of all       
outstanding shares of the Company's Class A Common Stock and Series A, Series B,
Series C, Series D and Series H Preferred Stock into an aggregate of 12,062,239 
shares of Common Stock upon the closing of this offering; (v) reflects the      
redemption of all outstanding shares of the Company's Series E and Series F     
Preferred Stock upon the closing of this offering; and (vi) assumes no exercise 
of the Underwriters' over-allotment option. The Company's fiscal year ends on   
June 30 of each year.                                                           

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RISK FACTORS

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

HISTORY OF LOSSES                                                               

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

DEPENDENCE ON CLIENTS; CLIENT CONCENTRATION                                     

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

   Approximately 61.3% of the Company's revenues for the year ended June 30,
1996 was attributable to members solicited from the customer lists provided by  
the following key clients: approximately 35.2% from customer lists provided by  
Sears, Roebuck and Co. ("Sears"), 15.6% from Associates Credit Card Services,   
Inc. ("Associates") and 10.5% from Capital One Financial Corp. ("Capital One"). 
These and other client relationships are pursuant to contracts which may be     
terminated by the client upon 30 to 90 days' notice without cause and without   
penalty. Upon such termination, the Company generally has the right to continue 
its relationship with the client's customers that have become program members   
for a specified period to substantially the same extent as prior to the         
termination, but may not resolicit those members upon such members' cancellation
or non-renewal of the membership. Approximately 75% of the revenue attributable 
to Sears for the year ended June 30, 1996 was generated pursuant to a contract  
which also provides that, upon termination of the agreement for default, Sears  
may prohibit the Company from renewing memberships and otherwise cause the      
Company to terminate its relationship with existing members. Events that        
constitute default include events outside the control of the Company, including 
acts and omissions by the Company's third-party vendors. There can be no        
assurance that one or more of the Company's key or other clients will not       
terminate its relationship with the Company or that clients will provide        
additional customer lists to the Company for use in further marketing new or    
existing membership programs. In addition, the Company's agreement with         
Associates, representing approximately 15.6% of the Company's revenues for the  
year ended June 30, 1996, is under renewal negotiations, and there can be no    
assurance that Associates will renew such agreement on favorable terms, if at   
all. If the agreement is terminated, the Company will have the right to continue
to provide membership services directly to the client's individual account      
holders, provided that the Company continues to pay royalties to the client, but
may not resolicit those members upon such members' cancellation or non-renewal  
of the membership. Termination or expiration of a key client relationship could 
have a material adverse effect on the future revenues from existing programs of 
which such client's customers are members and on the Company's ability to       
further market new or existing programs through such client.                    

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

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

DEPENDENCE ON MEMBERSHIP RENEWALS                                               

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

FLUCTUATIONS IN OPERATING RESULTS                                               

The Company's quarterly revenues, expenses and operating results have 
varied significantly in the past and are likely to vary significantly from      
quarter to quarter in the future. Factors which affect the Company's financial  
results include: the timing and cancellation of customer orders; the Company's  
ability to introduce new programs on a timely basis; the introduction of        
programs by the Company's competitors; market acceptance of the Company's and   
its clients' programs; the timing of investments in program development;        
personnel changes; the demand for membership programs generally; the mix of     
programs offered by the Company; unanticipated service interruptions; increased 
costs associated with expansion of operations; the availability of vendors to   
support offered programs; the rate of renewal by existing members of programs;  
the level of enthusiasm for health and fitness, travel, entertainment and       
leisure activities, and other lifestyle elements underlying the Company's       
programs; and competitive pressures on selling prices. Many of these factors are
beyond the Company's control. Because the Company determines its expenditure    
levels in advance of each quarter, the Company's ability to reduce costs quickly
in response to any revenue shortfall is limited, and thus operating results     
would be adversely affected if projected revenues for a given quarter are not   
achieved. The Company                                                           

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incurs significant start-up costs in advance of the offering of a new program,  
including costs associated with hiring and training additional personnel,       
program development and producing membership kits. In addition, any delay in the
offering of the program, by the Company, its clients or otherwise, or slower    
than anticipated consumer acceptance of such program, could increase the        
Company's cost of revenues in a given period. There also can be no assurance    
that future acquisitions, if any, by the Company will not have an adverse effect
upon the Company's results of operations, particularly in quarters immediately  
following consummation of such transactions, while the operations of the        
acquired business are being integrated into the Company's operations.           

 In addition, the Company is required to grant options to purchase up to
129,600 shares of Common Stock to an executive officer upon achievement of      
certain performance goals, which options shall be exercisable at an exercise    
price of $2.78 per share. To the extent that such options are granted, the      
Company will incur compensation expense ratably over the four-year vesting      
period in an aggregate amount equal to the number of options granted multiplied 
by the difference between the exercise price and the trading price of the       
Company's Common Stock on the date of the grant. The Company's agreement to     
grant such options terminates on December 31, 1996.                             

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

INTENSE COMPETITION                                                             

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

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NEW PROGRAM INTRODUCTIONS                                                       

     The Company's business is substantially dependent on its ability to develop
and successfully introduce new programs which generate consumer interest.       
Failure to introduce new programs in a timely manner could result in the        
Company's competitors acquiring additional market share for a program in a      
particular area of consumer interest. In addition, the introduction or          
announcement of new programs by the Company or by others could render existing  
programs uncompetitive or obsolete, or result in a delay or decrease in orders  
for existing programs as customers evaluate new programs or select the new      
programs as an alternative to existing programs. Therefore, the announcement or 
introduction of new programs by the Company or others, or the failure by the    
Company to introduce new programs which have broad consumer appeal, could have a
material adverse effect on the Company's business, financial condition and      
results of operations. See "Business -- Membership Service Programs" and        
"-- Competition."                                                               

DEPENDENCE ON VENDORS AND TELEMARKETERS                                         

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

DEPENDENCE ON CREDIT CARD INDUSTRY                                              

     The Company's future success is dependent in large part on continued demand
for the Company's programs from businesses within the industries served by the  
Company. In particular, programs marketed through the Company's credit card     
issuer clients accounted for substantially all of the Company's revenues in     
fiscal 1996. A significant downturn in the credit card industry or a trend in   
that industry to reduce or eliminate its use of membership programs would have a
material adverse effect on the Company's business, financial condition and      
results of operations. The Company does not believe, however, that recent       
increases in consumer credit card indebtedness and increased consumer defaults  
on credit card obligations have had a material adverse affect on the Company's  
business, financial condition and results of operations. In addition, the       
Company is obligated under the terms of its agreement with credit card issuers  
and merchant processors under rules promulgated by credit card associations such
as Visa International and Master Card to maintain certain standards of          
commercial conduct with respect to credit card users. Violations of such        
standards could jeopardize the Company's ability to sell its programs using such
credit cards as the medium of commercial exchange, which could have a material  
adverse effect on Company's business, financial condition and results of        
operations. See "Business -- Distribution."                                     

MANAGEMENT OF GROWTH                                                            

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

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failure to support the Company's operations effectively could have a material   
adverse effect on the Company's business, financial condition and results of    
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."                                                         

Although the Company has not historically generated significant       
international revenues, the Company intends to attempt to penetrate             
international markets. The Company has not established a definitive timetable   
for its international expansion, but is currently engaged in discussions with   
clients concerning offering membership service programs in Canada and in Mexico.
There can be no assurance as to whether or when such programs will be           
implemented. In order to successfully expand internationally, the Company must  
establish foreign operations and hire additional personnel. This will require   
significant management attention and financial resources and could materially   
adversely affect the Company's operating margins. International sales and       
operations are subject to numerous risks, including unexpected changes in       
regulatory requirements, export restrictions, tariffs and other trade barriers, 
difficulties in staffing and managing foreign operations, difficulties in       
protecting intellectual property rights, longer payment cycles, problems in     
collecting accounts receivable, political instability, fluctuations in currency 
exchange rates, implementation of foreign exchange controls and potentially     
adverse tax consequences. There can be no assurance that one or more of such    
factors will not have a material adverse effect on the Company's future         
international operations and, consequently, on the Company's business, financial
condition and results of operations. See "Business -- Strategy" and "-- Sales   
and Marketing."                                                                 

MEMBERSHIP PROGRAM INDUSTRY; NEGATIVE IMPACT OF COMPETING INDUSTRIES            

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

FUTURE CAPITAL NEEDS                                                            

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

RELIANCE ON COMPUTER AND COMMUNICATIONS SYSTEMS; TECHNOLOGY RISKS               

The Company's business is highly dependent on its computer and        
telecommunications systems and any temporary or permanent loss of either system,
for whatever reason, could have a material adverse effect on the Company's      
business, financial condition and results of operations. In addition, the       

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technologies on which the Company is dependent to compete effectively and meet  
its clients' needs are rapidly evolving and in many instances are characterized 
by short product life cycles or innovation. As a result, the Company is         
dependent on ongoing, significant investment in advanced computer and           
telecommunications technology, including automated call distributors and digital
switches, and its ability to anticipate and adapt to technological shifts. There
can be no assurance that the Company will be successful in anticipating or      
adapting to technological changes or in selecting and developing new and        
enhanced technology on a timely basis. See "Business -- Technology."            

DEPENDENCE ON TELEPHONE SERVICE                                                 

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

DEPENDENCE ON KEY PERSONNEL                                                     

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

GOVERNMENT REGULATION; ADVERSE PUBLICITY                                        

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

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noncompliance and unfair dealing. Any such publicity is potentially damaging to 
the Company's reputation, its client relationships and consumer acceptance and  
loyalty. See "Business -- Government Regulation."                               

   The Company believes that its Countrywide Dental Program currently is not
considered to constitute an insurance program either by Federal or any state    
insurance regulatory authority where it is offered. If this program were in the 
future to be viewed by a Federal or any state insurance regulatory authority as 
an insurance program, this would subject the Company to the regulatory authority
of such Federal or state insurance authority. The insurance industry currently  
is one of the most heavily regulated industries in the United States. In        
addition, the program may be subject to licensing requirements in certain       
states. In one state, the Company was required to suspend its offering of the   
program until it retained a licensed dentists' network to provide services. The 
subjection of the Company to such regulatory authority would significantly      
increase the Company's costs associated with regulatory compliance and          
potentially cause the Company to terminate its Countrywide Dental Program in    
particular states, either of which would materially adversely affect the        
Company's business, financial condition and results of operations. There can be 
no assurance that the Company will not in the future become subject to          
regulatory authority by the Federal or any state government as the result of its
Countrywide Dental Program. See "Business -- Membership Service Programs" and   
"-- Government Regulation."                                                     

NO PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE                            

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

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS                            

     Sales of substantial amounts of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common   
Stock. Upon closing of this offering, based upon the number of shares           
outstanding at June 30, 1996 and assuming no exercise after June 30, 1996 of    
outstanding stock options or warrants, there will be 14,550,177 shares of Common
Stock of the Company outstanding. Of these shares, the 2,700,000 shares offered 
hereby (3,105,000 shares if the Underwriters' over-allotment option is exercised
in full) and 4,046 shares will be freely tradeable without restriction or       
further registration under the Securities Act of 1933, as amended (the          
"Securities Act"), unless purchased by "affiliates" of the Company, as that term
is defined in Rule 144 ("Rule 144") under the Securities Act ("Affiliates"). The
remaining 11,846,131 shares of Common Stock are deemed "restricted securities"  
as that term is defined in Rule 144. Of the restricted securities, 11,838,745   
shares of Common Stock are subject to certain lock-up agreements (the "Lock-Up  
Agreements"). See "Underwriting." Approximately 3,852 shares of Common Stock,   
which are not subject to Lock-Up Agreements, will be eligible for sale in the   
public market in accordance with Rule 144 or Rule 701 under the Securities Act  
beginning 90 days after the date of this Prospectus. Upon expiration of the     
Lock-Up Agreements 181 days after the date of this Prospectus (April 17, 1997), 
approximately 9,576,370 additional shares of Common Stock will be available for 
sale in the public market, subject to the provisions of Rule 144 under the      
Securities Act. The remaining 2,265,909 shares will be eligible for sale        
thereafter upon expiration of their respective holding periods under Rule 144.  
In addition, as of June 30, 1996, there were outstanding stock options to       
purchase 1,277,762 shares, and on July 1, 1996, additional stock options to     
purchase 310,140 shares were granted. Of such shares subject to outstanding     
stock options: (i) 90 days following the date of this Prospectus, 27,000 shares 

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subject to exercisable stock options, if exercised, will be eligible for sale   
pursuant to Rule 701; (ii) upon expiration of the Lock-up Agreements 181 days   
after the date of this Prospectus (April 17, 1997), 465,120 additional shares   
subject to exercisable stock options, if exercised, will be eligible for sale   
pursuant to Rule 701; and (iii) the remaining shares subject to stock options   
will be eligible for sale thereafter upon vesting and exercise. Such shares may 
also be sold pursuant to an effective registration statement, if any, under the 
Securities Act, registering such shares for resale. As of June 30, 1996 there   
were outstanding warrants to purchase 384,287 shares of Common Stock. Of these  
warrants, warrants to purchase 128,166 shares contain net exercise provisions.  
Accordingly, any shares issued upon net exercise will be eligible for sale upon 
expiration of the Lock-Up Agreements, subject to the requirements of Rule 144.  
The 256,121 shares issuable upon exercise of the remaining warrants, which do   
not contain net exercise provisions, will be eligible for sale upon expiration  
of their respective holding periods under Rule 144 from the date of their       
respective exercise. See "Shares Eligible for Future Sale." In addition, after  
this offering, the holders of approximately 9,253,584 shares of Common Stock and
warrants to purchase an aggregate of 384,287 shares of Common Stock will be     
entitled to certain demand and piggyback rights with respect to registration of 
such shares under the Securities Act. Registration of such shares under the     
Securities Act would result in such shares becoming freely tradeable without    
restriction under the Securities Act (except for shares purchased by Affiliates)
immediately upon the effectiveness of such registration. If such holders, by    
exercising their demand registration rights, cause a large number of securities 
to be registered and sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. If the Company were  
to include in a Company initiated registration such shares pursuant to the      
exercise of piggyback registration rights, such sales may have an adverse effect
on the Company's ability to raise additional capital. See "Description of       
Capital Stock -- Registration Rights."                                          

CONTROL BY DIRECTORS AND OFFICERS                                               

    Upon completion of this offering, the Company's officers and directors and
their affiliates will beneficially own approximately 45.3% of the Company's     
outstanding Common Stock. These stockholders, if acting together, would have the
ability to significantly influence the election of the Company's directors and  
also may have the ability to determine the outcome of corporate actions         
requiring stockholder approval. This concentration of ownership also may have   
the effect of delaying or preventing a change in control of the Company. See    
"Management" and "Principal and Selling Stockholders."                          

MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS                   

 Excluding approximately $2.5 million designated to redeem the Company's
Series E and F Preferred Stock, the Company has not designated any specific use 
for the net proceeds from the sale of Common Stock described in this Prospectus.
Rather, the Company expects to use the net proceeds for general corporate       
purposes, including working capital. Consequently, the Board of Directors and   
management of the Company will have significant discretion in applying the net  
proceeds of this offering. See "Use of Proceeds."                               

ANTI-TAKEOVER PROVISIONS                                                        

The Company's Restated Certificate of Incorporation (the "Charter")   
requires that any action required or permitted to be taken by stockholders of   
the Company must be effected at a duly called annual or special meeting of      
stockholders and may not be effected by any consent in writing, and requires    
reasonable advance notice by a stockholder of a proposal or director nomination 
which such stockholder desires to present at any annual or special meeting of   
stockholders. Special meetings of stockholders may be called only by the        
Chairman of the Board, the Chief Executive Officer or, if none, the President of
the Company or by the Board of Directors. The Charter provides for a classified 
Board of Directors, and members of the Board of Directors may be removed only   
for cause upon the affirmative vote of holders of at least two-thirds of the    
shares of capital stock of the Company entitled to vote. In addition, shares of 
the Company's Preferred Stock may be issued in the future without further       
stockholder approval and upon such terms and conditions, and having such rights,
privileges                                                                      

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and preferences, as the Board of Directors may determine. The rights of the     
holders of Common Stock will be subject to, and may be adversely affected by,   
the rights of any holders of Preferred Stock that may be issued in the future.  
The Company has no present plans to issue any shares of Preferred Stock. In     
addition, the Company is subject to the anti-takeover provisions of Section 203 
of the Delaware General Corporation Law which prohibit the Company from engaging
in a "business combination" with an "interested stockholder" for a period of    
three years after the date of the transaction in which the person became an     
interested stockholder, unless the business combination is approved in a        
prescribed manner. These provisions, and other provisions of the Charter, may   
have the effect of deterring hostile takeovers or delaying or preventing changes
in control or management of the Company, including transactions in which        
stockholders might otherwise receive a premium for their shares over then       
current market prices. In addition, these provisions may limit the ability of   
stockholders to approve transactions that they may deem to be in their best     
interests. See "Description of Capital Stock -- Delaware Law and Certain Charter
and By-Law Provisions."                                                         

DILUTION                                                                        

Purchasers of shares of Common Stock in this offering will suffer an  
immediate and substantial dilution in the net tangible book value per share of  
the Common Stock of $15.72 from the initial public offering price. To the extent
that outstanding options to purchase the Company's Common stock are exercised,  
there will be further dilution. See "Dilution."                                 

LACK OF DIVIDENDS                                                               

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

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USE OF PROCEEDS 

  The net proceeds to the Company from the sale of the 2,400,000 shares of
Common Stock offered by the Company (after deducting underwriting discounts and 
commissions and estimated offering expenses) will be approximately $37.0        
million. The Company will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders.                                                    

     Approximately $2.5 million of the estimated net proceeds will be applied to
redeem all outstanding shares of Series E and Series F Preferred Stock,         
including approximately $537,000 in accrued dividends. The remaining proceeds   
will be used for general corporate purposes, including acquisition of new       
members, program development, capital expenditures and working capital. Of the  
approximately $34.5 million of net proceeds available to it after redemption of 
the Series E and Series F Preferred Stock, the Company anticipates that, over   
the next two fiscal years, approximately $15.0 million will be expended on new  
program development and capital expenditures such as computer and               
telecommunications equipment, software and other like property, and the         
remainder of the proceeds will be allocated, first, to fund, if necessary, the  
anticipated continuation of the Company's net losses in this period and future  
periods, and second, the remaining balance, if any, to fund additional capital  
expenditures for the acquisition of businesses, services and technologies that  
are complementary to those of the Company, or for other corporate purposes. The 
Company presently has no commitments or understandings for any such             
acquisitions, and is not presently engaged in any discussions or negotiations   
for any such acquisitions, and no portion of the net proceeds has been allocated
for any specific acquisition. Pending such uses, the Company intends to invest  
the net proceeds from this offering in short-term interest-bearing securities.  

DIVIDEND POLICY 

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

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CAPITALIZATION

  The following table sets forth the capitalization of the Company at June
30, 1996 on (i) an actual basis, (ii) a pro forma basis to give effect to the   
conversion of all outstanding shares of the Company's Class A Common Stock and  
Series A, Series B, Series C, Series D and Series H Preferred Stock into an     
aggregate of 12,062,239 shares of Common Stock upon the closing of this         
offering, and (iii) a pro forma as adjusted basis to reflect the issuance and   
sale by the Company of 2,400,000 shares of Common Stock offered hereby at the   
initial public offering price of $17.00 per share, after deducting the          
underwriting discounts and commissions and estimated offering expenses, the     
issuance of 3,533 shares of Common Stock pursuant to the exercise of a warrant  
by a Selling Stockholder and the application of the net proceeds therefrom,     
including the redemption of all outstanding shares of the Company's Series E and
Series F Preferred Stock upon the closing of this offering. See "Use of         
Proceeds." This table should be read in conjunction with the Company's          
Consolidated Financial Statements and the Notes thereto included elsewhere in   
this Prospectus.                                                                

                                                        [Enlarge/Download Table]

                                                                        JUNE 30, 1996             
                                                           ---------------------------------------
                                                                                        PRO FORMA 
                                                             ACTUAL       PRO FORMA    AS ADJUSTED
                                                           -----------   -----------   -----------
                                                                       (IN THOUSANDS)             
                                                                                                  
Long-term obligations....................................   $   1,089     $   1,089     $   1,089 
Redeemable Preferred Stock, $0.01 par value; actual:                                              
  978,226 shares authorized, 978,226 shares issued and                                            
  outstanding; pro forma: 978,226 shares authorized,                                              
  80,536 shares issued and outstanding; pro forma as                                              
  adjusted: no shares authorized, issued and                                                      
  outstanding ...........................................      20,487         1,949            -- 
Total stockholders' equity (deficit)(1):                                                          
  Preferred Stock, $0.01 par value; actual and pro forma:                                         
  no shares authorized, issued and outstanding; pro forma                                         
  as adjusted: 1,000,000 shares authorized, no shares                                             
  issued and outstanding.................................          --            --            -- 
  Common Stock, $0.01 par value; 40,000,000 shares                                                
  authorized; actual: 5,857,105 shares issued and                                                 
  outstanding; pro forma: 12,320,474 shares issued and                                            
  outstanding; pro forma as adjusted: 14,724,007 shares                                           
  issued and outstanding.................................          59           123           147 
     Additional paid-in-capital..........................       3,602        22,076        59,103 
     Deferred compensation...............................      (1,400)       (1,400)       (1,400)
     Accumulated deficit.................................     (38,320)      (38,320)      (38,857)
     Treasury Stock, 173,830 shares at cost..............        (273)         (273)         (273)
                                                             --------      --------      -------- 
       Total stockholders' equity (deficit)..............     (36,332)      (17,794)       18,720 
                                                             --------      --------      -------- 
          Total capitalization (deficit).................   $ (14,756)    $ (14,756)    $  19,809 
                                                             ========      ========      ======== 

---------------                                                                 
(1) Excludes 1,277,762 shares of Common Stock issuable pursuant to stock options
 outstanding at June 30, 1996 (of which options to purchase 378,180 shares
 were exercisable) at a weighted average exercise price of $2.62 per share
and 384,287 shares of Class A Common Stock issuable upon exercise of    
warrants outstanding at June 30, 1996 (all of which warrants were       
  exercisable) at a weighted average exercise price of $1.24 per share. Also
  excludes 310,140 shares of Common Stock issuable pursuant to stock options
granted on July 1, 1996 (none of which were exercisable) at an exercise 
price of $8.00 per share. See "Management -- Stock Plans." Also excludes
  129,600 shares of Common Stock that may be granted to an executive officer
of the Company upon achievement of certain performance goals prior to   
 December 31, 1996. All of such options will be exercisable at an exercise
   price of $2.78 per share and will vest ratably over a four-year period. See
"Management -- Executive Compensation."                                 

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DILUTION

  The pro forma deficit in net tangible book value of the Company's Common
Stock as of June 30, 1996, was approximately $18,459,000, or $1.52 per share of 
Common Stock. Pro forma net tangible book value per share of Common Stock       
represents the amount of tangible assets (total assets less intangible assets)  
of the Company reduced by the Company's total liabilities and the redemption    
value of the Series E and Series F preferred stock, divided by the pro forma    
number of shares of Common Stock outstanding assuming conversion of all         
outstanding shares of Class A Common Stock and convertible preferred stock.     
After giving effect to the sale by the Company of 2,400,000 shares of Common    
Stock offered by the Company hereby (at the initial public offering price of    
$17.00 per share) and receipt of the net proceeds therefrom, the net tangible   
book value of the Company at June 30, 1996 would have been approximately        
$18,592,000, or $1.28 per share. This represents an immediate increase in pro   
forma net tangible book value of $2.80 per share to existing stockholders and an
immediate dilution of $15.72 per share to new investors purchasing shares in    
this offering. The following table illustrates the per share dilution:          

                                                                [Download Table]
                                                                                
Initial public offering price per share..................               $17.00  
  Pro forma deficit in net tangible book value per share                        
     as of June 30, 1996.................................  $  (1.52)            
  Increase per share attributable to new investors.......      2.80             
                                                           --------             
Pro forma net tangible book value per share after                               
  offering...............................................                 1.28  
                                                                        ------- 
                                                                             -  
Dilution per share to new investors......................               $15.72  
                                                                        ========

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

                                                        [Enlarge/Download Table]

                                     SHARES PURCHASED       TOTAL CONSIDERATION                 
                                  ----------------------  -----------------------  AVERAGE PRICE
                                    NUMBER       PERCENT    AMOUNT        PERCENT    PER SHARE  
                                  ----------     -------  -----------     -------  -------------
                                                                                                
Existing stockholders(1)......... 12,150,177       83.5%  $18,780,943       31.5%     $  1.55   
New investors(1).................  2,400,000       16.5    40,800,000       68.5      $ 17.00   
                                     -------        ---      --------        ---                
          Total.................. 14,550,177      100.0%  $59,580,943      100.0%               
                                     =======        ===      ========        ===                

---------------                                                                 
(1) Sales by the Selling Stockholders in this offering will cause the number of 
 shares held by existing stockholders as of June 30, 1996 to be reduced to
11,850,177 shares or 81.4% of the total number of shares of Common Stock
    outstanding after this offering, and will increase the number of shares held
by new investors to 2,700,000 or 18.6% of the total number of shares of 
Common Stock outstanding after this offering. See "Principal and Selling
Stockholders."                                                          

   The foregoing table assumes no exercise after June 30, 1996 of options or
warrants to purchase shares of Common Stock outstanding at the date of this     
Prospectus. As of June 30, 1996, there were options outstanding to purchase an  
aggregate of 1,277,762 shares of Common Stock at a weighted average exercise    
price of $2.62 per share, and warrants outstanding to purchase an aggregate of  
384,287 shares of Common Stock at a weighted average exercise price of $1.24 per
share. In addition, options to purchase 310,140 shares of Common Stock, at an   
exercise price of $8.00 per share, were granted on July 1, 1996. To the extent  
that outstanding options or warrants are exercised, there will be further       
dilution to new investors. See "Management -- Stock Option Plans." The foregoing
table also excludes 129,600 shares of Common Stock issuable upon exercise of    
options that may be granted to an executive officer of the Company upon         
achievement of certain performance goals prior to December 31, 1996. All of such
options will be exercisable at an exercise price of $2.78 per share and will    
vest ratably over a four-year vesting period. See "Management -- Executive      
Compensation."                                                                  

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SELECTED CONSOLIDATED FINANCIAL INFORMATION 

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

                                                        [Enlarge/Download Table]

                                                          YEAR ENDED JUNE 30,                     
                                       ---------------------------------------------------------- 
                                        1992         1993         1994         1995        1996   
                                       -------     --------     --------     --------     ------- 
                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)                      
                                                                                                  
CONSOLIDATED STATEMENTS OF                                                                        
  OPERATIONS DATA:                                                                                
Revenues.............................. $ 9,414     $ 17,269     $ 25,830     $ 41,547     $57,012 
Total expenses........................  13,879       21,527       31,846       52,279      62,259 
                                       -------     --------     --------     --------     ------- 
Net loss.............................. $(4,465)    $ (4,258)    $ (6,016)    $(10,732)    $(5,247)
                                       =======     ========     ========     ========     ======= 
Pro forma net loss per share..........                                                    $ (0.42)
                                                                                          ======= 
Pro forma weighted average common and                                                             
  common equivalent shares                                                                        
  outstanding.........................                                                     12,741 
                                                                                          ======= 

                                                        [Enlarge/Download Table]

                                                                JUNE 30,                          
                                       ---------------------------------------------------------- 
                                        1992         1993         1994         1995        1996   
                                       -------     --------     --------     --------     ------- 
                                       (IN THOUSANDS)                                             
                                                                                                  
CONSOLIDATED BALANCE SHEET DATA:                                                                  
Cash and cash equivalents............. $   463     $  1,017     $  2,566     $  5,323     $ 4,312 
Working capital (deficit).............  (2,860)      (4,605)     (11,065)     (13,410)    (18,977)
Total assets..........................  11,206       13,545       23,823       29,726      41,927 
Long-term obligations.................   2,863        4,338        3,731        8,065       1,089 
Redeemable preferred stock............   4,573        5,216        6,096       10,926      20,487 
Stockholders' equity (deficit)........  (8,841)     (12,737)     (18,627)     (30,367)    (36,332)

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

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

OVERVIEW                                                                        

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

 The Company divides its memberships into two categories, individual and
wholesale. Individual memberships consist of members who pay fees directly to   
the Company. The Company pays the marketing costs to solicit individual members,
primarily using direct marketing techniques and customer lists provided by      
client organizations. In the case of wholesale memberships, the Company sells   
the membership service program to its client organization. The organization then
either re-sells the program to its customers or provides the program to them as 
a benefit. In either wholesale case, the client is responsible for paying       
periodic membership fees to the Company and incurs substantially all marketing  
costs to solicit members. Wholesale programs substantially reduce the cost for  
the Company to acquire new members, which results in higher profit margins for  
the Company. Accordingly, the Company provides membership in the service program
for fees which are less than the Company's standard individual membership fees  
for the program. Notwithstanding the lower fees, in the Company's limited       
experience, wholesale programs are generally more profitable than individual    
member programs. To date, substantially all of the Company's revenues have been 
from individual memberships.                                                    

The Company derives its revenues principally from annually renewable  
membership fees, although some memberships are available on a monthly basis. The
membership fees for the Company's programs are generally billed to subscribers  
via their credit card accounts and remitted to the Company by a credit card     
processor. Upon receipt, the Company then pays royalties to its client. In      
certain cases, membership fees are remitted to the Company by the credit card   
issuer client, less royalties due the client. If the Company refunds a          
membership fee, the Company is entitled to receive a refund of the royalty paid 
in connection with that membership fee. Annual memberships are renewed          
automatically and continue in effect unless canceled by the member. Of the      
members of the Company's programs who did not cancel in their initial year, such
members, on average, have been members for more than two years. Revenues are    
presented net of expected cancellations. Cancellations represented 46.2% of     
gross revenues accrued in 1996, 47.5% in 1995 and 43.7% in 1994. Cancellation   
percentages are calculated by dividing all amounts refunded to canceling members
in the applicable fiscal year by all revenues accrued with respect to that      
fiscal year, without regard to whether such revenues have been fully recognized 
in that year.                                                                   

   The Company receives full payment of annual fees at or near the beginning
of the applicable period, but recognizes revenue with respect to the payment    
ratably over the membership period. Similarly, the costs associated with        
soliciting each member, as well as the cost of royalties, printing and          

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mailing of membership materials, are amortized ratably over the same period.    
Annual membership fees for a particular program may vary based on the results of
the Company's market testing of the customer groups of various clients.         

     In June 1996, the Company recorded unearned compensation of $1.4 million in
conjunction with the grant of options to purchase 360,000 shares of Common      
Stock. The non-cash compensation expense for the options will be recognized     
quarterly over four years, beginning with the quarter ended September 30, 1996. 

The Company generally incurs losses and negative cash flow during the 
initial year of an individual membership program, as compared to renewal years, 
due primarily to higher marketing costs associated with initial member          
procurement. In addition, the Company experiences a higher percentage of        
cancellations during the initial membership period as compared to renewal       
periods. During the course of an initial annual membership term or renewal term,
a member may cancel a membership in the program, generally for a complete refund
of the membership fee paid for that period. Accordingly, the profitability of   
each of the Company's programs depends on recurring and sustained membership    
renewals. The percentage of the Company's individual membership revenues from   
renewing members increased from approximately 35.9% in 1994 to approximately    
41.4% in 1996. The Company has focused its resources on developing, introducing 
and expanding innovative new programs, which reflects the Company's strategy of 
diversifying its revenue base. Primarily as a result of this effort, the Company
has experienced net losses since its inception. The Company expects these net   
losses to continue at least through its current fiscal year.                    

The Company routinely reviews all renewal rates and has not seen any  
material change over the last fiscal year in the average renewal rate. Renewal  
rates are calculated by dividing the total number of renewing members not       
requesting a refund during their renewal year by the total number of members up 
for renewal. Based on the Company's analysis of members who began memberships   
during the period from fiscal 1990 through fiscal 1994, on average, through     
fiscal 1996, approximately half of the members who did not cancel in their first
year renewed for a second year and did not cancel during that year. Of that     
smaller, renewing group, a slightly higher percentage chose to renew again after
the second year of membership and did not cancel during that year. In subsequent
years, the proportion of renewing members relative to total members in a program
continued to increase. MemberWorks believes that pricing, innovative programs   
and effective marketing are necessary to attract members to programs both on    
program introduction and in subsequent years. If more members are attracted to a
program initially, there are more members available to renew from year-to-year. 
Renewal rates, however, are inherently uncertain and are subject to several     
factors, many of which are outside of the Company's control, including changing 
member preferences, competitive price pressures, general economic conditions,   
customer satisfaction and credit card holder turnover. There can be no assurance
that a particular program will generate sufficient renewals to become profitable
or that memberships, if renewed, will not be canceled. Failure of one or more of
the Company's programs to generate recurring and sustained membership renewals  
would have a material adverse effect on the Company's business, financial       
condition and results of operations.                                            

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

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

                                                        [Enlarge/Download Table]

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

YEARS ENDED JUNE 30, 1996 AND 1995                                              

 Revenues.  Revenues increased 37.2% to $57.0 million in 1996 from $41.5
million in 1995 due to an increase in the Company's membership base and an      
increase in the weighted average program fee. The Company's membership base     
increased to 1.5 million members at June 30, 1996 from 1.1 million members at   
June 30, 1995. The increase in the Company's membership base was due to an      
increase in the members enrolled in existing programs and the introduction in   
1996 of three new programs. The increase in the weighted average program fee was
due to an increase in the percentage of members enrolled in programs with higher
fees and an increase in the initial and renewal fees for certain programs.      
Revenues from renewals increased to $23.3 million in 1996 from $15.0 million in 
1995. As a percentage of individual membership revenues, these amounts          
represented 41.4% in 1996 and 37.1% in 1995.                                    

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

Operating Expenses.  Operating expenses consist of costs incurred in  
servicing the Company's membership base, including personnel, telephone and     
computer processing costs, as well as expenses associated with the production   
and distribution of membership information kits. Operating expenses increased   
19.8% to $11.6 million in 1996 from $9.7 million in 1995. The increase was due  
principally to additional costs incurred to support the growth in the membership
base, partially offset by the absence of costs associated with the Company's    
discount coupon business, which was discontinued in 1995. As a percentage of    
revenues, operating expenses decreased to 20.4% in 1996 from 23.4% in 1995.     
Excluding expenses associated with the discontinued discount coupon business,   
operating expenses as a percentage of revenues in 1995 would have been 20.7%.   
The decrease as a percentage of revenues primarily resulted from increased      
efficiencies in the Company's membership services operations. The Company       
commenced operations at its new membership service facility in the quarter ended
June 30, 1996 and, primarily as a result, the Company expects operating expenses
to increase as a percentage of revenues in 1997.                                

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

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increase in the weighted average program fee and an increase in renewal revenues
as a percentage of total revenues.                                              

In addition to marketing expenses, the Company also monitors overall  
membership solicitation and other deferred costs. Those costs include both      
marketing expenses and costs associated with the production and distribution of 
membership information kits, and are amortized ratably over the membership      
period. Membership solicitation and other deferred costs increased 17.1% to     
$47.0 million in 1996 from $40.1 million in 1995 primarily due to increased     
marketing efforts.                                                              

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

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

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

YEARS ENDED JUNE 30, 1995 AND 1994                                              

 Revenues.  Revenues increased 60.8% to $41.5 million in 1995 from $25.8
million in 1994 due to an increase in the Company's membership base and an      
increase in the weighted average program fee. The Company's membership base     
increased to 1.1 million members at June 30, 1995 from 820,000 members at June  
30, 1994. The increase in the Company's membership base was due to an increase  
in the members enrolled in existing programs and the continued roll-out of a new
program introduced in 1994. The increase in the weighted average program fee was
due to an increase in the percentage of members enrolled in programs with higher
fees and an increase in the initial and renewal fees for certain programs.      
Revenues from renewals increased to $15.0 million in 1995 from $9.1 million in  
1994. As a percentage of individual membership revenues, these amounts          
represented 37.1% in 1995 and 35.9% in 1994.                                    

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

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

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revenues increased to 21.8% in 1995 from 20.7% in 1994. The increase as a       
percentage of revenues primarily resulted from decreased efficiency experienced 
in membership services operations which was necessary to support the Company's  
rapid revenue growth.                                                           

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

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

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

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

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

SELECTED QUARTERLY RESULTS OF OPERATIONS                                        

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

                                                        [Enlarge/Download Table]

                                                                       QUARTER ENDED                                             
                           ----------------------------------------------------------------------------------------------------- 
                                           FISCAL YEAR 1995                                     FISCAL YEAR 1996                 
                           ------------------------------------------------     ------------------------------------------------ 
                           SEPT. 30,     DEC. 31,     MAR. 31,     JUNE 30,     SEPT. 30,     DEC. 31,     MAR. 31,     JUNE 30, 
                             1994          1994         1995         1995         1995          1995         1996         1996   
                           ---------     --------     --------     --------     ---------     --------     --------     -------- 
                                                                                                                                 
                                                          (IN THOUSANDS, EXCEPT PERCENTAGE DATA)                                 
STATEMENT OF OPERATIONS DATA:                                                                                                    
Revenues..................  $ 8,988      $ 9,884      $10,948      $11,727       $12,679      $14,089      $14,778      $15,466  
                            -------      -------      -------      -------       -------      -------      -------      -------  
Expenses:                                                                                                                        
  Operating...............    2,119        3,024        2,126        2,433         2,488        2,893        2,962        3,280  
  Marketing...............    7,409        7,948        8,571        8,871         9,127        9,626        9,579       10,078  
  General and                                                                                                                    
    administrative........    2,129        2,542        2,083        2,131         2,060        3,229        3,090        3,537  
  Interest expense                                                                                                               
    (income), net.........      181          237          232          243           300          (18 )          3           25  
                            -------      -------      -------      -------       -------      -------      -------      -------  
Total expenses............   11,838       13,751       13,012       13,678        13,975       15,730       15,634       16,920  
                            -------      -------      -------      -------       -------      -------      -------      -------  
Net loss..................  $(2,850)     $(3,867 )    $(2,064 )    $(1,951 )     $(1,296)     $(1,641 )    $  (856 )    $(1,454 )
                            =======      =======      =======      =======       =======      =======      =======      =======  

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                                                        [Enlarge/Download Table]

                                                                       QUARTER ENDED                                              
                           -----------------------------------------------------------------------------------------------------  
                                           FISCAL YEAR 1995                                     FISCAL YEAR 1996                  
                           ------------------------------------------------     ------------------------------------------------  
                           SEPT. 30,     DEC. 31,     MAR. 31,     JUNE 30,     SEPT. 30,     DEC. 31,     MAR. 31,     JUNE 30,  
                             1994          1994         1995         1995         1995          1995         1996         1996    
                           ---------     --------     --------     --------     ---------     --------     --------     --------  
                                                                                                                                  
PERCENTAGE OF TOTAL REVENUES:                                                                                                     
Revenues..................    100.0%       100.0 %      100.0 %      100.0 %       100.0%       100.0 %      100.0 %      100.0 % 
                           ---------     --------     --------     --------     ---------     --------     --------     --------  
Expenses:                                                                                                                         
  Operating...............     23.6         30.6         19.4         20.7          19.6         20.5         20.0         21.2   
  Marketing...............     82.4         80.4         78.3         75.6          72.0         68.3         64.8         65.2   
  General and                                                                                                                     
    administrative........     23.7         25.7         19.0         18.2          16.2         22.9         20.9         22.9   
  Interest expense                                                                                                                
    (income), net.........      2.0          2.4          2.2          2.1           2.4         (0.1 )        0.1          0.1   
                           ---------     --------     --------     --------     ---------     --------     --------     --------  
Total expenses............    131.7        139.1        118.9        116.6         110.2        111.6        105.8        109.4   
                           ---------     --------     --------     --------     ---------     --------     --------     --------  
Net loss..................    (31.7)%      (39.1 )%     (18.9 )%     (16.6 )%      (10.2)%      (11.6 )%      (5.8 )%      (9.4 )%
                           ========      ========     ========     ========     ========      ========     ========     ========  

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

 In addition, the Company is required to grant options to purchase up to
129,600 shares of Common Stock to an executive officer upon achievement of      
certain performance goals, which options shall be exercisable at an exercise    
price of $2.78 per share. To the extent that such options are granted, the      
Company will incur compensation expense ratably over the four-year vesting      
period in an aggregate amount equal to the number of options granted multiplied 
by the difference between the exercise price and the trading price of the       
Company's Common Stock on the date of the grant. The Company's agreement to     
grant such options terminates on December 31, 1996.                             

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

The Company's revenue has increased in each of the quarters presented 
above. These increases have resulted primarily from an increase in the Company's
overall membership base. Operating                                              

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

LIQUIDITY AND CAPITAL RESOURCES                                                 

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

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

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

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

    The Company currently has both negative working capital and an accumulated
deficit due to its history of losses. Because of ongoing costs in connection    
with obtaining new members, the Company expects to incur operating and net      
losses at least through fiscal 1997. The Company intends to use its existing    
cash balances, the net proceeds of this offering, funds generated from          
operations and borrowings available under the Company's bank credit agreement to
address its cash requirements during the anticipated continuation of its net    
losses. The Company believes that as its percentage of revenues attributable to 
renewal members increases, such increase will help to generate net cash from    
operating activities, and thereby minimize its need for financing from outside  
sources. The Company                                                            

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believes that the net proceeds from this offering, together with its cash       
balances following completion of the offering, funds generated from operations, 
and borrowings available under the Company's bank credit agreement, will be     
sufficient to meets its capital requirements for at least the next 18 months. Of
the approximately $34.5 million of net proceeds available to it after redemption
of the Series E and Series F Preferred Stock, the Company anticipates that, over
the next two fiscal years, approximately $15.0 million will be expended on new  
program development and capital expenditures such as computer and               
telecommunications equipment, software and other like property, and the         
remainder of the proceeds will be allocated, first, to fund, if necessary, the  
anticipated continuation of the Company's net losses in this period and future  
periods, and second, the remaining balance, if any, to fund additional capital  
expenditures for the acquisition of businesses, services and technologies that  
are complementary to those of the Company, or for other corporate purposes.     

RECENTLY ISSUED ACCOUNTING STANDARDS                                            

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

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

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BUSINESS

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

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

INDUSTRY BACKGROUND                                                             

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

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

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

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

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THE MEMBERWORKS SOLUTION                                                        

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

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

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

STRATEGY                                                                        

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

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

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

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

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

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

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

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

MEMBERSHIP SERVICE PROGRAMS                                                     

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

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

                                                                [Download Table]

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

 In general, members subscribe for renewable one-year memberships in the
Company's programs. When consumers agree to enroll in a program, they generally 
receive a trial membership. During this time, the member may use the program's  
services without obligation, as outlined in a membership brochure received by   
mail along with a membership card and membership identification number. The     
brochure outlines in detail the benefits which the service offers and contains  
toll free numbers which may be called to access service benefits and            
information. In the event that a consumer elects not to participate in the      
service, he or she can call a toll free number during the trial period to cancel
the service without charge. Trial memberships are generally for a period of 30  
days and there are no conditions with respect to the ability of the consumer to 
terminate a trial membership. The Company does not record any revenue with      
respect to trial memberships.                                                   

    If the membership is not canceled during the trial period, the consumer is
charged the annual membership fee. In the event that the member does not cancel 
the membership after the initial membership term, he or she generally receives a
renewal kit in the mail in advance of each membership year and is charged for   
the succeeding year's membership fee. During the course of an initial annual    
membership term or renewal term, a member is free to cancel a membership in the 
program, generally for a complete refund of the membership fee for that period. 

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

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

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

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The Company's standard programs contain the following features:       

HealthTrends                                                                    

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

Benefits include:                                                     

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

Countrywide Dental Program                                                      

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

Benefits include:                                                     

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

Countrywide Dental and Health Program                                           

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

Travel Arrangements                                                             

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

Benefits include:                                                     

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

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Connections, Your source for entertainment values                               

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

Benefits include:                                                     

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

Official Sports Connection                                                      

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

Benefits include:                                                     

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

MoneyMaster                                                                     

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

Benefits include:                                                     

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

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Home PC Link                                                                    

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

Benefits include:                                                     

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

WHOLESALE PROGRAMS                                                              

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

MEMBER SERVICE                                                                  

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

TECHNOLOGY                                                                      

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

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

FULFILLMENT                                                                     

In most cases the products and services offered to members through the
Company's programs are provided directly to the members by independent vendors. 
The Company evaluates and engages only those vendors which can cost-effectively 
deliver high quality products and services. Vendors generally benefit by gaining
significant volume demand with minimal associated marketing expense.            
Accordingly, vendors gain access and marketing exposure to the Company's        
membership base and, pursuant to contractual arrangements with the Company,     
generally quote a discount price to gain access and marketing exposure to the   
Company's membership base. The Company receives no material payments from these 
vendors for rendering services to the Company's members and, in certain cases,  
the Company pays its vendors a fee based on the volume of members in the        
Company's program or based on other agreed upon factors. For example, the       
Company pays the travel agency which provides services to its members a fee     
based on the number of active members in the program, pays magazine publishers a
discounted price for magazines included as benefits in various programs and pays
fees to the service which responds to health program inquiries based on the     
number of active members in that program. The aggregate of all such fees paid by
the Company in fiscal 1996 was not material.                                    

     The Company's contracts with its vendors are generally for a one year term,
with subsequent one year renewal terms at the option of the Company. Vendors may
cancel contracts with the Company but, in most cases, only for cause and subject
to notice provisions to provide the Company time to locate a substitute vendor. 
Most vendor contracts are non-exclusive, but have requirements that the vendors 
maintain the confidentiality of the terms of the contract.                      

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

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

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SALES AND MARKETING                                                             

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

    The Company primarily offers its programs to consumers listed in databases
provided to it by clients. The Company's proprietary software and systems permit
it to accept this information from a client in electronic form. Marketing       
specialists at MemberWorks are then able to review, analyze and model the       
information on the database in order to design and implement an effective       
telemarketing program. In addition, the Company has recently begun to sell      
service programs on a wholesale basis. Under those programs, the Company does   
not pay for the marketing costs to solicit memberships. Instead, the client     
offering the memberships is responsible for marketing, usually with the         
assistance of the Company. In some cases, the client may provide wholesale      
memberships to its customer free of charge and pay the periodic membership fee  
to the Company for each customer membership. In other cases, the client may     
charge a reduced fee to its customer.                                           

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

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

DISTRIBUTION                                                                    

 The Company arranges with client financial institutions, retailers, oil
companies and other credit card issuers to market membership programs to such   
clients' individual account holders and customers. Clients generally receive    
royalties on initial and renewal memberships typically ranging between 15% and  
20% of annual membership fees. The Company's contracts with these clients       
typically grant the Company the right to continue providing membership services 
directly to such clients' individual account holders even if the client         
terminates the contract, provided that the client continues to receive its      
commission. Currently, the Company has 38 credit card issuer clients to whom it 
is obligated to pay royalties, including 12 of the top 20 issuers of bank credit
cards, four of the top five issuers of oil company credit cards and the leading 
issuer of retail company credit cards.                                          

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

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several of the Company's membership service programs are also available through 
home pages on the World Wide Web.                                               

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

   Approximately 61.3% of the Company's revenues for the year ended June 30,
1996 was attributable to members solicited from the customer lists provided by  
the following key clients: approximately 35.2% from customer lists provided by  
Sears, 15.6% from Associates and 10.5% from Capital One. These and other client 
relationships are pursuant to contracts which may be terminated by the client   
upon 30 to 90 days' notice without cause and without penalty. Upon such         
termination, the Company generally has the right to continue its relationship   
with the client's customers that have become program members for a specified    
period to substantially the same extent as prior to the termination, but may not
resolicit those members upon such member's cancellation or non-renewal of the   
member's membership. Approximately 75% of the revenue attributable to Sears for 
the year ended June 30, 1996 was generated pursuant to a contract which also    
provides that, upon termination of the agreement for default, Sears may prohibit
the Company from renewing memberships and otherwise cause the Company to        
terminate its relationship with existing members. Events that constitute default
include events outside the control of the Company, including acts and omissions 
by the Company's third-party vendors. There can be no assurance that one or more
of the Company's key or other clients will not terminate its relationship with  
the Company or that clients will provide additional customer lists to the       
Company for use in further marketing new or existing membership programs. In    
addition, the Company's agreement with Associates, representing approximately   
15.6% of the Company's revenues for the year ended June 30, 1996, is under      
renewal negotiations, and there can be no assurance that Associates will renew  
such agreement on favorable terms, if at all. If the agreement is terminated,   
the Company will have the right to continue to provide membership services      
directly to the client's individual account holders, provided that the Company  
continues to pay royalties to the client, but may not resolicit those members   
upon such members' cancellation or non-renewal of the memberships.              

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

   Client relationships generally take six months or more to develop and are
based in part on professional relationships and the reputation of the Company's 
management and marketing personnel. As a result, client relationships may be    
adversely affected by events beyond the Company's control, such as departures of
key personnel and alterations in personal relationships, and such clients may   
not be replaced on a timely basis, if at all.                                   

GOVERNMENT REGULATION                                                           

The primary means which the Company uses to market its programs is    
telemarketing. The telemarketing industry has become subject to an increasing   
amount of Federal and state regulation as well as general public scrutiny in the
past several years. The Federal Telephone Consumer Protection Act of 1991 limits
the hours during which telemarketers may call consumers and prohibits the use of

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

   The Company believes that its Countrywide Dental Program currently is not
considered to constitute an insurance program either by Federal or any state    
insurance regulatory authority where it is offered. If this program were in the 
future to be viewed by a Federal or any state insurance regulatory authority as 
an insurance program, this would subject the Company to the regulatory authority
of such Federal or state insurance authority. The insurance industry currently  
is one of the most heavily regulated industries in the United States. In        
addition, the program may be subject to licensing requirements in certain       
states. In one state, the Company was required to suspend its offering of the   
program until it retained a licensed dentists' network to provide services. The 
subjection of the Company to such regulatory authority would significantly      
increase the Company's costs associated with regulatory compliance and          
potentially cause the Company to terminate its Countrywide Dental Program in    
particular states, either of which would materially adversely affect the        
Company's business, financial condition and results of operations.              

COMPETITION                                                                     

   Competition in the membership services market for clients, such as credit
card issuers, is intense. Several of the Company's competitors offer membership 
programs which provide services similar to, or which directly compete with,     
those provided by the Company. Because contracts between clients and program    
providers are often exclusive with respect to a particular service, potential   
clients may be prohibited from contracting with the Company to promote a program
if the services provided by the Company's program are similar to, or merely     
overlap with, the services provided by an existing program of a competitor. Most
of the Company's clients provide, either directly or through third parties,     
programs offered by the Company's competitors, and the Company's agreement with 
Sears, its principal client, permits Sears to offer its customers programs that 
directly compete with those offered by the Company. Competition for new members 
is also intense, particularly as the market becomes saturated with customers who
are already members of competing programs. The Company's principal competitor is
CUC International Inc. ("CUC"). The Company's other competitors include large   
retailers, travel agencies, financial institutions and other organizations.     
There can be no assurance that the Company's competitors will not increase their
emphasis on programs similar to those offered by the Company and more directly  
compete with the Company, that new competitors will not enter the market, or    
that other businesses will not themselves introduce competing programs.         

   Many of the Company's current and prospective competitors, including CUC,
have substantially larger customer bases and greater financial and other        
resources than the Company. There can be no assurance that the Company's current
or potential competitors will not provide programs comparable                   

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or superior to those provided by the Company at lower membership prices or adapt
more quickly than the Company to evolving industry trends or changing market    
requirements. In addition, alliances among competitors may emerge and rapidly   
acquire significant market share. Increased competition may result in price     
reductions, reduced gross margins and loss of market share, any of which could  
materially adversely affect the Company's business, financial condition and     
results of operations. There can be no assurance that the Company will be able  
to compete effectively against current and future competitors.                  

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

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

EMPLOYEES                                                                       

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

FACILITIES                                                                      

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

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

                                                                [Download Table]

                    LOCATION                      SQUARE FOOTAGE   LEASE EXPIRATION 
------------------------------------------------  --------------  ------------------
                                                                                    
Stamford, CT....................................      18,650      March 14, 2006    
Omaha, NE.......................................      19,800      June 30, 2000     
Omaha, NE.......................................      11,000      December 31, 1997 
Omaha, NE.......................................      16,400      December 31, 2000 
Houston, TX.....................................      26,600      July 31, 2006     

LEGAL PROCEEDINGS                                                               

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

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     On June 29, 1995, Thomas J. St. Denis, a co-founder of the Company, filed a
complaint against the Company, Gary A. Johnson and Steven H. Levenherz, who are 
executive officers of the Company, in Stamford, Connecticut Superior Court,     
alleging various claims arising out of his termination on October 3, 1994 as    
Executive Vice President and Chief Operating Officer of the Company. Mr. St.    
Denis alleges wrongful termination, breach of fiduciary duty, fraudulent        
inducement and certain other claims arising out of alleged accounting           
irregularities in fiscal 1994. On September 13, 1996, the parties entered into  
an agreement settling the litigation and all related matters, whereby the       
litigation is stayed until such time as the settlement terms become effective   
upon the closing of this offering. Pursuant to the settlement agreement, (i) the
closing of this offering must occur on or prior to December 31, 1996; (ii) the  
Company will pay Mr. St. Denis $165,000, representing severance, bonus and legal
expenses, and allow Mr. St. Denis to participate in this offering, and (iii) the
parties will exchange a full mutual release and waiver of the claims related to 
the litigation. The fulfillment of the settlement terms will not have a material
impact on the Company's business, financial condition and results of operations.

  In June 1996, the Company received notice from a third party that "Money
Master" was a registered servicemark of such party and that the Company's use of
its MoneyMaster servicemark infringes such party's rights. The Company believes 
that its servicemark does not infringe such party's servicemark, but there can  
be no assurance that the Company's will prevail in its position on this matter. 
The Company has notified the other party of its position, but has not received a
response to that notification.                                                  

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS                                                

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

                                                                [Download Table]

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

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

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

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

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

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

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

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

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

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

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

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

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

BOARD COMMITTEES                                                                

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

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DIRECTOR COMPENSATION                                                           

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

LIMITATION OF LIABILITY AND INDEMNIFICATION                                     

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

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

     There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being     
sought, nor is the Company aware of any threatened litigation that may result in
claims for indemnification by any director, officer, employee or other agent.   

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EXECUTIVE COMPENSATION                                                          

Summary of Cash and Other Compensation                                

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

                                                        [Enlarge/Download Table]

                                                                                  LONG-TERM   
                                                                                 COMPENSATION 
                                                                                    AWARDS    
                                                                                 ------------ 
                                                                                  NUMBER OF   
                                                          ANNUAL COMPENSATION     SECURITIES  
                                                         ----------------------   UNDERLYING  
              NAME AND PRINCIPAL POSITION                 SALARY         BONUS     OPTIONS    
              ---------------------------                --------       -------  ------------ 
                                                                                              
Gary A. Johnson......................................... $203,881       $51,550     108,000   
  President and Chief Executive Officer                                                       
Dennis P. Walker........................................  197,802        40,378      36,000(1)
  Executive Vice President                                                                    
David Schachne..........................................  149,025        36,625      14,400   
  Senior Vice President -- Marketing/Operations                                               
Steven H. Levenherz.....................................  160,485        22,088      21,600   
  Senior Vice President -- Administration/Law                                                 

---------------                                                                 
(1) Mr. Walker entered into an agreement with the Company whereby the Company is
  required to grant options to purchase up to 144,000 shares of Common Stock
 to Mr. Walker for achievement of certain performance goals. Specifically,
  the Company will grant an option to purchase 14,400 shares of Common Stock
   for each new client, from a selected list of ten prospective large clients,
   he obtains for the Company prior to December 31, 1996. These options become
exercisable over a four-year period, one quarter of such options vesting
    each 12 months commencing on the last day of the first 12-month period after
  the date of grant, at an exercise price of $2.78 per share. In April 1996,
  Mr. Walker was granted an option to purchase 14,400 shares of Common Stock
pursuant to this agreement.                                             

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Option Grants                                                         

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

                                                        [Enlarge/Download Table]

                                          INDIVIDUAL GRANTS(1)                   POTENTIAL REALIZABLE 
                         ------------------------------------------------------    VALUE AT ASSUMED   
                         NUMBER OF    PERCENT OF TOTAL                           ANNUAL RATES OF STOCK
                         SECURITIES       OPTIONS                                 PRICE APPRECIATION  
                         UNDERLYING      GRANTED TO      EXERCISE                 FOR OPTION TERM(2)  
                          OPTIONS       EMPLOYEES IN     PRICE PER   EXPIRATION  ---------------------
          NAME            GRANTED       FISCAL YEAR      SHARE(3)       DATE        5%          10%   
          ----           ----------   ----------------   ---------   ----------  --------     --------
                                                                                                      
Gary A. Johnson.........   108,000          20.4%          $2.78       7/31/05   $188,670     $478,110
Dennis P. Walker........    21,600           4.1%           2.78       7/31/05     37,734       95,622
                            14,400(4)        2.7%           2.78       4/30/06     57,734      115,622
David Schachne..........    14,400           2.7%           2.78       7/31/03     19,100       45,744
Steven H. Levenherz.....    21,600           4.1%           2.78       7/31/03     28,650       68,616

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

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

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

(4) This option was granted pursuant to an agreement with the Company, whereby  
the Company will grant Mr. Walker an option to purchase 14,400 shares of
Common Stock for each new client, from a selected list of certain       
   prospective large clients, he obtains for the Company prior to December 31,
    1996. This option has an exercise price of $2.78 per share. See footnote (1)
to the table appearing in "-- Summary of Cash and Other Compensation."  

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Option Exercises and Holdings                                         

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

                                                        [Enlarge/Download Table]

                                                 SHARES OF COMMON STOCK                              
                                                 UNDERLYING UNEXERCISED       VALUE OF UNEXERCISED   
                                                       OPTIONS AT             IN-THE-MONEY OPTIONS   
                                                   FISCAL YEAR END(1)        AT FISCAL YEAR END(2)   
                                               --------------------------  --------------------------
                     NAME                      EXERCISABLE  UNEXERCISABLE  EXERCISABLE  UNEXERCISABLE
---------------------------------------------- -----------  -------------  -----------  -------------
                                                                                                     
Gary A. Johnson...............................    --           108,000      $  --         $ 563,760  
Dennis P. Walker(3)...........................    --            36,000         --           187,920  
David Schachne................................    64,800        46,800        420,675       272,285  
Steven H. Levenherz...........................   108,907        57,895        700,030       346,096  

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

(2) There was no public trading market for the Common Stock as of June 30, 1996.
Accordingly, these values have been calculated on the basis of the fair 
   market value of the Company's Common Stock of $8.00 at June 30, 1996, minus
the applicable per share exercise price.                                

(3) Of these shares, 14,400 are subject to an option which was granted pursuant 
   to an agreement with the Company, whereby the Company will grant Mr. Walker
an option to purchase 14,400 shares of Common Stock for each new client,
 from a selected list of certain prospective large clients, he obtains for
    the Company prior to December 31, 1996. This option has an exercise price of
  $2.78 per share. See footnote (1) to the table appearing in "-- Summary of
Cash and Other Compensation."                                           

STOCK PLANS                                                                     

Amended 1990 Stock Option Plan                                        

   The Company's Amended 1990 Employee Incentive Stock Option Plan ("Amended
1990 Stock Option Plan") was adopted by the Board of Directors and approved by  
the Company's stockholders in August 1990. The Amended 1990 Stock Option Plan   
provides for the grant of (i) "incentive stock options," within the meaning of  
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to   
employees and officers of the Company, and (ii) non-qualified stock options to  
employees, consultants, directors and officers of the Company. Up to 1,296,000  
shares of Common Stock are authorized for issuance under the Amended 1990 Stock 
Option Plan. On August 13, 1996, the Board of Directors voted that, effective   
upon the closing of this offering, no further options may be granted or issued  
under the Amended 1990 Stock Option Plan.                                       

Options granted under the Amended 1990 Stock Option Plan are not      
transferable by the optionholder except by will or by laws of descent and       
distribution. Generally, no incentive stock option may be exercised by an       
optionee under the Amended 1990 Stock Option Plan following termination of      
employment. Options granted under the Amended 1990 Stock Option Plan expire not 
more than ten years after the date of grant, except that options granted on or  
before December 31, 1995 expire on the eighth anniversary of the date of grant. 
Options granted under the Amended 1990 Stock Option Plan generally vest 25% on  
the one-year anniversary of the date of grant, and an additional 25% each year  
thereafter. Options to purchase 1,191,902 shares have been granted and are      
unexercised to date under the Amended 1990 Stock Option Plan.                   

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1995 Executive Officers' Stock Option Plan                            

In August 1995, the Company's Board of Directors approved the 1995    
Executive Officers' Stock Option Plan (the "Executive Officers' Plan"), which   
provides for the grant of options to purchase up to an aggregate of 360,000     
Shares of Common Stock of the Company to executive officers of the Company. The 
Executive Officers' Plan is administered by the Compensation Committee of the   
Board of Directors.                                                             

   Under the Executive Officers' Plan, each executive officer of the Company
is eligible to receive an option to purchase shares of Common Stock. The        
exercise price per share for all options granted under the Executive Officers'  
Plan must equal the fair market value of the Common Stock on the date of grant. 
The Executive Officers' Plan does not provide for any specific period over which
granted options vest. The term of each option is ten years from the date of     
grant. In addition, the Executive Officers' Plan authorizes the Compensation    
Committee to grant additional options to the Company's executive officers and to
determine the terms applicable to such options. Options may not be assigned or  
transferred except by will or by the laws of descent and distribution and are   
exercisable to the extent vested only while the optionee is serving as an       
executive officer of the Company or within one year after the optionee ceases to
serve as an executive officer of the Company. Options to purchase 252,000 shares
have been granted and are unexercised to date under the Executive Officers'     
Plan.                                                                           

1995 Non-Employee Directors' Stock Option Plan                        

In August 1995, the Company's Board of Directors adopted the 1995     
Non-Employee Director Stock Option Plan (the "Director Plan"), which provides   
for the grant of options to purchase a maximum of 180,000 shares of Common Stock
of the Company to non-employee directors of the Company. The Director Plan is   
administered by the Compensation Committee of the Board of Directors.           

  Under the Director Plan, each director of the Company who is not also an
employee or officer of the Company is eligible to receive an option to purchase 
shares of Common Stock on the date such person is first elected to the Board of 
Directors. The exercise price per share for all options granted under the       
Director Plan will be equal to the fair market value of the Common Stock on the 
date of grant. The options granted to a director are exercisable in four equal  
annual installments, beginning on the first anniversary of the grant date,      
provided that the optionee remains a director at such time. The term of each    
option is ten years from the date of grant. In addition, the Director Plan      
authorizes the Compensation Committee to grant additional options to            
non-employee directors and to determine the terms applicable to such options.   
Options may not be assigned or transferred except by will or by the laws of     
descent and distribution and are exercisable to the extent vested only while the
optionee is serving as a director of the Company and within one year after the  
optionee ceases to serve as a director of the Company. Options to purchase      
144,000 shares have been granted to date under the Director Plan.               

1996 Stock Option Plan                                                

 The Company's 1996 Stock Option Plan (the "1996 Stock Option Plan") was
adopted by the Board of Directors and approved by the stockholders of the       
Company in August 1996, and becomes effective upon the closing of this offering.
No options have been granted under the 1996 Stock Option Plan. The 1996 Stock   
Option Plan authorizes the issuance of up to a total of 1.8 million shares of   
Common Stock pursuant to the grant to employees of "incentive stock options"    
within the meaning of the Code, and the grant of non-qualified stock options to 
employees, consultants, officers or directors of the Company.                   

     The 1996 Stock Option Plan is administered by the Compensation Committee of
the Board of Directors, which has the authority to select the optionees and     
determine the terms of the options granted, including (i) the number of shares  
subject to each option, (ii) option exercise terms, (iii) the                   

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exercise price of the option, (which in the case of an incentive stock option   
cannot be less than the fair market value of the Common Stock on the date of    
grant), (iv) the duration of the option, and (v) the time, manner and form of   
payment upon exercise of an option. An option is not transferable by the        
optionholder except by will or by laws of descent and distribution. Generally,  
no incentive stock option may be exercised by an optionee more than three months
following termination of employment, unless termination is due to death or      
disability, in which case the option is exercisable for a maximum of one year   
after such termination.                                                         

1996 Employee Stock Purchase Plan                                     

   The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders of the       
Company in August 1996, and becomes effective upon the closing of this offering.
The Purchase Plan authorizes the issuance of up to a total of 360,000 shares of 
Common Stock to participating employees.                                        

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

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

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

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

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CERTAIN TRANSACTIONS

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

                                                        [Enlarge/Download Table]

                                         NUMBER OF           NUMBER OF          NUMBER OF                 
                                         SHARES OF           SHARES OF          SHARES OF       CLASS A   
                                          SERIES F            SERIES H           CLASS A      COMMON STOCK
            INVESTOR(1)              PREFERRED STOCK(2)  PREFERRED STOCK(3)  COMMON STOCK(2)    WARRANTS  
            -----------              ------------------  ------------------  ---------------  ------------
                                                                                                          
Geocapital II, L.P. (4).............         4,794                  --            34,516          7,020(5)
Marc S. Tesler(6)...................            --              73,189                --         27,280(7)
Entities Affiliated with                                                                                  
  Chancellor........................        20,071              75,433           144,511         57,513(8)
Entities Affiliated with Abbott                                                                           
  Capital...........................        13,493                  --            97,149         19,756(9)

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

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

(2) On March 30, 1994 the Company sold a total of 38,358 shares of Series F     
   Preferred Stock and 276,177 shares of Class A Common Stock for an aggregate
    purchase price of $1 million. The shares of Series F Preferred Stock will be
    redeemed by the Company upon closing this offering at $26.07 per share, plus
 accrued and unpaid dividends thereon. Approximately $24,700, $103,500 and
   $69,600 of dividends have accrued as of June 30, 1996 on shares of Series F
Preferred Stock owned by Geocapital, and entities advised by Chancellor 
  Capital Management Inc. and Abbott Capital Management, L.P., respectively.

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

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

(5) These warrants have an exercise price of $3.56 per share.                   

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

(7) These warrants have an exercise price of $0.0014 per share.                 

(8) Of the 57,513 warrants, 29,390 are exercisable at $3.56 per share and 28,123
are exercisable at $0.0014 per share.                                   

(9) These warrants have an exercise price of $3.56 per share.                   

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

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

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

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PRINCIPAL AND SELLING STOCKHOLDERS

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

                                                        [Enlarge/Download Table]

                                                    SHARES BENEFICIALLY               SHARES BENEFICIALLY
                                                      OWNED PRIOR TO                      OWNED AFTER    
                                                        OFFERING(1)       NUMBER OF     OFFERING(1)(2)   
                                                   ---------------------    SHARES    -------------------
       NAME AND ADDRESS OF BENEFICIAL OWNER         NUMBER       PERCENT  OFFERED(2)   NUMBER     PERCENT
       ------------------------------------        ---------     -------  ----------  ---------   -------
                                                                                                         
  Chancellor Capital Management, Inc.(3).......... 1,884,124       15.4%     49,616   1,834,508     12.6%
    1166 Avenue of the Americas                                                                          
    New York, NY 10036                                                                                   
  Geocapital II, L.P.(4).......................... 2,779,452       22.9%     --       2,779,452     19.1%
    One Bridge Plaza                                                                                     
    Fort Lee, NJ 07024                                                                                   
  Gary A. Johnson(5).............................. 1,647,000       13.5%     62,500   1,584,500     10.9%
  Thomas St. Denis(6)............................. 1,620,000       13.3%     93,750   1,526,250     10.5%
  Dennis P. Walker(7)............................. 1,625,400       13.4%     62,500   1,562,900     10.7%
  Abbott Capital Management, L.P.(8)..............   882,590        7.3%     23,863     858,727      5.9%
    1330 Avenue of the Americas, Suite 2800                                                              
    New York, NY 10019                                                                                   
  Stephen J. Clearman(4)(9)....................... 2,779,452       22.9%     --       2,779,452     19.1%
  Alec L. Ellison(4)(10).......................... 2,779,452       22.9%     --       2,779,452     19.1%
  Marc S. Tesler(11)..............................   554,240        4.6%     --         554,240      3.8%
  Steven H. Levenherz(12).........................   114,307       *         --         114,307     *    
  David Schachne(13)..............................   117,000        1.0%     --         117,000     *    
Other Selling Stockholders                                                                               
  Brown Brothers Harriman & Co.(14)...............   146,426        1.2%      3,533     142,893     *    
  Private Equity Holdings, L.P....................    93,816       *          2,264      91,552     *    
  Permal Private Equity Holdings, L.P.............    81,835       *          1,974      79,861     *    
All executive officers and directors, as a group                                                         
  (9 persons)(4)(5)(7)(9)(10)(11)(12)(13)......... 6,837,400       55.1%    125,000   6,712,400     45.3%

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

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

(2) Assumes no exercise of the Underwriters' over-allotment option. If such   
option is exercised in full, Chancellor Capital Management, Inc.      
("Chancellor") would sell an additional 163,875 shares, and Chancellor
  would then hold 1,670,634 shares (11.1%); Thomas St. Denis would sell an
additional 136,339 shares, and Mr. St. Denis would then hold 1,389,911
 shares (9.3%); Abbott Capital Management, L.P. ("Abbott") would sell an
additional 76,709 shares, and Abbott would                            

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then hold 782,018 shares (5.2%); Brown Brothers Harriman & Co. ("BBH")
 would sell an additional 12,765 shares, and BBH would then hold 130,128
    shares (*); Private Equity Holdings, L.P. ("PEH") would sell an additional
 8,178 shares, and PEH would then hold 83,374 shares (*); Permal Private
     Equity Holdings, L.P. ("Permal") would sell an additional 7,134 shares, and
Permal would then hold 72,727 shares (*).                             

 (3) Chancellor is the investment manager for various fiduciary client accounts,
     with full voting and investment, including dispositive, powers. Such client
     accounts and their respective share ownership are as follows: Howe & Co. as
    nominee for Northern Trust as trustee of Burnett Pension Trust; Howe & Co.
   as nominee for Northern Trust as trustee of Burnett Profit Sharing Trust;
    Focus & Co. for the benefit of Baxter Healthcare Corp.; Hank & Co. for the
   account of Citiventures Private Participation Ltd. II; Pitt & Co. for the
  account of GTE Pension Plan; and Parag Saxena. Each of the accounts owns
27,828; 36,396; 82,583; 1,350,266; 327,312; and 2,224 shares of Common
    Stock, respectively. Also includes an aggregate of 57,513 shares of Common
Stock issuable upon the exercise of outstanding warrants held by such 
accounts that are presently exercisable.                              

(4) Consists of 2,644,344 and 128,088 shares of Common Stock and 6,688 and 331
     shares issuable upon the exercise of presently exercisable warrants held of
    record by Geocapital II, L.P. and Bernard Goldstein, respectively, both of
    which are part of an affiliated group of entities and individuals referred
to, collectively, as Geocapital.                                      

(5) Includes 27,000 shares issuable upon the exercise of outstanding options  
  presently exercisable or exercisable within 60 days after June 30, 1996.
Includes 54,000 shares held in trust for the benefit of Mr. Johnson's 
children; Mr. Johnson disclaims beneficial ownership of such shares.  

(6) Includes an aggregate of 485,000 shares held in trust for the benefit of  
Mr. St. Denis's family, and 900,000 shares held by the Bear Family    
     Partnership, Ltd. ("Bear"). Mr. St. Denis is a general partner of Bear, and
   thus may be deemed to be a beneficial owner of such shares. Mr. St. Denis
   disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest in Bear.                                           

(7) Includes 5,400 shares issuable upon the exercise of outstanding options   
  presently exercisable or exercisable within 60 days after June 30, 1996.
  Includes an aggregate of 180,000 shares held in trust for the benefit of
  Mr. Walker's children; Mr. Walker disclaims beneficial ownership of such
shares.                                                               

(8) Includes 19,756 shares issuable upon the exercise of warrants presently   
exercisable.                                                          

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

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

(11) Consists of an aggregate of 526,960 shares of Common Stock and 27,280      
    shares issuable upon the exercise of warrants held of record by Technology
    Crossover Ventures, L.P. and Technology Crossover Ventures, C.V., of which
     Mr. Tesler is an affiliate. As a result, Mr. Tesler may be deemed to be the
    beneficial owner of such shares. Mr. Tesler disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest in such 
entities.                                                             

(12) Represents 114,307 shares issuable upon the exercise of outstanding options
  presently exercisable or exercisable within 60 days after June 30, 1996.

(13) Includes 84,600 shares issuable upon the exercise of outstanding options   
  presently exercisable or exercisable within 60 days after June 30, 1996.

(14) Includes 142,893 shares issuable upon the exercise of warrants presently   
exercisable.                                                          

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DESCRIPTION OF CAPITAL STOCK

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

COMMON STOCK                                                                    

As of June 30, 1996, there were 12,150,177 shares of Common Stock and 
Preferred Stock convertible into Common Stock outstanding held by 40            
stockholders of record. Based upon the number of shares outstanding as of June  
30, 1996, assuming no exercise after June 30, 1996 of outstanding stock options 
and warrants and giving effect to the issuance of the 2,400,000 shares of Common
Stock offered by the Company hereby, there will be 14,550,177 shares of Common  
Stock outstanding upon the closing of this offering. Holders of Common Stock are
entitled to one vote for each share held on all matters submitted to a vote of  
stockholders and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of Common Stock entitled to vote in any election of      
directors may elect all of the directors standing for election. Holders of      
Common Stock are entitled to receive ratably such dividends, if any, as may be  
declared by the Board of Directors out of funds legally available therefor,     
subject to any preferential dividend rights of outstanding Preferred Stock. Upon
the liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available   
after the payment of all debts and other liabilities and subject to the prior   
rights of any outstanding Preferred Stock. Holders of Common Stock have no      
preemptive, subscription, redemption or conversion rights. The outstanding      
shares of Common Stock are, and the shares offered by the Company in this       
offering will be, when issued and paid for, fully paid and nonassessable. The   
rights, preferences and privileges of holders of Common Stock are subject to,   
and may be adversely affected by, the rights of the holders of shares of any    
series of Preferred Stock which the Company may designate and issue in the      
future.                                                                         

WARRANTS                                                                        

  As of June 30, 1996, the Company had outstanding warrants to purchase an
aggregate of 384,287 shares of Class A Common Stock with the following per share
exercise prices: 56,167 at $3.56; 142,893 at $2.05; and 185,227 at $0.0014.     
These warrants expire at various dates between March 1999 and August 2000.      

PREFERRED STOCK                                                                 

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

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DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS                          

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

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

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

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

REGISTRATION RIGHTS                                                             

Following this offering, the holders (the "Holders") of approximately 
9,253,584 shares of Common Stock and warrants to purchase approximately 384,287 
shares of Common Stock or their assignees (collectively, the "Registrable       
Securities"), will be entitled to certain rights with respect to the            
registration of such shares under the Securities Act. Under the terms of an     
agreement between the                                                           

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

TRANSFER AGENT AND REGISTRAR                                                    

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

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SHARES ELIGIBLE FOR FUTURE SALE 

    Upon closing of this offering, based upon the number of shares outstanding
at June 30, 1996 and assuming no exercise after June 30, 1996 of outstanding    
stock options or warrants, there will be 14,550,177 shares of Common Stock of   
the Company outstanding. Of these shares, the 2,700,000 shares offered hereby   
(3,105,000 shares of the Underwriter's over-allotment option is exercised in    
full) and 4,046 shares will be freely tradeable without restriction or further  
registration under the Securities Act, unless purchased by Affiliates. The      
remaining 11,846,131 shares of Common Stock are deemed "restricted securities"  
as that term is defined in Rule 144. Of the restricted securities, 11,838,745   
shares of Common Stock are subject to certain lock-up agreements (the "Lock-Up  
Agreements"). See "Underwriting."                                               

  Approximately 3,852 shares of Common Stock, which are not subject to the
Lock-Up Agreements, will be eligible for sale in the public market in accordance
with Rule 144 or Rule 701 under the Securities Act beginning 90 days after the  
date of this Prospectus. Upon expiration of the Lock-Up Agreements 181 days     
after the date of this Prospectus (April 17, 1997), approximately 9,576,370     
additional shares of Common Stock will be available for sale in the public      
market, subject to the provisions of Rule 144 under the Securities Act. The     
remaining 2,265,909 shares will be eligible for sale thereafter upon expiration 
of their respective holding periods under Rule 144. In addition, as of June 30, 
1996, there were outstanding stock options to purchase 1,277,762 shares, and on 
July 1, 1996, additional stock options to purchase 310,140 shares were granted. 
Of such shares subject to outstanding stock options: (i) 90 days following the  
date of this Prospectus, 27,000 shares subject to exercisable stock options, if 
exercised, will be eligible for sale pursuant to Rule 701; (ii) upon expiration 
of the Lock-Up Agreements 181 days after the date of this Prospectus (April 17, 
1997), 465,120 additional shares subject to exercisable stock options, if       
exercised, will be eligible for sale pursuant to Rule 701; and (iii) the        
remaining shares subject to stock options will be eligible for sale thereafter  
upon vesting and exercise. Such shares may also be sold pursuant to an effective
registration statement, if any, under the Securities Act, registering such      
shares for resale. As of June 30, 1996, there were outstanding warrants to      
purchase 384,287 shares of Common Stock. Of these warrants, warrants to purchase
128,166 shares contain net exercise provisions. Accordingly, any shares issued  
upon net exercise will be eligible for sale upon expiration of the Lock-Up      
Agreements, subject to the requirements of to Rule 144. The 256,121 shares      
issuable upon exercise of the remaining warrants, which do not contain net      
exercise provisions, will be eligible for sale upon expiration of their         
respective holding periods under Rule 144 from the date of their respective     
exercise.                                                                       

    In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a  
part, a stockholder, including an Affiliate, who has beneficially owned his or  
her restricted securities (as that term is defined in Rule 144) for at least two
years from the later of the date such securities were acquired from the Company 
or (if applicable) the date they were acquired from an Affiliate is entitled to 
sell, within any three-month period, a number of such shares that does not      
exceed the greater of 1% of the then outstanding shares of Common Stock         
(approximately 145,502 shares immediately after this offering) or the average   
weekly trading volume in the Common Stock during the four calendar weeks        
preceding the date on which notice of such sale was filed under Rule 144,       
provided certain requirements concerning availability of public information,    
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least three years has elapsed between the later of the date   
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of   
the Company for at least three months prior to the sale is entitled to sell the 
shares immediately without compliance with the foregoing requirements under Rule
144.                                                                            

   Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted under  
the Amended 1990 Stock Option Plan, the Executive Officers' Plan and the        
Director Plan) are also restricted securities and, beginning 90 days after the  
effective date of the Registration Statement of which this Prospectus is a part,
may be sold by                                                                  

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stockholders other than Affiliates of the Company subject only to the manner of 
sale provisions of Rule 144 and by Affiliates under Rule 144 without compliance 
with its two-year holding period requirement.                                   

   The Company intends to file registration statements on Form S-8 under the
Act to register approximately 2,200,000 shares of Common Stock issuable under   
the Executive Officers' Plan, the Director Plan, the 1996 Stock Option Plan and 
the Purchase Plan. The registration statements are expected to be filed         
approximately 90 days after the effective date of the Registration Statement of 
which this Prospectus is a part and will be effective upon filing. Shares issued
upon the exercise of stock options after the effective date of the Form S-8     
registration statements will be eligible for resale in the public market without
restriction, subject to Rule 144 limitations applicable to Affiliates and the   
Lock-Up Agreements noted above.                                                 

     Prior to the offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that    
market sales of shares of Common Stock or the availability of shares for sale   
will have on the market price of the Common Stock prevailing from time to time. 
Nevertheless, sales of significant numbers of shares of the Common Stock in the 
public market could adversely affect the market price of the Common Stock and   
could impair the Company's future ability to raise capital through an offering  
of its equity securities. In addition, after this offering, the holders of      
approximately 9,253,584 shares of Common Stock and warrants to purchase an      
aggregate of 384,287 shares of Common Stock will be entitled to certain demand  
and piggyback rights with respect to registration of such shares under the      
Securities Act. Registration of such shares under the Securities Act would      
result in such shares becoming freely tradeable without restriction under the   
Securities Act (except for shares purchased by Affiliates) immediately upon the 
effectiveness of such registration. See "Description of Capital                 
Stock -- Registration Rights." If such holders, by exercising their demand      
registration rights, cause a large number of securities to be registered and    
sold in the public market, such sales could have an adverse effect on the market
securities to be registered and sold in the public market, such sales could have
an adverse effect on the market price for the Company's Common Stock. If the    
Company were to include shares in a Company-initiated registration pursuant to  
the exercise of piggyback registration rights, sales of such shares may have an 
adverse effect on the Company's ability to raise additional capital.            

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UNDERWRITING

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

                                                                [Download Table]

                                                                     NUMBER  
                           UNDERWRITER                              OF SHARES
------------------------------------------------------------------  ---------
                                                                             
Robertson, Stephens & Company LLC.................................    904,000
Hambrecht & Quist LLC.............................................    678,000
PaineWebber Incorporated..........................................    678,000
Arnhold and S. Bleichroeder, Inc..................................    120,000
William Blair & Company, L.L.C....................................    120,000
Unterberg Harris..................................................    120,000
Auerbach Pollak & Richardson Inc..................................     80,000
                                                                    ---------
          Total...................................................  2,700,000
                                                                    =========

   The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the public 
at the initial public offering price set forth on the cover page of this        
Prospectus and to certain dealers at such price less a concession of not in     
excess of $0.69 per share, of which $0.10 may be reallowed to other dealers.    
After the initial public offering, the offering price, concession and           
reallowance to dealers may be reduced by the Representatives. No such reduction 
shall change the amount of proceeds to be received by the Company as set forth  
on the cover page of this Prospectus.                                           

The Selling Stockholders have granted to the Underwriters an option,  
exercisable during the 30-day period after the date of this Prospectus, to      
purchase up to 405,000 additional shares of Common Stock, at the same price per 
share as the Company and Selling Stockholders will receive for the 2,700,000    
shares that the Underwriters have agreed to purchase. To the extent that the    
Underwriters exercise this option, each of the Underwriters will have a firm    
commitment to purchase approximately the same percentage of such additional     
shares that the number of shares of Common Stock to be purchased by it shown in 
the above table represents as a percentage of the 2,700,000 shares offered      
hereby. If purchased, such additional shares will be sold by the Underwriters on
the same terms as those on which the 2,700,000 shares are being sold.           

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

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

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options or warrants to purchase any shares of Common Stock or any securities    
convertible into, exercisable for or exchangeable for shares of Common Stock    
other than the Company's sales of shares in this offering, the issuance of      
Common Stock upon the exercise of outstanding options and the Company's issuance
of options and stock under the Amended 1990 Stock Option Plan, the 1995         
Executive Officers' Stock Option Plan, the 1995 Non-Employee Directors' Stock   
Option Plan and the 1996 Stock Option Plan.                                     

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

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

 Certain venture funds affiliated with Robertson, Stephens & Company LLC
beneficially owned 585,439 shares of Common Stock and warrants to purchase 2,275
shares of Common Stock as of June 30, 1996.                                     

LEGAL MATTERS 

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

EXPERTS 

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

ADDITIONAL INFORMATION

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

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MEMBERWORKS INCORPORATED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                        [Enlarge/Download Table]

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

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors and Stockholders of                                   
MemberWorks Incorporated                                                        

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

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

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MEMBERWORKS INCORPORATED

CONSOLIDATED BALANCE SHEETS 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                              JUNE 30,                       
                                                       -----------------------               
                                                         1995           1996                 
                                                       --------       --------               
                                                                                             
ASSETS                                                                                       
Current assets:                                                                              
  Cash and cash equivalents........................... $  5,323       $  4,312               
  Accounts receivable.................................    1,365          6,439               
  Prepaid membership materials........................      332          1,065               
  Prepaid expenses....................................       90            204               
  Membership solicitation and other deferred costs....   20,582         25,686               
                                                       --------       --------               
          Total current assets........................   27,692         37,706               
Fixed assets, net.....................................    1,782          3,261               
Other assets..........................................      252            960               
                                                       --------       --------               
                                                       $ 29,726       $ 41,927               
                                                       ========       ========               
LIABILITIES AND STOCKHOLDERS' EQUITY                                                         
Current liabilities:                                                                         
  Notes payable....................................... $    297       $    675       PRO     
  Current maturities of capital lease obligations.....      205            316    FORMA AT   
  Accounts payable....................................    7,879         10,433    JUNE 30,   
  Accrued liabilities.................................    9,129         14,631      1996     
  Deferred membership fees............................   23,592         30,628               
                                                       --------       --------               
          Total current liabilities...................   41,102         56,683   (UNAUDITED) 
Long-term capital lease obligations...................      392            456               
                                                                                 ----------  
Notes payable.........................................    7,673            633               
                                                       --------       --------               
          Total liabilities...........................   49,167         57,772               
Redeemable preferred stock............................   10,926         20,487        $   -- 
                                                       --------       --------               
          Total liabilities and redeemable preferred                                         
            stock.....................................   60,093         78,259               
                                                       --------       --------               
Commitments and contingencies (Note 8)                                                       
Stockholders' equity:                                                                        
  Class A common stock, $.01 par value -- 12,810,060                                         
     shares (10,542,175 shares in 1995) authorized;                                          
     5,598,870 shares issued and outstanding..........       56             56            -- 
  Class B common stock, $.01 par value -- 14,819,889                                         
     shares (11,522,404 shares in 1995) authorized;                                          
     258,235 shares (257,875 shares in 1995) issued                                          
     and outstanding; pro forma: 12,320,474 shares                                           
     issued and outstanding...........................        3              3           123 
  Capital in excess of par value......................    1,686          3,602        22,076 
  Deferred compensation...............................       --         (1,400)       (1,400)
  Accumulated deficit.................................  (31,839)       (38,320)      (38,857)
  Treasury stock, 173,830 shares at cost..............     (273)          (273)         (273)
                                                       --------       --------   ----------- 
          Total stockholders' equity (deficit)........  (30,367)       (36,332)     $(18,331)
                                                                                   ========= 
                                                       --------       --------               
                                                       $ 29,726       $ 41,927               
                                                       ========       ========               

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

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MEMBERWORKS INCORPORATED

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

                                                        [Enlarge/Download Table]

                                                                      YEAR ENDED JUNE 30,      
                                                                  ---------------------------- 
                                                                   1994       1995      1996   
                                                                  -------   --------   ------- 
                                                                                               
Revenues                                                                                       
  Membership fees................................................ $25,830   $ 41,547   $57,012 
Expenses                                                                                       
  Operating......................................................   5,354      9,702    11,623 
  Marketing......................................................  20,188     32,799    38,410 
  General and administrative.....................................   5,592      8,885    11,916 
  Interest expense, net..........................................     712        893       310 
                                                                  -------   --------   ------- 
Total expenses...................................................  31,846     52,279    62,259 
                                                                  -------   --------   ------- 
Loss before income taxes.........................................  (6,016)   (10,732)   (5,247)
Provision for income taxes.......................................      --         --        -- 
                                                                  -------   --------   ------- 
Net loss......................................................... $(6,016)  $(10,732)  $(5,247)
                                                                  =======   ========   ======= 
Unaudited pro forma net loss per share...........................                      $ (0.42)
                                                                                       ======= 
Unaudited pro forma weighted average shares outstanding..........                       12,741 
                                                                                       ======= 

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

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MEMBERWORKS INCORPORATED

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

                                                        [Enlarge/Download Table]

                                        COMMON STOCK                                                                          
                           --------------------------------------                                                             
                                CLASS A              CLASS B       CAPITAL IN                                                 
                           ------------------   -----------------  EXCESS OF   ACCUMULATED    DEFERRED    TREASURY            
                             SHARES    AMOUNT    SHARES    AMOUNT  PAR VALUE     DEFICIT    COMPENSATION   STOCK      TOTAL   
                           ----------  ------   --------   ------  ----------  -----------  ------------  --------   -------- 
                                                                                                                              
Balance -- June 30,                                                                                                           
  1993...................   5,322,693    $53     177,876     $ 2     $1,027      $(13,819)                           $(12,737)
For the year ended                                                                                                            
  June 30, 1994:                                                                                                              
Issuance of common                                                                                                            
  stock..................     276,177      3       3,600      --        511                                               514 
Preferred stock:                                                                                                              
  Accretion of                                                                                                                
    discount.............                                                             (90)                                (90)
  Accretion to redemption                                                                                                     
    value................                                                            (193)                               (193)
  Accumulated                                                                                                                 
    dividends............                                                            (105)                               (105)
Net loss.................                                                          (6,016)                             (6,016)

                            ---------    ---     ------     ---     ------      --------      -------      -----    --------  
Balance -- June 30,                                                                                                           
  1994...................   5,598,870     56     181,476       2      1,538       (20,223)                            (18,627)
For the year ended                                                                                                            
  June 30, 1995:                                                                                                              
Issuance of common                                                                                                            
  stock..................                         76,399       1         64                                                65 
Issuance of warrants.....                                                --                                                -- 
Acquisition of treasury                                                                                                       
  stock..................                                                84                                 $(273)       (189)
Preferred stock:                                                                                                              
  Accretion of                                                                                                                
    discount.............                                                            (163)                               (163)
  Accretion to redemption                                                                                                     
    value................                                                            (297)                               (297)
  Accumulated                                                                                                                 
    dividends............                                                            (424)                               (424)
Net loss.................                                                         (10,732)                            (10,732)

                            ---------    ---      ------      --     ------      --------      -------      -----    -------- 
Balance -- June 30,                                                                                                           
  1995...................   5,598,870     56     257,875       3      1,686       (31,839)                   (273)    (30,367)
For the year ended                                                                                                            
  June 30, 1996:                                                                                                              
Issuance of common                                                                                                            
  stock..................                            360      --          1                                                 1 
Issuance of warrants.....                                               515                                               515 
Preferred stock:                                                                                                              
  Accretion of                                                                                                                
    discount.............                                                            (219)                               (219)
  Accretion to redemption                                                                                                     
    value................                                                            (648)                               (648)
  Accumulated                                                                                                                 
    dividends............                                                            (367)                               (367)
  Deferred                                                                                                                    
    compensation.........                                             1,400                    $(1,400)                    -- 
  Net loss...............                                                          (5,247)                             (5,247)

                            ---------    ---      ------      --     ------      --------      -------      -----    -------- 
Balance -- June 30,                                                                                                           
  1996...................   5,598,870    $56     258,235      $3     $3,602      $(38,320)     $(1,400)     $(273)   $(36,332)
                            =========    ===      ======      ==     ======      ========      =======      =====    ======== 

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

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MEMBERWORKS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                    YEAR ENDED JUNE 30,         
                                                             ---------------------------------- 
                                                               1994         1995         1996   
                                                             --------     --------     -------- 
                                                                                                
OPERATING ACTIVITIES                                                                            
  Net loss.................................................  $ (6,016)    $(10,732)    $ (5,247)
  Adjustments to reconcile net loss to net cash provided by                                     
     (used in) operating activities:                                                            
     Membership solicitation and other deferred costs......   (29,799)     (40,178)     (48,201)
     Amortization of membership solicitation and other                                          
       deferred costs......................................    22,053       36,092       43,097 
     Deferred membership fees..............................     6,866        6,569        7,036 
     Depreciation and amortization.........................       337          536          708 
     Loss on sale of fixed assets..........................        --           --           38 
     Write-off of discontinued product line assets.........        --          659           -- 
     Share of joint venture's losses.......................        28           52           51 
     Write-off of deferred debt issuance costs.............        --           --          103 
     Preferred stock redemption cost.......................        --           --          315 
Change in assets and liabilities affecting operating cash                                       
  flows:                                                                                        
  Accounts receivable......................................        71          659       (5,074)
  Prepaid membership materials.............................      (139)          30         (733)
  Prepaid expenses.........................................       (73)          20         (114)
  Other assets.............................................      (323)         (40)        (252)
  Accounts payable.........................................     3,653          476        2,729 
  Accrued liabilities......................................     3,980        2,381        5,545 
                                                             --------     --------     -------- 
Net cash provided by (used in) operating activities........       638       (3,476)           1 
                                                             --------     --------     -------- 
INVESTING ACTIVITIES                                                                            
  Acquisition of fixed assets..............................      (744)        (519)      (1,740)
  Deposit on equipment.....................................        --           --         (539)
  Proceeds from sale of fixed assets.......................        --           --           15 
  Investment in and advances to joint venture..............       (31)         (98)         (48)
                                                             --------     --------     -------- 
Net cash used in investing activities......................      (775)        (617)      (2,312)
                                                             --------     --------     -------- 
FINANCING ACTIVITIES                                                                            
  Net proceeds from issuance of stock and warrants.........     1,005        4,012       12,887 
  Redemption of preferred stock............................        --           --       (4,000)
  Purchase of treasury stock...............................        --           --         (175)
  Preferred stock dividends................................        --           --         (402)
  Proceeds from issuance of notes payable..................     1,000        6,860          502 
  Debt issuance costs......................................        --         (273)        (117)
  Payments of notes payable................................      (206)      (3,603)      (7,164)
  Payments of capital lease obligations....................      (113)        (146)        (231)
                                                             --------     --------     -------- 
Net cash provided by financing activities..................     1,686        6,850        1,300 
                                                             --------     --------     -------- 
Net increase (decrease) in cash and cash equivalents.......     1,549        2,757       (1,011)
Cash and cash equivalents at beginning of year.............     1,017        2,566        5,323 
                                                             --------     --------     -------- 
Cash and cash equivalents at end of year...................  $  2,566     $  5,323     $  4,312 
                                                             ========     ========     ======== 

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

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MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- NATURE OF BUSINESS                                                    

MemberWorks Incorporated (the "Company") believes, based on its senior
management's extensive knowledge of the industry and its relationships with     
major credit card issuers in banking, oil and retail, that it is a leading      
provider of innovative membership service programs. The Company addresses the   
needs of organizations seeking to leverage the expertise of an outside provider 
in offering membership service programs. Membership service programs offer      
selected products and services from a variety of vendors intended to enhance the
existing relationships between businesses and consumers.                        

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                            

Basis of presentation -- consolidation                                          

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

Use of estimates                                                                

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

Fair value of financial instruments and concentration of credit risk            

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

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

Fixed assets                                                                    

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

Revenue recognition                                                             

  Membership fees are billed through clients of the Company to credit card
holders. An allowance for cancellations is established based on the Company's   
most recent actual cancellation experience, updated regularly. Deferred         
membership fees are recorded, net of estimated cancellations, when the trial    
period has elapsed, and are amortized as membership fees on a straight-line     
basis, over the remainder of the membership period, generally twelve months.    
Membership cancellations are charged to the allowance for cancellations on a    
current basis. During an initial annual membership term or renewal term, a      
member may cancel his or her membership in the program, generally for a complete
refund of the membership fee for that period.                                   

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MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

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

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

Membership solicitation and other deferred costs                                

    Membership solicitation costs include telemarketing, printing, postage and
mailing costs related directly to membership solicitation (i.e. direct response 
advertising costs). In accordance with Statement of Postion 93-7, "Reporting on 
Advertising Costs", direct response advertising costs are deferred and charged  
to operations as revenues from membership fees are recognized. Other deferred   
costs consist of royalties paid to clients, transaction processing fees, and    
members' kit costs, which relate to the same revenue streams as the direct      
marketing costs and are also charged to income over the membership period.      

     Membership solicitation costs incurred to obtain a new member generally are
less than the initial membership fee. However, if membership solicitation costs 
were to exceed membership fees, an adjustment would be made to the extent of any
impairment.                                                                     

Earnings per Share                                                              

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

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

Cash and cash equivalents                                                       

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

Income taxes                                                                    

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

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MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

Impairment of long-lived assets                                                 

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

Stock-based compensation                                                        

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

NOTE 3 -- MEMBERSHIP SOLICITATION AND OTHER DEFERRED COSTS                      

 Deferred membership fees and membership solicitation and other deferred
costs, included in the accompanying consolidated balance sheet as of June 30 are
comprised of the following (in thousands):                                      

                                                                [Download Table]

                                                                  1995      1996  
                                                                --------  --------
                                                                                  
Deferred membership fees....................................... $ 23,592  $ 30,628
Membership solicitation and other deferred costs...............   18,330    22,212
                                                                  ------  --------

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

NOTE 4 -- IMPAQ                                                                 

    On May 18, 1992, the Company issued 173,830 shares of Class B common stock
valued at $273,000 in exchange for the net assets of IMPAQ Publishing           
Corporation. During December 1994, the Company discontinued Impaq's domestic    
discount coupon book business and recorded a charge of $659,000 to operations,  
primarily to write off unamortized goodwill of $166,000 and other assets of     
$461,000. Effective June 30, 1995, the Company returned Impaq's domestic        
discount coupon book operations, cash of $175,000 and net fixed assets of       
$14,000 to Impaq's former owner in exchange for the aforementioned originally   
issued shares of Class B common stock. There was no gain or loss on this        
transaction.                                                                    

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

NOTE 5 -- JOINT VENTURE                                                         

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

in the UK, Europe and elsewhere. The financial position and results of          
operations of the venture are immaterial.                                       

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

NOTE 6 -- FIXED ASSETS                                                          

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

                                                                [Download Table]

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

NOTE 7 -- NOTES PAYABLE                                                         

Notes payable are summarized as follows (in thousands):               

                                                                [Download Table]

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

 On September 9, 1994, the Company entered into a $7,000,000 Bank Credit
Agreement extending to February 28, 1997. In conjunction with the Bank Credit   
Agreement, the Company issued a warrant to acquire 144,000 shares of Class A    
common stock at an exercise price of $2.08 per share, subject to adjustment for 
dilution. The warrant is exercisable at any time prior to December 31, 1999. The
Company amended the Bank Credit Agreement as of September 28, 1995 and paid down
the outstanding balance to $10,000 with a portion of the proceeds from issuance 
of Series H convertible preferred stock. Interest on borrowings under the Bank  
Credit Agreement was at the bank's prime rate plus 3.5%, and there was a 1.0%   
per annum commitment fee on the total facility.                                 

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

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

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

   On March 30, 1994, the Company issued $1,000,000 of 10% convertible notes
due September 30, 1994 with warrants attached. The warrants are exercisable at  
any time prior to March 30, 1999, and allow the holders to acquire up to 55,238 
shares of Class A common stock based on an exercise price of $3.62, subject to  
adjustment for dilution. The notes were paid on the due date.                   

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

NOTE 8 -- COMMITMENTS AND CONTINGENCIES                                         

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

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

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

                                                        [Enlarge/Download Table]

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

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

 In June 1995, a co-founder of the Company filed a complaint against the
Company and certain of its executive officers alleging various claims arising   
out of his termination in October 1994 as Executive                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

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

NOTE 9 -- INCOME TAXES                                                          

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

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

                                                                [Download Table]

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

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

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

                                                                [Download Table]

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

NOTE 10 -- REDEEMABLE PREFERRED STOCK                                           

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

                                                        [Enlarge/Download Table]

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

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

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

As discussed in Note 12, warrants to acquire 72,000 shares of Class A 
common stock at $0.0014 per share were issued in conjunction with the issuance  
of Series H preferred stock. As a result, the recorded value of the Series H    
preferred stock was $12,800,000, reflecting a $200,000 discount attributable to 
the warrants, which is being accreted through the exercise date using the       
interest method. Additionally, the Company paid $114,000 of issuance costs in   
connection with this offering, which was recorded as a reduction in net         
proceeds, and is being accreted to the redemption date.                         

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

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

F-13

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

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

    On September 28, 1994, the Company issued 40,000 of new Series G preferred
stock with attached warrants to acquire 288,000 shares of Class A common stock  
for a total of $4,000,000. Preferred dividends on Series G preferred stock is 8%
per annum, payable quarterly in kind.                                           

On August 3, 1995, the Company redeemed 40,000 shares of issued and   
outstanding Series G preferred stock and redeemed attached warrants to acquire  
288,000 shares of Class A common stock of the Company issued September 28, 1994 
for $4,000,000, and also paid the investor a preferred dividend in the amount of
$402,000. Additionally, the Company substituted 113,227 warrants to acquire     
Class A common stock, exercisable at $0.0014 per share, in exchange for the     
288,000 warrants previously redeemed. As a result the substituted warrants      
issued were accounted for at fair value of $315,000 and recorded as a charge to 
operations as a cost of redeeming the preferred stock.                          

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

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

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

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

NOTE 11 -- COMMON STOCK                                                         

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

F-14

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

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

In March 1994, 276,177 shares of Class A common stock were issued for 
proceeds of $2,761, an amount equal to par value. These shares were issued in   
connection with the Series F preferred stock offerings, and have been recorded  
at fair value of $508,000 (see Note 10).                                        

In May 1993, 303,681 shares of Class A common stock were issued for   
proceeds of $3,036, an amount equal to par value. These shares were issued in   
connection with the Series E preferred stock offerings, and have been recorded  
at fair value of $478,000 (see Note 10).                                        

NOTE 12 -- STOCK OPTIONS AND WARRANTS                                           

   Under the Amended 1990 Employee Incentive Stock Option Plan, the Board is
authorized to grant 1,296,000 incentive stock options, entitling certain        
employees and officers to acquire shares of Class B common stock at a price per 
share equal to fair market value at the date of grant. Options become           
exercisable over a four year period and expire at the earlier of termination of 
employment or eight years from date of grant (ten years for grants after        
December 31, 1995). As of June 30, 1996 there were 329,832 options available for
grant.                                                                          

During 1996, the Board of Directors and stockholders of the Company   
approved the adoption of the 1995 Executive Officers' Stock Option Plan and the 
1995 Non-Employee Directors' Stock Option Plan under which the Board is         
authorized to grant 360,000 and 180,000 options, respectively, to acquire shares
of Class B common stock at a price per share equal to or greater than fair      
market value at the date of grant. Under the Executive Officers' Stock Option   
Plan, the Board can determine the date on which options vest and become         
exercisable. Options become exercisable over a four year period under the       
Non-Employee Directors' Stock Option Plan. As of June 30, 1996 there were       
108,000 and 36,000 shares available for grant under the Executive Officers'     
Stock Option Plan and the Non-Employee Directors' Stock Option Plan,            
respectively.                                                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

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

                                                        [Enlarge/Download Table]

                                                     OPTION PRICE                            
                                                       PER SHARE     OUTSTANDING  EXERCISABLE
                                                    ---------------  -----------  -----------
                                                                                             
Balance -- June 30, 1993...........................  $0.46 - $1.57      440,402      85,946  
  Granted..........................................      $1.84          190,440              
  Became exercisable...............................  $0.46 - $1.57                  110,102  
  Exercised........................................      $1.57           (3,600)     (3,600) 
  Canceled.........................................  $1.57 - $1.84      (19,800)     (1,800) 
                                                    ---------------  -----------  -----------
Balance -- June 30, 1994...........................  $0.46 - $1.84      607,442     190,648  
  Granted..........................................      $2.08          219,600              
  Became exercisable...............................  $0.46 - $1.84                  139,716  
  Exercised........................................  $0.46 - $1.84      (76,400)    (76,400) 
  Canceled.........................................  $1.27 - $2.08      (98,920)     (6,228) 
                                                    ---------------  -----------  -----------
Balance -- June 30, 1995...........................  $0.46 - $2.08      651,722     247,736  
  Granted..........................................  $2.78 - $4.17      674,640              
  Became exercisable...............................  $1.27 - $2.78                  139,983  
  Exercised........................................      $2.08             (360)       (360) 
  Canceled.........................................  $1.84 - $2.78      (48,240)     (9,179) 
                                                    ---------------  -----------  -----------
Balance -- June 30, 1996...........................  $0.46 - $4.17    1,277,762     378,180  
                                                    ==============    =========   =========  

     On March 30, 1994, a warrant was issued to acquire 55,238 shares of Class A
common stock at an exercise price of $3.62 per share, subject to adjustment for 
dilution when issued. The warrant is exercisable at any time prior to March 30, 
1999.                                                                           

    On September 9, 1994, the Company issued a warrant in conjunction with the
Bank Credit Agreement to acquire 144,000 shares of Class A common stock at an   
exercise price of $2.08 per share, subject to adjustment for dilution when      
issued. The warrant is exercisable at any time prior to December 31, 1999.      

As discussed in Note 10, warrants to acquire 72,000 shares of Class A 
common stock were issued in conjunction with the Series H preferred stock       
offering. Each warrant is exercisable at $0.0014 per share for a period of five 
years from the issuance date. The warrants have been recorded at a fair value of
$200,000.                                                                       

     The Company has an agreement with an executive officer, whereby the Company
is required to grant options to purchase up to 144,000 shares of Class B common 
stock to the executive for achievement of certain performance goals.            
Specifically, the Company will grant an option to purchase 14,400 shares of     
Class B common stock for each new client, from a selected list of certain       
prospective large clients, he obtains for the Company prior to December 31,     
1996. These options have a stated exercise price of $2.78 per share and vest    
ratably over a four year period from date of grant. In 1996, the executive was  
granted an option to purchase 14,400 shares of Class B common stock pursuant to 
this agreement. Compensation expense in 1996 related to this grant was $3,000,  
measured based on the excess of the fair value of the common stock of the       
Company on the date of grant over the grant price. Compensation charges related 
to future grants, if any, will be measured in the same manner and recognized    
over the vesting period.                                                        

In connection with a grant of options in June 1996 to purchase 360,000
shares of Class B common stock, the Company will recognize compensation expense 
over the four-year vesting period based on the excess of the fair market value  
of the Company's stock over the grant price of approximately $1,400,000. Such   
future compensation expense is reflected in the balance sheet at June 30, 1996  
as a debit to stockholders' equity.                                             

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MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

NOTE 13 -- EMPLOYEE BENEFIT PLAN                                                

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

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

                                                        [Enlarge/Download Table]

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

NOTE 15 -- SUBSEQUENT EVENTS                                                    

     On July 1, 1996, the Company granted 310,140 employee stock options with an
exercise price of $8.00 per share.                                              

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

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

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

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

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

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MEMBERWORKS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED) 

 On August 13, 1996, the Company adopted an employee stock purchase plan
(the "1996 Employee Stock Purchase Plan"). The plan will be implemented with an 
initial offering period commencing on the effective date of the offering. The   
plan permits eligible employees to purchase Common Stock through payroll        
deductions, which may not exceed 10% of an employee's compensation, at a price  
equal to 85% of the price of the Common Stock of the Company reported by Nasdaq 
at the commencement date of the Offering Period.                                

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

    The aggregate number of shares of Common Stock of the Company reserved for
both the 1996 Employee Stock Purchase Plan and the 1996 Stock Option Plan is    
2,160,000.                                                                      

 On August 13, 1996, the Board of Directors approved an amendment to the
Company's 1990 Employee Incentive Stock Option Plan ("Amended 1990 Stock Option 
Plan"). The Amended 1990 Stock Option Plan provides for the grant of "incentive 
stock options" to employees and officers of the Company and non-qualified stock 
options to employees, consultants, directors and officers of the Company. The   
Company is authorized to grant up to 1,296,000 shares under the Amended 1990    
Stock Option Plan. The Board of Directors also voted that no further options may
be granted under the Amended 1990 Stock Option Plan effective upon the closing  
of the initial public offering.                                                 

  On September 11, 1996, the Board of Directors approved a 7.2 for 1 stock
split of the Company's Common Stock which became effective on September 25,     
1996.                                                                           

    On September 13, 1996, a co-founder of the Company and the Company entered
into an agreement conditionally settling the litigation (described in Note 8)   
and all related matters, with such agreement to become final and its operative  
terms to be implemented at the time of the closing with respect to the Company's
proposed public offering. Either party can resume the litigation if no such     
closing has occurred prior to December 31, 1996. The Company is required to pay 
the co-founder $165,000, representing severance, bonus and legal expenses.      

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

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

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MEMBERWORKS(SM) Programs & Distribution Channels  

MEMBERWORKS PROGRAMS AND DISTRIBUTION CHANNELS                                  

                                                        [Enlarge/Download Table]


                           Large    Retail    Oil    Small     Vacation      Retail                                    New     
                           Banks    Cards     Cards  Banks      Owners       Stores      Interactive     Direct     Channels   
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               
Health                      x         x                x                                                    O          O       

Dental                      x         x                x                      O                             O          O       

Dental & Health             x         x                x                      O              O              O          O       

Travel                      x                          x         X                           O              O          O       

Entertainment               X                  X       X         X                           O              O          O       

Sports                      X                  X       X                                     O              O          O       

Finance                     X                  X                                             O              O          O       

Computers and Software      X                                                                               O          O       

New Services                O                  O       O                                                               O       


X = Current Programs.                                                           
O = Testing Programs.                                                           

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[MEMBERWORKS LOGO]  

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B1’ Filing		Date		First		Last			Other Filings
		7/31/06		38
		3/14/06		38
		7/31/01		71
		6/30/01		70					10-K
		12/31/00		38					10-Q
		6/30/00		38					10-K
		12/31/99		68		74			10-Q
		4/30/99		71
		3/30/99		69		74
		4/30/98		71
		12/31/97		38					10-Q
		4/30/97		71
		4/17/97		12		54
		2/28/97		48		69
		12/31/96		5		76			10-Q
		11/12/96		3
		10/23/96		1
Filed on:		10/21/96
		10/18/96		1
		9/30/96		20					10-Q
		9/25/96		60		76
		9/13/96		39		76			S-1/A
		9/11/96		76
		8/15/96		75
		8/13/96		45		76
		7/25/96		60
		7/1/96		5		75
		6/30/96		4		76
		4/9/96		68
		4/1/96		75
		12/31/95		25		73
		9/30/95		25
		9/28/95		68
		8/3/95		72
		6/30/95		18		74
		6/29/95		39
		12/31/94		25
		10/3/94		39
		9/30/94		69
		9/28/94		72
		9/9/94		68		74
		7/1/94		70
		6/30/94		18		74
		3/30/94		48		74
		11/1/93		67
		7/1/93		66
		6/30/93		18		74
		6/30/92		18
		5/18/92		67
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