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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
      (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 1-13806
      REWARDS NETWORK INC.
 (Exact name of registrant as
    specified in its charter)
      DELAWARE

84-6028875(State or other jurisdiction of
    incorporation or organization)

(I.R.S. Employer Identification
    No.)Two North Riverside Plaza,
    Suite 950, Chicago, Illinois

60606(Address of principal executive
    offices)

(Zip Code)   (312) 521-6767
 (Registrants telephone
    number, including area code)
  None
 (Former name, former address and former fiscal year, if
    changed since last report)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon stock, $.02 par value
    per share

American Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
  None
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large
    accelerated filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o  Rule 12b-2 o þ
      Class

Outstanding at March 13, 2007Common Stock, $0.02 par value
    per share

27,100,976 shares   DOCUMENTS
    INCORPORATED BY REFERENCE
  Document

Parts into Which IncorporatedProxy Statement for the Annual
    Meeting of
    Stockholders to be held May 22, 2007

Part III




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TABLE OF CONTENTS  FORWARD-LOOKING STATEMENTSPART IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial Data (in thousands except for per share data)Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (amounts in thousands, except per share data, restaurants in the program, average transaction amount and estimated months to consume dining credits portfolio)Item 7A. Quantitative and Qualitative Disclosures About Market Risk (in thousands)Item 8. Financial StatementsItem 9  Changes and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A  Controls and ProceduresItem 9B  Other InformationPART IIIItem 10  Directors, Executive Officers and Corporate GovernanceItem 11  Executive CompensationItem 12  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13  Certain Relationships and Related Transactions, and Director IndependenceItem 14  Principal Accounting Fees and ServicesPART IVItem 15  Exhibits, Financial Statement SchedulesSIGNATURESREWARDS NETWORK INC. LISTING OF EXHIBITSSettlement AgreementList of SubsidiariesConsent of KPMG LLPCertification of Principal Executive OfficerCertification of Principal Financial OfficerSection 1350 Certification of CEOSection 1350 Certification of CFO    Table of Contents  
  FORWARD-LOOKING
    STATEMENTS
  You should read the following discussion together with our
    consolidated financial statements and notes to those financial
    statements, which are included in this report. This report
    contains forward-looking statements made pursuant to the safe
    harbor provisions of Section 27A of the Securities Act of
    1933, as amended, and Section 21E of the Securities
    Exchange Act of 1934, as amended. The words
    anticipates, intends,
    expects, could, should,
    plans, believes, estimates
    or words or phrases of similar import generally identify
    forward-looking statements. You are cautioned that
    forward-looking statements are subject to risks, trends and
    uncertainties that could cause actual results, performance or
    achievements to differ materially from those expressed in any
    forward-looking statements. Important factors that could cause
    our actual results, performance or achievements to be materially
    different from any future results, performance or achievements
    expressed or implied by those statements include, but are not
    limited to, those set forth below in the section entitled
    Risk Factors under Part I, Item 1A of this
    Annual Report on
    Form 10-K.
    We undertake no obligation to, and expressly disclaim any such
    obligation to, update or revise any forward-looking statements
    to reflect changed assumptions, the occurrence of anticipated or
    unanticipated events or changes to future results over time or
    otherwise, except as required by law.
 
  PART I
 
  Item 1.
    Business  Overview
          Our
    Programs for our Participating Restaurants
    Marketing.
 1




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Websites. SM
  Email.
  Print.
  Business Intelligence.
   2




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Loyalty Reward Programs. SM
    Access to Capital. agreed-upon
      Participating
    Merchants
     3




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Members
          Loyalty Partner Programs. e.g.,
   4




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®
  Cashback Rewards Program.
    Corporate Program.
  Payment Card Issuer Programs.
  Loyalty
    Rewards
       5




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Registered
    Card Platform
      Competition
    Employees
    Executive
    Officers of the Registrant
    Name

Age

Position(s)Ronald L. Blake

51

President, Chief Executive Officer
    and DirectorRoya Behnia

40

Senior Vice President, General
    Counsel, Secretary and Chief Privacy OfficerMegan E. Flynn

40

Senior Vice President, Business
    DevelopmentChristopher J. Locke

36

Senior Vice President, Chief
    Financial Officer and TreasurerRobert S. Wasserman

47

Executive Vice President, Sales
    and Marketing, Operations    6




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Available
    Information
  (312) 521-6767. Form 10-K, Form 10-Q, Form 8-K, 1-800-SEC-0330.
 
  Item 1A.
    Risk
    Factors  Form 10-K
  We
    depend on our ability to attract and retain
    restaurants.
     7




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A
    fully-staffed sales force is important to our ability to retain
    restaurants and grow the number of participating
    restaurants.
      A
    significant number of our active member accounts are obtained
    from our relationships with airlines and other program
    partners.
     8




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A
    significant amount of our loyalty rewards currency is
    concentrated in one industry group.
      We
    depend on our ability to attract and retain active
    members.
     9




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We
    must maintain an appropriate balance between the number of
    members and the number of participating restaurants in each
    market.
  and/or
  We
    depend upon our relationships with payment card issuers,
    transaction processors, presenters and
    aggregators.
      We are
    susceptible to restaurant credit risk and our allowance for
    losses related to restaurant credit risk may prove inadequate to
    absorb actual losses.
     10




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We
    have minimum program partner purchase obligations and other
    performance requirements.
    We are
    subject to changes to payment card association rules and
    practices.
    Network
    interruptions, processing interruptions or processing errors
    could occur.
    We are
    susceptible to a changing regulatory environment.
    Privacy
    concerns of our program partners, payment card processors and
    the public may result in increased operating costs or loss of
    members.
   11




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Our
    security measures may not be successful.
    Economic
    changes could negatively impact our business.
      We
    could lose key personnel.
    We
    have entered into a settlement regarding a class action lawsuit
    that has been approved preliminarily by the Court but that still
    may be terminated.
  Form 10-K, Form 10-Q Form 8-K
     12




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Class
    action lawsuits may be filed against us in other
    states.
    We
    face significant competition.
    Our
    revenues may decline if there is a shift in our mix of products
    toward the Marketing Services Program.
    If we
    are unable to obtain sufficient cash, our business, financial
    condition and results of operations may be adversely
    affected.
      We are
    controlled by Samstock, L.L.C. and its affiliates.
   13




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Our
    Board of Directors may issue our authorized preferred stock
    without stockholder approval.
    The
    future sales of restricted and other shares may cause dilution
    to each stockholders percentage ownership interest and
    could cause our stock price to decline.
    The
    price of our common stock could be volatile.
      Delaware
    corporate law, our certificate of incorporation and our by-laws
    contain anti-takeover provisions that could delay or prevent a
    change of control even if the change of control would be
    beneficial to our stockholders.
    
    authorize the issuance of preferred stock that can be created
    and issued by our board of directors without prior stockholder
    approval to increase the number of outstanding shares and deter
    or prevent a takeover attempt;
    prohibit common stockholder action by written consent, thereby
    requiring all common stockholder actions to be taken at a
    meeting of our common stockholders;
    prohibit cumulative voting in the election of directors, which
    would otherwise enable less than a majority of stockholders to
    elect director candidates; 14




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
    limit the ability of stockholders to call special meetings of
    stockholders; and
    establish advance notice requirements for nominations for
    election to our board of directors or for proposing matters that
    can be acted upon by stockholders at stockholder meetings.   
  Item 1B.
    Unresolved
    Staff Comments   
  Item 2.
    Properties    Location

Monthly Rent


Term of Lease


Square FootageChicago, IL  Executive
    offices

$
42,773



09/01/03 -
    04/20/11



28,721Miami, FL  Operations


50,191



07/01/05 -
    06/30/07



26,769    
  Item 3.
    Legal
    Proceedings    Form 10-K, Form 10-Q Form 8-K.
       15




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Item 4.
    Submission
    of Matters to a Vote of Security Holders   16




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PART II
 
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  (A) MARKET
    INFORMATION
    Quarter Ended

Low


HighMarch 31, 2005


4.01



7.00June 30, 2005


3.63



5.50September 30, 2005


4.95



7.06December 31, 2005


4.76



7.01March 31, 2006


5.85



8.50June 30, 2006


6.94



9.40September 30, 2006


3.32



9.01December 31, 2006


4.50



7.20   (B) HOLDERS
    (C) DIVIDENDS
   17




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Item 6.
    Selected
    Financial Data (in thousands except for per share
    data)  Form 10-K.
  Years Ended December 31,2006


2005


2004


2003


2002Statements of Operation DataSales

$
252,986


$
287,145


$
348,078


$
349,026


$
289,095Net revenue


81,362



74,261



89,711



88,638



70,709Other operating revenue


2,135



2,790



3,536



4,684



5,140Total operating revenues


83,497



77,051



93,247



93,322



75,849Total operating expenses


106,082



74,178



68,195



64,771



55,949Operating (loss) income


(22,585
)


2,873



25,052



28,551



19,900Other (expenses) income, net


(204
)


(2,753
)


(2,804
)


(2,371
)


(1,993
)(Loss) income before income taxes


(22,789
)


120



22,248



26,180



17,907Income tax (benefit) provision


(7,634
)


741



9,031



10,470



(1,328
)Net (loss) income


(15,155
)

$
(621
)

$
13,217


$
15,710


$
19,235Net (loss) income available to
    common stockholders


(15,155
)

$
(621
)

$
14,865


$
16,048


$
(714
)Per Share Data:Net (loss) incomeBasic

$
(0.57
)

$
(0.02
)

$
0.53


$
0.68


$
(0.04
)Diluted

$
(0.57
)

$
(0.02
)

$
0.50


$
0.61


$
(0.04
)Weighted average number of common
    and common equivalent shares outstanding:Basic


26,683



26,133



24,837



23,056



18,357Diluted


26,683



26,133



29,731



26,439



18,357Balance Sheet Data:Total assets

$
207,309


$
190,887


$
200,671


$
187,125


$
152,143Revolving securitization


















60,000Long-term debt


70,000



70,000



70,000



70,000



Redeemable preferred shares


















133Stockholders equity


83,469



94,188



92,368



73,647



52,268Long term debt to total assets


34
%


37
%


35
%


37
%


  18




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (amounts in thousands, except per share data,
    restaurants in the program, average transaction amount and
    estimated months to consume dining credits
    portfolio)  Form 10-K.
  OVERVIEW
           19




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Revised Sales Policies and
    Procedures:
          Sales Force Development:
 20




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Demonstrating the Value of our Programs to
    Restaurants:
          CRITICAL
    ACCOUNTING POLICIES AND ESTIMATES
  Our discussion and analysis of our financial condition and
    results of operations are based upon our condensed consolidated
    financial statements, which have been prepared in accordance
    with accounting principles generally accepted in the United
    States. The preparation of these financial statements requires
    that we make estimates and judgments that affect the reported
    amounts of assets, liabilities, revenues and expenses, and
    related disclosure of contingent assets and liabilities. On an
    on-going basis, we evaluate our estimates, including those
    related to the allowance for dining credits losses, the
    valuation allowance, if any, for net deferred tax assets,
    investments and intangible assets. We base our estimates on
    historical experience and on various other assumptions that we
    believe to be reasonable under the circumstances, the results of
    which form the basis for making judgments about the carrying
    values of assets and liabilities that are not readily apparent
    from other sources. Actual results may differ from these
    estimates under different assumptions or conditions. We believe
    the following critical accounting policies affect our more
    significant judgments and estimates used in the preparation of
    our consolidated financial statements.
  Allowance
    for Dining Credits Losses
  We provide allowances for dining credits losses based on our
    estimate of losses that would result from the inability of
    participating merchants to remain in business or our
    merchants unwillingness to honor their obligations
    relating to dining credits. If the financial condition of our
    merchant base were to deteriorate beyond our expectations,
    resulting in participating merchants inability to provide
    food, beverage, goods and services to members thereby reducing
    the members use of dining credits, or if merchants are
    unwilling or otherwise unable to honor their obligations
    relating to dining credits in greater numbers than we expect,
    additional allowances may be required.
  We review members ability to use dining credits on a
    regular basis and provide for anticipated losses on dining
    credits. Losses are reduced by recoveries of dining credits
    previously written off. Account balances are charged off
 21




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against the allowance after we believe that our merchants are
    unwilling or unable to honor their obligations relating to
    dining credits. Subsequent to the account being written-off, we
    continue to pursue recovery efforts.
  Deferred
    Tax Assets Valuation Allowance
  We record a valuation allowance to reduce our deferred tax
    assets when it is not likely to be recognized due to cumulative
    losses and the uncertainty as to future recoverability. We
    consider future taxable income and available tax planning
    strategies in assessing the need for the valuation allowance. In
    the event we determine that we would not be able to realize all
    or part of our net deferred tax asset in the future, an
    adjustment to the deferred tax asset would be charged to income
    in the period in which such determination is made.
  Impairment
    Loss of Unamortized Goodwill
  On at least an annual basis, we evaluate whether events and
    changes in circumstances warrant the recognition of an
    impairment loss of unamortized goodwill. The conditions that
    would trigger an impairment assessment of unamortized goodwill
    include a significant, sustained negative trend in our operating
    results or cash flows, a decrease in demand for our programs, a
    change in the competitive environment and other industry and
    economic factors. Recoverability of an asset is measured by
    comparison of its carrying amount to the expected future cash
    flows. Any impairment to be recognized is measured by the amount
    by which the carrying amount of the asset exceeds its fair
    market value. Significant management judgment is required in the
    forecasting of future operating results that are used in the
    preparation of projected cash flows, and, if different
    conditions prevail or judgments are made, a material write-down
    of goodwill could occur.
  We comply with Statement of Financial Accounting Standards
    (SFAS) No. 142, Goodwill and Other
    Intangible Assets, the current standard for periodic
    assessment of the carrying value of intangible assets, including
    goodwill. We assess the impact of SFAS No. 142 using a
    two-step approach to assess goodwill based on applicable
    reporting units and any intangible assets, including goodwill,
    recorded in connection with our previous acquisitions. During
    the three months ended March 31, 2005, certain territories
    related to reacquired franchises experienced a significant
    decline in sales related to unanticipated competition and the
    loss of key salespersons in these territories which contributed
    to an operating loss for the quarter. These financial results,
    coupled with several changes in senior sales management in the
    three months ended March 31, 2005, gave rise to our need to
    reassess the goodwill related to the reacquired franchises.
  In accordance with the provisions of SFAS No. 142,
    we prepared a discounted cash flow analysis which indicated that
    the book value of certain reporting units exceeded their
    estimated fair value and that goodwill had been impaired.
    Accordingly, we recognized a non-cash impairment loss of $1,554
    during the three months ended March 31, 2005. As of
    December 31, 2006, we had unamortized goodwill of
    $8,117.
  Revenue
    Recognition
  We recognize revenue when members patronize our participating
    merchants and pay using a payment card they have registered with
    us. Revenue is recognized only if the members transaction
    qualifies for a benefit in accordance with the rules of the
    members particular program. The amount of revenue
    recognized is that portion of the members total
    transaction amount that we are entitled to receive in cash, in
    accordance with the terms of our agreement with the
    participating merchant. For example, if a members total
    qualified transaction amount is $100 at a participating
    merchant, as evidenced by the full amount of the payment card
    transaction, and our contract provides for us to receive 80%,
    the amount of revenue we recognize is $80, representing what we
    will actually realize in cash. Similarly, under the typical
    Marketing Services Program contract, we recognize revenue only
    to the extent that we are contractually entitled to receive cash
    for a portion of the members total qualified transaction
    amount. The same $100 transaction referred to above at a
    Marketing Services Program merchant may yield $17 in revenue to
    be recognized.
  Legal
    Contingencies
  We review the status of significant legal matters and assess
    our potential financial exposure with respect to such legal
    matters on at least a quarterly basis. If the potential loss
    from any claim or legal proceeding is considered
 22




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RESULTS
    OF OPERATIONS  COMPARISON OF 2006 AND
    2005
    Percentage of Sales2006


2005Sales


100.0



100.0Cost of sales


51.4



51.4Provision for losses


1.6



7.8Member benefits


14.8



14.9Net revenue


32.2



25.9Membership fees and other income


0.8



1.0Total operating revenue


33.0



26.8Salaries and benefits


9.4



6.5Sales commission and expenses


7.1



7.3Professional fees(1)


1.1



1.3Member and merchant marketing
    expenses


2.0



2.1Goodwill impairment






0.5General and administrative expenses


7.9



6.9Litigation and related expenses


15.2



1.2Total operating expenses


42.7



25.8Operating (loss) income


(9.7
)


1.0Other expense, net


(0.1
)


(1.0
)(Loss) income before income tax
    (benefit) provision


(9.8
)


0.0Income tax (benefit) provision


(3.3
)


0.3Net loss


(6.5
)


(0.2
)     (1)
    
    Excludes legal fees related to litigation and related expenses 23




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Operating
    Revenues
    2006


2005Marketing


Marketing





Marketing


MarketingCredits


Services





Credits


ServicesProgram


Program


Total


Program


Program


TotalMerchant count as of
    December 31, 2006 and 2005, respectively


6,079



2,548



8,627



7,955



2,002



9,957Number of qualified transactions


6,943



2,695



9,638



8,182



1,981



10,163Average transaction amount

$
47.57


$
48.56


$
47.85


$
46.39


$
53.04


$
47.69Qualified transaction amount

$
330,269


$
130,880


$
461,149


$
379,578


$
105,065


$
484,643Sales yield


70.0
%


16.8
%


54.9
%


70.2
%


19.7
%


59.2
%Sales

$
231,046


$
21,940


$
252,986


$
266,471


$
20,674


$
287,145Cost of dining credits

$
128,562






$
128,562


$
146,021






$
146,021Processing fee


1,076



427



1,503



1,225



339



1,564Total cost of sales

$
129,638


$
427


$
130,065


$
147,246


$
339


$
147,585Provision for dining credits losses

$
4,139






$
4,139


$
22,522






$
22,522Member benefits

$
20,411


$
7,739


$
28,150


$
29,581


$
7,407


$
36,988Bonus rewards


3,048



1,208



4,256



1,050



290



1,340Partner Commissions


3,723



1,291



5,014



3,631



818



4,449Total member benefits

$
27,182


$
10,238


$
37,420


$
34,262


$
8,515


$
42,777Net revenue

$
70,087


$
11,275


$
81,362


$
62,441


$
11,820


$
74,261          24




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Operating
    Expenses
       26




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Form 10-K.
    Other
    Income and Expense
    Income
    tax (benefit) provision
    Net
    loss
   27




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RESULTS
    OF OPERATIONS  COMPARISON OF 2005 AND
    2004
    Percentage of Sales2005


2004Sales


100.0



100.0Cost of sales


51.4



48.5Provision for losses


7.8



5.7Member benefits


14.9



20.1Net revenue


25.9



25.8Membership fees and other income


1.0



1.0Total operating revenue


26.8



26.8Salaries and benefits


6.5



5.3Sales commission and expenses


7.3



5.9Professional fees


1.3



1.2Member and merchant marketing
    expenses


2.1



1.9Goodwill impairment


0.5



0.0General and administrative expenses


6.9



5.2Litigation and related expenses


1.2



0.2Total operating expenses


25.8



19.6Operating (loss) income


1.0



7.2Other expense, net


(1.0
)


(1.8
)(Loss) income before income tax
    (benefit) provision


0.0



6.4Income tax (benefit) provision


0.3



2.6Net loss


(0.2
)


3.8  28




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Operating
    Revenues
    2005


2004Marketing


Marketing





Marketing


MarketingCredits


Services





Credits


ServicesProgram


Program


Total


Program


Program


TotalNumber of qualified transactions


8,182



1,981



10,163



8,966



2,115



11,081Average transaction amount

$
46.39


$
53.04


$
47.69


$
47.71


$
54.20


$
48.95Qualified transaction amounts

$
379,578


$
105,065


$
484,643


$
427,782


$
114,636


$
542,418Sales yield


70.2
%


19.7
%


59.2
%


74.9
%


24.0
%


64.2
%Sales

$
266,471


$
20,674


$
287,145


$
320,589


$
27,489


$
348,078Cost of dining credits

$
146,021


$



$
146,021


$
167,667







167,667Processing fee


1,225



339



1,564



986



85



1,071Total cost of sales

$
147,246


$
339


$
147,585


$
168,653


$
85


$
168,738Provision for dining credits losses

$
22,522


$



$
22,522


$
19,711


$



$
19,711Member benefits

$
29,581


$
7,407


$
36,988


$
51,842


$
12,165


$
64,007Bonus rewards


1,050



290



1,340



855



229



1,084Partner Commissions


3,631



818



4,449



4,077



750



4,827Total member benefits

$
34,262


$
8,515


$
42,777


$
56,774


$
13,144


$
69,918Net revenue

$
62,441


$
11,820


$
74,261


$
75,451


$
14,260


$
89,711         and/or and/or
 29




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Operating
    Expenses
            and/or
    Other
    Income and Expense
    No. 98-14 states
 31




---



##### Table of Contents



Income
    tax (benefit) provision
    Net
    (loss) income
    04-08 04-08,
 32




---



##### Table of Contents



LIQUIDITY
    AND CAPITAL RESOURCES
  General
        Form 10-K.
  Contractual
    Obligations and Commitments
    Payments by Due PeriodsContractual Obligations and Commitments

Total


2007


2008


2009 and After(In thousands)Convertible subordinated
    debentures (including interest)

$
74,550



2,275



72,275



Vendor contracts


20,690



12,420



8,270



California class action litigation
    settlement and related expenses


30,450



14,725



7,609



8,116Patent litigation settlement


200



100



100



Operating leases


4,356



1,456



1,088



1,812Total

$
130,246


$
30,976


$
89,342


$
9,928   Revolving
    Credit Facility
   33




---



##### Table of Contents



Convertible
    Subordinated Debentures
    Dining
    Credits
  Form 10-K.
  Off
    Balance Sheet Arrangements
   34




---



##### Table of Contents



Litigation
    RECENT
    ACCOUNTING PRONOUNCEMENTS
  Form 10-K.
 
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk (in
    thousands)      available-for-sale
 35




---



##### Table of Contents



Item 8.
    Financial
    Statements  INDEX TO
    FINANCIAL STATEMENTS
    Reports of Independent Registered
    Public Accounting Firm


37Financial Statements:Consolidated Balance Sheets at
    December 31, 2006 and 2005


39Consolidated Statements of
    Operations for the years ended December 31, 2006, 2005 and
    2004


40Consolidated Statements of
    Stockholders Equity and Comprehensive Income (loss) for
    the years ended December 31, 2006, 2005 and 2004


41Consolidated Statements of Cash
    Flows for the years ended December 31, 2006, 2005 and 2004


42Notes to Consolidated Financial
    Statements


43Schedule II 
    Valuation and Qualifying Accounts


66   Form 10-K.
 36




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
  
  Form 10-K
        Internal Control 
    Integrated Framework
    
   37




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
  
  Internal Control  Integrated Framework
        Internal
    Control  Integrated Framework Internal Control  Integrated Framework
         38




---



##### Table of Contents



REWARDS
    NETWORK INC. AND SUBSIDIARIES
  Consolidated Balance Sheets
    December 31, 2006 and 2005
  2006


2005(In thousands,except per share data)ASSETSCurrent assets:Cash and cash equivalents

$
52,496


$
31,585Short-term available for sale
    securities


32,500



Accounts receivable, net of
    allowance for doubtful accounts of $2,078 and $2,498,
    respectively


6,793



7,240Dining Credits, net of allowance
    for doubtful accounts of $12,210 and $21,192, respectively


76,366



121,026Deferred income taxes


10,409



7,322Prepaid expenses


2,449



2,532Income taxes receivable


1,433



2,666Total current assets


182,446



172,371Property and equipment, net of
    accumulated depreciation and amortization of $20,380 and
    $17,137, respectively


8,712



8,565Other assets


1,124



1,834Goodwill


8,117



8,117Deferred income taxes


6,180



Total assets

$
206,579


$
190,887LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable  dining
    credits

$
6,801


$
8,434Accounts payable  member
    benefits


5,766



6,399Accounts payable  trade


1,953



3,800Accrued compensation


3,599



1,783Other current liabilities


3,738



3,693Deferred membership fee income


982



1,226Litigation and related accruals,
    current


13,650



Total current liabilities


36,489



25,335Convertible subordinated debentures


70,000



70,000Deferred income taxes






1,006Litigation and related accruals,
    net of current portion


15,000



Other long-term liabilities


353



358Total liabilities


121,842



96,699Stockholders equity:Common stock, par value
    $0.02 per share; authorized 70,000 shares; issued
    26,875 and 26,625 shares, respectively; and outstanding
    26,593 and 26,343 shares, respectively


538



533Additional paid-in capital


66,138



61,725Cumulative other comprehensive
    income:Foreign currency translation, net
    of tax


391



359Retained earnings


19,880



33,781Treasury stock, at cost
    (282 shares of common stock)


(2,210
)


(2,210
)Total stockholders equity


84,737



94,188Total liabilities and
    stockholders equity

$
206,579


$
190,887    39




---



##### Table of Contents



REWARDS
    NETWORK INC. AND SUBSIDIARIES
  Consolidated Statements of Operations
  Years Ended December 31,2006


2005


2004(In thousands, except earnings per share)Operating revenues:Sales

$
252,986


$
287,145


$
348,078Cost of sales


130,065



147,585



168,738Provision for losses


4,139



22,522



19,711Member benefits


37,420



42,777



69,918Total direct expenses


171,624



212,884



258,367Net revenue


81,362



74,261



89,711Membership fees and other income


2,135



2,790



3,536Total operating revenues


83,497



77,051



93,247Operating expenses:Salaries and benefits


23,863



18,623



18,322Sales commissions and expenses


17,953



21,057



20,374Professional fees(1)


2,878



3,797



4,310Member and merchant marketing


4,998



5,898



6,473Goodwill impairment






1,554



General and administrative


20,031



19,790



18,023Litigation and related expenses


36,359



3,459



693Total operating expenses


106,082



74,178



68,195Operating (loss) income


(22,585
)


2,873



25,052Other income (expense):Interest and other income


2,691



502



348Interest expense and financing
    costs


(2,895
)


(3,255
)


(3,152
)(Loss) income before income tax
    (benefit) provision


(22,789
)


120



22,248Income tax (benefit) provision


(7,634
)


741



9,031Net (loss) income

$
(15,155
)

$
(621
)

$
13,217Net (loss) income available for
    common stockholders

$
(15,155
)

$
(621
)

$
14,865(Loss) earnings per share of
    common stock:Basic

$
(0.57
)

$
(0.02
)

$
0.53Diluted

$
(0.57
)

$
(0.02
)

$
0.50Weighted average number of common
    and common equivalent shares outstanding:Basic


26,683



26,133



24,837Diluted


26,683



26,133



29,731     (1)
    
    Excludes legal fees related to litigation and related expenses   40




---



##### Table of Contents



REWARDS
    NETWORK INC. AND SUBSIDIARIES
  Consolidate Statements of Stockholders Equity and
    Comprehensive Income (Loss)
  Preferred Stock

Common Stock

Treasury Stock



CumulativeNumber



Number



Number



Additional

Otherof



of



of



Paid-in

Comprehensive

RetainedShares

Amount

Shares

Amount

Shares

Amount

Capital

Income (Loss)

Earnings

Total(In thousands)Balance, December 31, 2003










24,473


$
489



282


$
(2,210
)

$
54,172


$
11


$
21,185


$
73,647Net income


































13,217



13,217Change in market value of available
    for sales securities






























(65
)






(65
)Foreign exchange translation
    adjustment






























259







259Comprehensive income





































$
13,411Stock options and warrants exercised










1,568



32











4,524











4,556Income tax benefit arising from
    employee stock option plans


























754











754Balance, December 31, 2004










26,041



521



282



(2,210
)


59,450



205



34,402



92,368Net loss


































(621
)


(621
)Change in market value of available
    for sales securities






























54







54Foreign exchange translation
    adjustments






























100







100Comprehensive loss





































$
(467
)Issuance of stock awards and
    exercise of stock options










584



12











1,870











1,882Income tax benefit arising from
    employee stock option plans


























405











405Balance, December 31, 2005










26,625



533



282



(2,210
)


61,725



359



33,781



94,188Cumulative effect of adjustments
    resulting from the adoption of SAB No. 108, net of
    income taxes of $270


































1,254



1,254Adjusted balance at
    December 31, 2005










26,625



533



282



(2,210
)


61,725



359



35,035



95,442Net loss


































(15,155
)


(15,155
)Foreign exchange translation
    adjustments






























32







32Comprehensive loss





































$
(15,123
)Issuance of stock awards and
    exercise of stock options










250



5











1,160











1,165Income tax benefit arising from
    employee stock option plans


























240











240Stock-based compensation


























3,013











3,013Balance, December 31, 2006










26,875


$
538



282


$
(2,210
)

$
66,138


$
391


$
19,880


$
84,737    41




---



##### Table of Contents



REWARDS
    NETWORK INC. AND SUBSIDIARIES
  Consolidated Statements of Cash Flows
  Years Ended December 31,2006


2005


2004(In thousands)Cash flows from operating
    activities:Net (loss) income

$
(15,155
)

$
(621
)

$
13,217Adjustments to reconcile net
    (loss) income to net cash provided by
    (used in) operating activities:Depreciation and amortization


4,357



4,212



4,157Loss on disposal of asset


172



179



Amortization of deferred financing
    cost


621



966



711Goodwill impairment






1,554



Provision for losses on dining
    credits


4,139



22,522



19,711Tax benefit from the exercise of
    stock options






405



754Stock-based compensation


3,268



443



Deferred income taxes


(10,543
)


420



(965
)Changes in assets and liabilities:Accounts receivable


(87
)


88



(1,374
)Dining Credits including accounts
    payable  dining credits


38,904



(3,883
)


(46,591
)Prepaid expenses


(42
)


(943
)


754Income taxes receivable


1,233



(1,472
)


231Other assets


212



(802
)


511Accounts payable  trade


(1,847
)


1,306



(1,199
)Accounts payable 
    member benefits


1,407



(6,792
)


426Accrued compensation


1,816



(857
)


(2,107
)Other liabilities


25



715



179Deferred membership fee income


(244
)


(390
)


(485
)Litigation and related accruals


28,650







Net cash provided by (used in)
    operating activities


56,886



17,050



(12,070
)Cash flows from investing
    activities:Additions to property and equipment


(4,643
)


(2,503
)


(5,298
)Purchases of available for sale
    securities


(63,050
)






(20,736
)Sales and maturities of available
    for sale securities


30,550



6,772



32,308Net cash (used in) provided by
    investing activities


(37,143
)


4,269



6,274Cash flows from financing
    activities:Tax benefit from the exercise of
    stock options


240







Proceeds from the exercise of
    warrants and stock options


893



1,439



4,556Net cash provided by financing
    activities


1,133



1,439



4,556Effect of exchange rate on cash


35



99



259Net increase (decrease) in cash

$
20,911


$
22,857


$
(981
)Cash and cash equivalents:Beginning of the period


31,585



8,728



9,709End of the period

$
52,496


$
31,585


$
8,728Supplemental disclosures of cash
    flows information:Cash paid during the period for:Interest

$
2,275


$
2,287


$
2,479Income taxes

$
2,984


$
1,411


$
9,024    42




---



##### Table of Contents



REWARDS
    NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements
    (Amounts in thousands, except share data)
  Note 1 
    Description of Business
            Note 2 
    Significant Accounting Policies
  Cash
    and Cash Equivalents
    Available
    for Sale Securities
  available-for-sale
 43




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
   Accounts
    Receivable
    Dining
    Credits
    Property
    and Equipment
    Software
    Development Costs
  and/or
  Goodwill
   44




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
       Other
    Comprehensive Income
    Revenue
    Recognition
    No. 00-21,
 45




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
  No. 00-21
    Cost
    of Sales and Member Benefits
          Stock
    Based Compensation
   46




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
   Legal
    Contingencies
    Income
    Taxes
    Segment
    Information
    Basic
    and Diluted Net (Loss) Income per Share
   47




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
     Year Ended December 31,2006


2005


2004Net (loss) income as reported

$
(15,155
)

$
(621
)

$
13,217Convertible debentures, net of tax
    benefit










1,648Net (loss) income available to
    common stockholders

$
(15,155
)

$
(621
)

$
14,865Weighted average number of shares
    of common stock and common stock equivalents outstandingBasic


26,683



26,133



24,837Stock options and restricted stock










513Warrants










468Convertible debentures










3,913Diluted


26,683



26,133



29,731(Loss) earnings per shareBasic

$
(0.57
)

$
(0.02
)

$
0.53Diluted

$
(0.57
)

$
(0.02
)

$
0.50   Reclassification
    Use of
    Estimates
    Recent
    Accounting Pronouncements
     48




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
     No. 06-3, No. 06-3), No. 06-3
         49




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
      Note 3 
    Staff Accounting Bulletin No. 108
    Member
    Benefits
    Accounts
    Receivable
   50




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
   Summary
    Effect of
    Member Benefits and Accounts Receivable Adjustment on Earnings
    Per Share
  Net After


Earnings PerYear

Tax Effect


Share Effect2005

$
28


$
0.002004


334



0.012003


247



0.011995-2002


645



0.04Total

$
1,254


$
0.06   Note 4 
    Convertible Subordinated Debentures
   51




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
   Note 5 
    Fair Values of Financial Instruments
    Note 6 
    Revolving Credit Facility
       52




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
   Note 7 
    Income Taxes
    Years Ended December 31,2006


2005


2004Current:U.S. federal

$
2,686


$
34


$
7,957State and local


223



287



2,039Total current


2,909



321



9,996Deferred:U.S. federal


(9,418
)


213



(949
)State and local


(1,125
)


207



(16
)Total deferred


(10,543
)


420



(965
)Total (benefit) provision

$
(7,634
)

$
741


$
9,031     Years Ended December 31,2006


2005


2004Expected tax (benefit) provision

$
(7,748
)

$
41


$
7,787State and local taxes, net of
    federal income tax benefit


(432
)


119



1,235Valuation allowance change


(288
)


251



245Change in rate and estimates


362



375



Unrealized foreign tax benefit


281



(187
)


(245
)Other


191



142



9Total

$
(7,634
)

$
741


$
9,031  53




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
    December 31,


December 31,2006


2005Deferred tax assets:Reserve for dining credits losses

$
5,248


$
6,301Foreign operating loss carryforward


151



432Litigation and related expenses


5,002



Severance expense


178



256Reserve for sales commissions


212



205Deferred directors compensation


316



387Stock-based compensation






24Other


(490
)


213Gross deferred tax assets


10,617



7,818Less valuation allowance


(208
)


(496
)Current deferred tax assets


10,409



7,322Deferred tax assets, non-current:Property and equipment


(470
)


Litigation and related expenses


5,497



Stock-based compensation


1,044



Other


109



Deferred tax assets non-current


6,180



Deferred tax liabilities:Property and equipment






1,244Other






(238
)Deferred tax liabilities






1,006Net deferred tax asset

$
16,589


$
6,316    54




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
   Note 8 
    Property and Equipment
    As of December 31,2006


2005Furniture, fixtures and equipment

$
18,065


$
17,905Computer hardware and software


8,752



6,468Leasehold improvements


2,275



1,32929,092



25,702Less accumulated depreciation and
    amortization


(20,380
)


(17,137
)Property and equipment, net

$
8,712


$
8,565     Note 9 
    Goodwill Impairment
        Note 10 
    Stock Options and Restricted Stock Units
   55




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
      Year Ended December 31,Components of Stock-based
    Compensation Expense

2006


2005


2004Stock options included in salaries
    and benefits expense

$
602


$



$
Restricted stock unit awards
    included in salaries and benefits expense


2,246







Stock awards included in general
    and administrative


255



339Restricted stock unit awards
    included in general and administrative expense


165



104



22Total stock-based compensation
    costs


3,268



443



22Income tax benefit


(1,095
)


(163
)


(9
)Total after-tax stock-based
    compensation expense

$
2,173


$
280


$
13   Stock
    Options
      Year Ended December 31,2006


2005


2004Weighted average grant-date fair
    value of options

$
4.59


$
3.05


$
6.10Stock volatility


60.0
%


60.0
%


43
%Risk-free interest rate


4.0
%


4.0
%


4.3
%Expected option life in years


6.2



5.7



10.0Expected dividend yield


0
%


0
%


0
%    56




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
     WeightedAverageWeighted


RemainingAverage


Contractual


AggregateExercise


Term


IntrinsicShares


Price


(Years)


ValueBalance at December 31, 2003


3,981


$
6.68



7.04Granted


340


$
10.09Exercised


(584
)

$
3.77






$
3,584Forfeitures


(248
)

$
6.00Balance at December 31, 2004


3,489


$
7.55



7.39Granted


340


$
6.62Exercised


(496
)

$
2.90






$
1,114Forfeitures


(1,882
)

$
9.32Balance at December 31, 2005


1,451


$
6.63



10.13Granted


40


$
7.68Exercised


(235
)

$
3.80






$
739Forfeitures


(403
)

$
7.99Balance at December 31, 2006


853


$
6.82



6.15Exercisable at December 31,
    2006


673


$
6.62



5.58


$
221       Options Outstanding


Options ExercisableRemaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseRange Of Exercise Prices

Outstanding


Life (Years)


Price


Exercisable


Price$2.50 to $4.56


176



3.34


$
3.57



176


$
3.57$4.87 to $7.45


171



4.59



5.96



171



5.96$7.50 to $7.50


250



8.70



7.50



100



7.50$8.00 to $10.00


183



6.38



8.53



153



8.64$10.10 to $10.55


73



7.33



10.12



73



10.12Total


853



6.15


$
6.82



673


$
6.62      57




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
     WeightedAverageGrant-DateShares


Fair PriceNonvested at December 31, 2003


2,366


$
5.47Granted


340


$
6.10Vested


(855
)

$
4.92Forfeited


(189
)

$
3.87Nonvested at December 31, 2004


1,662


$
6.07Granted


340


$
2.83Vested


(427
)

$
5.05Forfeited


(1,097
)

$
6.41Nonvested at December 31, 2005


478


$
4.00Granted


40


$
7.68Vested


(212
)

$
4.68Forfeited


(126
)

$
4.50Nonvested at December 31, 2006


180


$
4.33     Restricted
    Stock Unit Awards
       58




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
              WeightedAverageGrant-DateShares


Fair PriceNonvested at December 31, 2003





$
Granted


10


$
9.81Vested





$
Forfeited





$
Nonvested at December 31, 2004


10


$
9.81Granted


70


$
5.17Vested


(3
)

$
9.81Forfeited






Nonvested at December 31, 2005


77


$
5.58Granted


807


$
8.00Vested


(25
)

$
7.68Forfeited


(41
)

$
15.53Nonvested at December 31, 2006


818


$
7.60  59




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
    Pro
    Forma Information
    Years Ended December 31,2005


2004Net (loss) income  as
    reported

$
(621
)

$
13,217Net (loss) income available to
    common stockholders

$
(621
)

$
14,865Add: Stock-based employee
    compensation expense included in reported net income, net of
    related tax effect


66



13Deduct: Total stock-based employee
    compensation benefit (expense) determined under fair value based
    method for all awards, net of related tax effect


1,622



(2,679
)Net income available to common
    stockholders  pro forma

$
1,067


$
12,199(Loss) earnings per shareBasic  as reported

$
(0.02
)

$
0.53Basic  pro forma

$
0.04


$
0.42Diluted  as reported

$
(0.02
)

$
0.50Diluted  pro forma

$
0.04


$
0.41     Note 11 
    Warrants
    Warrant


Warrant PriceShares


Per Share


Expiration DateBalance at December 31, 2003


2,021Warrants exercised


(949
)


$2.48



November 9, 2004Warrants exercised


(110
)

$
5.93 - $7.30



April 28, 2005Balance at December 31, 2004


962Warrants expired/cancelled


(962
)

$
5.93 - $7.30



April 28, 2005Balance at December 31, 2005


    60




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##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
   Note 12 
    Leases
    Year Ended December 31,2007

$
1,4562008


1,0882009


7552010


6962011


361Total minimum lease payments

$
4,356       Note 13 
    Business and Credit Concentrations
    2006


2005


2004Airlines


59
%


57
%


57
%All partners that represent 10% or
    more of sales


49
%


46
%


34
%   Note 14 
    Minimum Partner and Vendor Obligations
    Note 15 
    Certain Relationships and Related Party Transactions (square
    footage not in thousands)
  Active
    Agreements
   61




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##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
    month-to-month.
        Year Ending December 31,2007


5912008


5922009


555Thereafter


930Total minimum lease payments

$
2,668   Terminated
    agreements
  month-to-month
   62




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##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
    month-to-month 30-day
    Note 16 
    Litigation
    Form 10-K, Form 10-Q Form 8-K.
         63




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##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
   No. D-77,
    Balance atOriginal Charge


Amounts Paid


Reclassifications


December 31, 2006California Class Action
    Suit:Related litigation expenses 2004

$
648


$
648


$



$
Related litigation expenses 2005


3,064



3,064







2005 and 2004 expenses


3,712



3,712







Expense for Class


16,740











16,740Related litigation expenses


17,769



6,059







11,710Dining credits reserve


550







550



2006 expenses


35,059



6,059



550



28,450Total California litigation


38,771



9,771



550



28,450Source Inc.
    litigation:Associated legal costs 2004


45



45







Associated legal costs 2005


395



395







2005 and 2004 expenses


440



440







Settlement


1,000



800







200Associated legal costs


300



300







2006 expenses


1,300



1,100







200Total Source Inc. litigation


1,740



1,540







200Total litigation and related
    expenses

$
40,511


$
11,311


$
550


$
28,650  64




---



##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements 
    (Continued)
  Note 17 
    Selected Quarterly Financial Data (Unaudited)
    December 31,


September 30,


June 30,


March 31,2006


2006


2006


2006Sales

$
58,639


$
60,389


$
66,356


$
67,602Operating revenue


17,604



19,597



22,940



23,356Operating (loss) income


(29,306
)


(829
)


4,406



3,144(Loss) income before income tax


(29,264
)


(773
)


4,381



2,867Income tax (benefit) provision


(10,097
)


(365
)


1,778



1,050Net (loss) income

$
(19,167
)

$
(408
)

$
2,603


$
1,817(Loss) earnings per share:Basic

$
(0.72
)

$
(0.02
)

$
0.10


$
0.07Diluted

$
(0.72
)

$
(0.02
)

$
0.10


$
0.07   December 31,


September 30,


June 30,


March 31,2005


2005


2005


2005Sales

$
69,023


$
70,317


$
73,041


$
74,764Operating revenue


22,485



18,433



19,796



16,337Operating income (loss)


5,119



232



2,968



(5,446
)Income (loss) before income tax


4,542



(663
)


2,383



(6,142
)Income tax provision (benefit)


2,451



(179
)


944



(2,475
)Net income (loss)

$
2,091


$
(484
)

$
1,439


$
(3,667
)Earnings per share:Basic

$
0.08


$
(0.02
)

$
0.05


$
(0.14
)Diluted

$
0.08


$
(0.02
)

$
0.05


$
(0.14
)   Note 18 
    Subsequent Event
      Form 8-K
 65




---



##### Table of Contents



REWARDS
    NETWORK INC. AND SUBSIDIARIES
  Schedule II  Valuation and Qualifying
    Accounts
  Balance,


ChargedBeginning


to


Net


Other


Balance,Description

of Year


Expenses


Write-offs


Adjustments


End of Year(In thousands)Year ended December 31, 2006Allowance for doubtful merchant
    accounts  dining credits

$
21,192



3,954



(12,936
)





$
12,210Allowance for doubtful merchant
    accounts  Accounts Receivable

$
2,498



185



(605
)





$
2,078Valuation allowance on deferred
    taxes

$
496



(288
)









$
208Year ended December 31, 2005Allowance for doubtful merchant
    accounts  dining credits

$
26,943



19,906



(25,657
)





$
21,192Allowance for doubtful merchant
    accounts  Accounts Receivable

$
2,793



2,444



(2,739
)





$
2,498Valuation allowance on deferred
    taxes

$
245



251










$
496Year ended December 31, 2004Allowance for doubtful merchant
    accounts  dining credits

$
19,253



19,711



(11,730
)


(291
)(1)

$
26,943Allowance for doubtful merchant
    accounts  Accounts Receivable

$
2,502



2,113



(1,822
)





$
2,793Valuation allowance on deferred
    taxes

$




245










$
245     Notes:
  (1)
    
    Reclassed to accounts receivable 66




---



##### Table of Contents



Item 9 
    Changes and Disagreements with Accountants on Accounting and
    Financial Disclosure
   
  Item 9A 
    Controls and Procedures
  Evaluation of Disclosure Controls and
    Procedures. Rule 13a-15).
  Changes in Internal Control over Financial
    Reporting.
  Managements Report on Internal Control Over Financial
    Reporting. Rule 13a-15(f) 15d-15(f)
  Form 10-K.
 
  Item 9B 
    Other Information
   67




---



##### Table of Contents



PART III
 
  Item 10 
    Directors, Executive Officers and Corporate
    Governance
  Form 10-K.
  Form 8-K
 
  Item 11 
    Executive Compensation
   
  Item 12 
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters   
  Item 13 
    Certain Relationships and Related Transactions, and Director
    Independence
   
  Item 14 
    Principal Accounting Fees and Services
   68




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##### Table of Contents



PART IV
 
  Item 15 
    Exhibits, Financial Statement Schedules
    Form 10-K:
  
    Consolidated Balance Sheets at December 31, 2006 and 2005
    Consolidated Statements of Operations for the years ended
    December 31, 2006, 2005 and 2004
    Consolidated Statements of Stockholders Equity and
    Comprehensive Income (loss) for the years ended
    December 31, 2006, 2005 and 2004
    Consolidated Statements of Cash Flows for the years ended
    December 31, 2006, 2005 and 2004
    Notes to consolidated financial statements  Form 10-K.
    Form 10-K.
  REGULATION S-K
  ExhibitNo.

Description3
.1

Restated Certificate of
    Incorporation of Rewards Network Inc. is incorporated herein by
    reference to Exhibit 4.1 to Rewards Network Inc.s
    Registration Statement on
    Form S-3
    (File
    No. 333-111390),
    filed on December 19, 2003.3
.2

By-Laws of Rewards Network Inc.,
    as amended, are incorporated herein by reference to
    Exhibit 3.2 to Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 12, 2004.4
.1

Letter Agreement, dated as of
    June 12, 2002, between iDine Rewards Network Inc. and
    Samstock, L.L.C. is incorporated herein by reference to
    Exhibit 4.11 to Amendment No. 1 to iDine Rewards
    Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on October 7, 2003.4
.2

Second Amended and Restated
    Investment Agreement, dated as of June 30, 1999, among
    Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia
    Investors, L.L.C. and Robert M. Steiner, as trustee, is
    incorporated herein by reference to Exhibit 4.3 to
    Amendment No. 1 to Transmedia Network Inc.s
    Registration Statement on
    Form S-2
    (File
    No. 333-84947),
    filed on October 5, 1999.4
.3

Amendment, dated February 5,
    2003, to the Second Amended and Restated Investment Agreement,
    dated as of June 30, 1999, among iDine Rewards Network
    Inc., Samstock, L.L.C., and the former members and distributees
    of EGI-Transmedia Investors, L.L.C., is incorporated herein by
    reference to Exhibit 4.13 to Amendment No. 1 to iDine
    Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on October 7, 2003.4
.4

Indenture, dated as of
    October 15, 2003, as amended and restated as of
    February 4, 2004, between Rewards Network Inc. and LaSalle
    Bank National Association is incorporated herein by reference to
    Exhibit 4.15 to Rewards Network Inc.s Annual Report
    on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 12, 2004.4
.5

Registration Rights Agreement,
    dated October 8, 2003, between iDine Rewards Network Inc.
    and Credit Suisse First Boston LLC is incorporated herein by
    reference to Exhibit 4.18 to iDine Rewards Network
    Inc.s Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on November 14, 2003.10
.1

Stock Purchase and Sale Agreement,
    dated as of November 6, 1997, among Transmedia Network
    Inc., Samstock, L.L.C. and Transmedia Investors L.L.C. is
    incorporated herein by reference to Exhibit 10.1 to
    Transmedia Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on November 17, 1997. 69




---



##### Table of Contents



ExhibitNo.

Description10
.2

Amended and Restated Agreement
    Among Stockholders, dated as of March 3, 1998, among
    Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia
    Investors L.L.C., Melvin Chasen and Iris Chasen and Halmostock
    Limited Partnership is incorporated herein by reference to
    Exhibit 10.5 to Transmedia Network Inc.s Current
    Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on March 17, 1998.10
.3

Stockholders Agreement, dated as
    of March 3, 1998, among Transmedia Network Inc.,
    EGI  Transmedia Investors, L.L.C., Samstock, L.L.C.,
    and Halmostock Limited Partnership is incorporated herein by
    reference to Exhibit 10.6 to Transmedia Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on March 17, 1998.10
.4

Transmedia Network Inc. 1987 Stock
    Option and Rights Plan is incorporated herein by reference to
    Exhibit 10.2 to Transmedia Network Inc.s Annual
    Report on
    Form 10-K
    (File
    No. 000-4028),
    filed on December 29, 1994.10
.5

Form of Stock Option Agreement (as
    modified) between iDine Rewards Network Inc. and certain
    directors is incorporated herein by reference to
    Exhibit 10.3 to Transmedia Network Inc.s Annual
    Report on
    Form 10-K
    (File
    No.001-13806),
    filed on December 29, 1995.10
.6

iDine Rewards Network Inc. 1996
    Long-Term Incentive Plan, including amendments through
    June 1, 2002, is incorporated herein by reference to
    Exhibit 10.13 to Rewards Network Inc.s Annual Report
    on
    Form 10-K
    (File
    No. 001-13806),
    filed March 12, 2004.10
.7

Rewards Network Inc. 2004
    Long-Term Incentive Plan is incorporated herein by reference to
    Exhibit 10.2 to Rewards Network Inc.s Quarterly
    Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on August 5, 2004.10
.8

Amendment No. 1 to the
    Rewards Network Inc. 2004 Long-Term Incentive Plan is
    incorporated herein by reference to Exhibit 10.3 to Rewards
    Network Inc.s Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on August 5, 2004.10
.9

Rewards Network Inc. 2006
    Long-Term Incentive Plan is incorporated herein by reference to
    Exhibit 10.1 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on May 26, 2006.10
.10

2006 Incentive Compensation Plan
    is incorporated herein by reference to Exhibit 10.1 to
    Rewards Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on January 25, 2006.10
.11

2007 Incentive Compensation Plan
    is incorporated herein by reference to Exhibit 10.1 to
    Rewards Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on March 5, 2007.10
.12

Form of Restricted Stock Unit
    Award Agreement is incorporated herein by reference to
    Exhibit 10.2 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on February 28, 2006.10
.13

Form of Restricted Stock Unit
    Award Agreement is incorporated herein by reference to
    Exhibit 10.2 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on March 5, 2007.10
.14

Restricted Stock Unit Award
    Agreement, dated as of June 1, 2006, between Ronald L.
    Blake and Rewards Network Inc. is incorporated herein by
    reference to Exhibit 10.3 to Rewards Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on May 26, 2006.10
.15

Rewards Network Inc. 2004
    Non-Employee Director Awards Program is incorporated herein by
    reference to Exhibit 10.4 to Rewards Network Inc.s
    Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on August 5, 2004.10
.16

Amendment Number One to the
    Rewards Network Inc. 2004 Non-Employee Director Awards Program
    is incorporated herein by reference to Exhibit 10.5 to
    Rewards Network Inc.s Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on November 8, 2004.10
.17

Rewards Network Inc. 2006
    Non-Employee Director Awards Program is incorporated herein by
    reference to Exhibit 10.2 to Rewards Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on May 26, 2006.10
.18

Lease by and between Equity Office
    Properties Management, as agent for Two North Riverside Plaza
    Joint Venture Limited Partnership, and iDine Rewards Network
    Inc., dated May 5, 2003 is incorporated herein by reference
    to Exhibit 10.16 to iDine Rewards Network Inc.s
    Annual Report on
    Form 10-K/A
    (File
    No. 001-13806),
    filed on October 7, 2003. 70




---



##### Table of Contents



ExhibitNo.

Description10
.19

First Amendment, dated May 8,
    2006, between Rewards Network Inc. and Equity Office Properties
    Management Corp., as agent for Two North Riverside Plaza Joint
    Venture Limited Partnership, an Illinois limited partnership,
    sole beneficiary of LaSalle National Trust, N.A., successor
    trustee under Trust Agreement dated June 26, 1969 and known
    as Trust No. 39712 is incorporated herein by reference to
    Exhibit 10.6 to Rewards Network Inc.s Quarterly
    Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on May 9, 2006.10
.20

Standard Office Building Lease,
    dated May 11, 2001, between Transmedia Network Inc. and
    Biscayne Centre, LLC is incorporated herein by reference to
    Exhibit 10.4 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 5, 2005.10
.21

First Amendment to Standard Office
    Building Lease, dated July 24, 2002, between Transmedia
    Network Inc. and Biscayne Centre, LLC is incorporated herein by
    reference to Exhibit 10.3 to Rewards Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 5, 2005.10
.22

Second Amendment, dated
    August 24, 2006, between Rewards Network Inc. and Equity
    Office Properties Management Corp., as agent for Two North
    Riverside Plaza Joint Venture Limited Partnership, an Illinois
    limited partnership, sole beneficiary of LaSalle National Trust,
    N.A., successor trustee under Trust Agreement dated
    June 26, 1969 and known as Trust No. 39712 is
    incorporated herein by reference to Exhibit 10.1 to Rewards
    Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on August 25, 2005.10
.23

Second Amendment to Standard
    Office Building Lease, dated January 24, 2005, between
    Rewards Network Inc. and Biscayne Centre, LLC is incorporated
    herein by reference to Exhibit 10.2 to Rewards Network
    Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 5, 2005.10
.24

Third Amendment to Standard Office
    Building Lease, dated June 28, 2005, between Rewards
    Network Inc. and 119 Partners, LLC is incorporated herein by
    reference to Exhibit 10.1 to Rewards Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 5, 2005.10
.25

Lease by and between Equity Office
    Management, L.L.C., as indirect manager of San Felipe
    Plaza, Ltd. and Rewards Network Inc., dated June 25, 2004,
    is incorporated herein by reference to Exhibit 10.6 to
    Rewards Network Inc.s Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on November 8, 2004.10
.26

Lease by and between Insignia
    Corporate Establishments (U.S.) Inc. and Rewards Network Inc.,
    dated August 30, 1999, and the amendment thereto, is
    incorporated herein by reference to Exhibit 10.14 to
    Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 14, 2005.10
.27

Employment Agreement, dated
    September 13, 2005, between Rewards Network Inc. and Ronald
    L. Blake is incorporated herein by reference to
    Exhibit 10.1 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on September 14, 2005.10
.28

Offer Letter, dated September
    August 10, 2000, between Transmedia Network Services Inc.
    and Megan E. Flynn is incorporated herein by reference to
    Exhibit 10.22 to Rewards Network Inc.s Annual Report
    on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.29

Severance, Proprietary Interest
    Protection and Non-Solicitation Agreement, dated as of
    March 18, 2005, between Rewards Network Services Inc. and
    Megan E. Flynn. is incorporated herein by reference to
    Exhibit 10.23 to Rewards Network Inc.s Annual Report
    on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.30

Offer Letter, dated April 14,
    2005, between Rewards Network Services Inc. and Christopher J.
    Locke. is incorporated herein by reference to Exhibit 10.24
    to Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.31

Offer Letter, dated June 14,
    2005, between Rewards Network Establishment Services Inc. and
    Robert S. Wasserman is incorporated herein by reference to
    Exhibit 10.1 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on June 17, 2005.10
.32

Severance, Proprietary Interest
    Protection and Non-Solicitation Agreement, dated as of
    June 14, 2005, between Rewards Network Establishment
    Services Inc. and Robert S. Wasserman is incorporated herein by
    reference to Exhibit 10.2 to Rewards Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on June 17, 2005. 71




---



##### Table of Contents



ExhibitNo.

Description10
.33

Offer Letter, dated August 3,
    2006, between Rewards Network Inc. and Roya Behnia is
    incorporated herein by reference to Exhibit 10.6 to Rewards
    Network Inc.s Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on August 8, 2006.10
.34

Severance and Release Agreement,
    dated September 26, 2006, between Bryan R. Adel and Rewards
    Network Inc. is incorporated herein by reference to
    Exhibit 10.1 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on September 26, 2006.10
.35

Form of Directors and
    Officers Indemnity Agreement, dated as of May  ,
    2002, between iDine Rewards Network Inc. and the indemnitee
    stated therein is incorporated herein by reference to
    Exhibit 99 to iDine Rewards Network Inc.s
    Registration Statement on
    Form S-3
    (File
    No. 333-89406),
    filed on May 30, 2002.10
.36

Rewards Network Inc. Severance
    Plan. is incorporated herein by reference to Exhibit 10.34 to
    Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.37

Credit Agreement, dated as of
    November 3, 2004, by and among Rewards Network Inc., Bank
    of America, N.A., as Administrative Agent and Letter of Credit
    Issuer, and the other lenders party thereto is incorporated
    herein by reference to Exhibit 10.1 to Rewards Network
    Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on November 4, 2004.10
.38

Amendment No. 1 and Waiver to
    Credit Agreement, dated as of July 19, 2005, by and among
    Rewards Network Inc., Bank of America, N.A., as Administrative
    Agent and Letter of Credit Issuer, the other lenders party
    thereto, and the subsidiaries of Rewards Network Inc. party
    thereto is incorporated herein by reference to Exhibit 10.1
    to Rewards Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 20, 2005.10
.39

Amendment No. 2 to Credit
    Agreement, dated as of June 30, 2006, by and among Rewards
    Network Inc., Bank of America, N.A., as Administrative Agent and
    Letter of Credit Issuer, the other lenders party thereto, and
    the subsidiaries of Rewards Network Inc. party thereto is
    incorporated herein by reference to Exhibit 10.1 to Rewards
    Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 6, 2006.10
.40

Services Agreement, dated
    March 24, 2004, between First Data Merchant Services
    Corporation and Rewards Network Inc. is incorporated herein by
    reference to Exhibit 10.27 to Rewards Network Inc.s Annual
    Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 14, 2005.10
.41

Agreement, dated as of
    September 19, 2005, by and between Rewards Network Services
    Inc. and American Express Travel Related Services Company, Inc.
    is incorporated herein by reference to Exhibit 10.1 to
    Rewards Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on September 23, 2005.10
.42

Amendment to Agreement, dated as
    of March 13, 2006, by and between Rewards Network Services
    Inc. and American Express Travel Related Services Company, Inc.
    is incorporated herein by reference to Exhibit 10.39 to
    Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.43

Second Amended and Restated
    Agreement, dated as of March 13, 2006, by and between
    Rewards Network Services Inc. and Upromise, Inc. is incorporated
    herein by reference to Exhibit 10.40 to Rewards Network
    Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.44*

Settlement Agreement, dated
    March 6, 2007 by and among Rewards Network Inc., Rewards
    Network Establishment Services Inc., Rewards Network Services
    Inc., and RTR Funding LLC, on the one hand, and Bistro
    Executive, Inc., dba Tournesol; Patrice Lambert; Westward
    Beach Restaurant Holdings, LLC, formerly dba The Gray
    Whale; Thomas Averna; Minibar, Inc., dba Minibar Lounge;
    and Rebekah Barrow.21
.1*

List of Subsidiaries23
.1*

Consent of KPMG LLP24
.1*

Power of Attorney (contained in
    the signature page to this annual report on
    Form 10-K)31
.1*

Rule 13a-14(a)/15d-14(a)
    Certification of Principal Executive Officer31
.2*

Rule 13a-14(a)/15d-14(a)
    Certification of Principal Financial Officer32
.1*

Section 1350 Certification of
    Chief Executive Officer32
.2*

Section 1350 Certification of
    Chief Financial Officer     *
    
    Filed herewith 72




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##### Table of Contents



SIGNATURES
      
  Name:                         Ronald
    L. Blake
 Title:          President
    and Chief Executive Officer
  Power Of
    Attorney
  attorney-in-fact Form 10-K attorney-in-fact attorneys-in-fact attorneys-in-fact
    Signature

Title/s/  Donald
    J.
    LiebentrittDonald
    J. Liebentritt

Chairman of the Board/s/  Ronald
    L. BlakeRonald
    L. Blake

Director, President and Chief
    Executive Officer
    (Principal Executive Officer)/s/  Christopher
    J. LockeChristopher
    J. Locke

Senior Vice President and Chief
    Financial Officer
    (Principal Financial and Accounting Officer)   Signature

Capacity In Which Signed/s/  Adam
    M. AronAdam
    M. Aron

Director/s/  Karen
    I. BremerKaren
    I. Bremer

Director/s/  Peter
    C.B. BynoePeter
    C.B. Bynoe

Director 73




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##### Table of Contents



Signature

Capacity In Which Signed/s/  Raymond
    A. GrossRaymond
    A. Gross

Director/s/  F.
    Philip
    HandyF.
    Philip Handy

Director/s/  Nils
    E. LarsenNils
    E. Larsen

Director/s/  Harold
    I. ShainHarold
    I. Shain

Director/s/  John
    A. Ward, IIIJohn
    A. Ward, III

Director/s/  Frank
    E. WoodFrank
    E. Wood

Director  74




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##### Table of Contents



REWARDS
    NETWORK INC.
  LISTING
    OF EXHIBITS
  ExhibitNo.

Description3
.1

Restated Certificate of
    Incorporation of Rewards Network Inc. is incorporated herein by
    reference to Exhibit 4.1 to Rewards Network Inc.s
    Registration Statement on
    Form S-3
    (File
    No. 333-111390),
    filed on December 19, 2003.3
.2

By-Laws of Rewards Network Inc.,
    as amended, are incorporated herein by reference to
    Exhibit 3.2 to Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 12, 2004.4
.1

Letter Agreement, dated as of
    June 12, 2002, between iDine Rewards Network Inc. and
    Samstock, L.L.C. is incorporated herein by reference to
    Exhibit 4.11 to Amendment No. 1 to iDine Rewards
    Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on October 7, 2003.4
.2

Second Amended and Restated
    Investment Agreement, dated as of June 30, 1999, among
    Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia
    Investors, L.L.C. and Robert M. Steiner, as trustee, is
    incorporated herein by reference to Exhibit 4.3 to
    Amendment No. 1 to Transmedia Network Inc.s
    Registration Statement on
    Form S-2
    (File
    No. 333-84947),
    filed on October 5, 1999.4
.3

Amendment, dated February 5,
    2003, to the Second Amended and Restated Investment Agreement,
    dated as of June 30, 1999, among iDine Rewards Network
    Inc., Samstock, L.L.C., and the former members and distributees
    of EGI-Transmedia Investors, L.L.C., is incorporated herein by
    reference to Exhibit 4.13 to Amendment No. 1 to iDine
    Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on October 7, 2003.4
.4

Indenture, dated as of
    October 15, 2003, as amended and restated as of
    February 4, 2004, between Rewards Network Inc. and LaSalle
    Bank National Association is incorporated herein by reference to
    Exhibit 4.15 to Rewards Network Inc.s Annual Report
    on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 12, 2004.4
.5

Registration Rights Agreement,
    dated October 8, 2003, between iDine Rewards Network Inc.
    and Credit Suisse First Boston LLC is incorporated herein by
    reference to Exhibit 4.18 to iDine Rewards Network
    Inc.s Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on November 14, 2003.10
.1

Stock Purchase and Sale Agreement,
    dated as of November 6, 1997, among Transmedia Network
    Inc., Samstock, L.L.C. and Transmedia Investors L.L.C. is
    incorporated herein by reference to Exhibit 10.1 to
    Transmedia Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on November 17, 1997.10
.2

Amended and Restated Agreement
    Among Stockholders, dated as of March 3, 1998, among
    Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia
    Investors L.L.C., Melvin Chasen and Iris Chasen and Halmostock
    Limited Partnership is incorporated herein by reference to
    Exhibit 10.5 to Transmedia Network Inc.s Current
    Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on March 17, 1998.10
.3

Stockholders Agreement, dated as
    of March 3, 1998, among Transmedia Network Inc.,
    EGI  Transmedia Investors, L.L.C., Samstock, L.L.C.,
    and Halmostock Limited Partnership is incorporated herein by
    reference to Exhibit 10.6 to Transmedia Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on March 17, 1998.10
.4

Transmedia Network Inc. 1987 Stock
    Option and Rights Plan is incorporated herein by reference to
    Exhibit 10.2 to Transmedia Network Inc.s Annual
    Report on
    Form 10-K
    (File
    No. 000-4028),
    filed on December 29, 1994.10
.5

Form of Stock Option Agreement (as
    modified) between iDine Rewards Network Inc. and certain
    directors is incorporated herein by reference to
    Exhibit 10.3 to Transmedia Network Inc.s Annual
    Report on
    Form 10-K
    (File
    No.001-13806),
    filed on December 29, 1995.10
.6

iDine Rewards Network Inc. 1996
    Long-Term Incentive Plan, including amendments through
    June 1, 2002, is incorporated herein by reference to
    Exhibit 10.13 to Rewards Network Inc.s Annual Report
    on
    Form 10-K
    (File
    No. 001-13806),
    filed March 12, 2004.10
.7

Rewards Network Inc. 2004
    Long-Term Incentive Plan is incorporated herein by reference to
    Exhibit 10.2 to Rewards Network Inc.s Quarterly
    Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on August 5, 2004.10
.8

Amendment No. 1 to the
    Rewards Network Inc. 2004 Long-Term Incentive Plan is
    incorporated herein by reference to Exhibit 10.3 to Rewards
    Network Inc.s Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on August 5, 2004.




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##### Table of Contents



ExhibitNo.

Description10
.9

Rewards Network Inc. 2006
    Long-Term Incentive Plan is incorporated herein by reference to
    Exhibit 10.1 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on May 26, 2006.10
.10

2006 Incentive Compensation Plan
    is incorporated herein by reference to Exhibit 10.1 to
    Rewards Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on January 25, 2006.10
.11

2007 Incentive Compensation Plan
    is incorporated herein by reference to Exhibit 10.1 to
    Rewards Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on March 5, 2007.10
.12

Form of Restricted Stock Unit
    Award Agreement is incorporated herein by reference to
    Exhibit 10.2 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on February 28, 2006.10
.13

Form of Restricted Stock Unit
    Award Agreement is incorporated herein by reference to
    Exhibit 10.2 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on March 5, 2007.10
.14

Restricted Stock Unit Award
    Agreement, dated as of June 1, 2006, between Ronald L.
    Blake and Rewards Network Inc. is incorporated herein by
    reference to Exhibit 10.3 to Rewards Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on May 26, 2006.10
.15

Rewards Network Inc. 2004
    Non-Employee Director Awards Program is incorporated herein by
    reference to Exhibit 10.4 to Rewards Network Inc.s
    Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on August 5, 2004.10
.16

Amendment Number One to the
    Rewards Network Inc. 2004 Non-Employee Director Awards Program
    is incorporated herein by reference to Exhibit 10.5 to
    Rewards Network Inc.s Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on November 8, 2004.10
.17

Rewards Network Inc. 2006
    Non-Employee Director Awards Program is incorporated herein by
    reference to Exhibit 10.2 to Rewards Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on May 26, 2006.10
.18

Lease by and between Equity Office
    Properties Management, as agent for Two North Riverside Plaza
    Joint Venture Limited Partnership, and iDine Rewards Network
    Inc., dated May 5, 2003 is incorporated herein by reference
    to Exhibit 10.16 to iDine Rewards Network Inc.s
    Annual Report on
    Form 10-K/A
    (File
    No. 001-13806),
    filed on October 7, 2003.10
.19

First Amendment, dated May 8,
    2006, between Rewards Network Inc. and Equity Office Properties
    Management Corp., as agent for Two North Riverside Plaza Joint
    Venture Limited Partnership, an Illinois limited partnership,
    sole beneficiary of LaSalle National Trust, N.A., successor
    trustee under Trust Agreement dated June 26, 1969 and known
    as Trust No. 39712 is incorporated herein by reference to
    Exhibit 10.6 to Rewards Network Inc.s Quarterly
    Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on May 9, 2006.10
.20

Standard Office Building Lease,
    dated May 11, 2001, between Transmedia Network Inc. and
    Biscayne Centre, LLC is incorporated herein by reference to
    Exhibit 10.4 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 5, 2005.10
.21

First Amendment to Standard Office
    Building Lease, dated July 24, 2002, between Transmedia
    Network Inc. and Biscayne Centre, LLC is incorporated herein by
    reference to Exhibit 10.3 to Rewards Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 5, 2005.10
.22

Second Amendment, dated
    August 24, 2006, between Rewards Network Inc. and Equity
    Office Properties Management Corp., as agent for Two North
    Riverside Plaza Joint Venture Limited Partnership, an Illinois
    limited partnership, sole beneficiary of LaSalle National Trust,
    N.A., successor trustee under Trust Agreement dated
    June 26, 1969 and known as Trust No. 39712 is
    incorporated herein by reference to Exhibit 10.1 to Rewards
    Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on August 25, 2005.10
.23

Second Amendment to Standard
    Office Building Lease, dated January 24, 2005, between
    Rewards Network Inc. and Biscayne Centre, LLC is incorporated
    herein by reference to Exhibit 10.2 to Rewards Network
    Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 5, 2005.10
.24

Third Amendment to Standard Office
    Building Lease, dated June 28, 2005, between Rewards
    Network Inc. and 119 Partners, LLC is incorporated herein by
    reference to Exhibit 10.1 to Rewards Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 5, 2005.




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##### Table of Contents



ExhibitNo.

Description10
.25

Lease by and between Equity Office
    Management, L.L.C., as indirect manager of San Felipe
    Plaza, Ltd. and Rewards Network Inc., dated June 25, 2004,
    is incorporated herein by reference to Exhibit 10.6 to
    Rewards Network Inc.s Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on November 8, 2004.10
.26

Lease by and between Insignia
    Corporate Establishments (U.S.) Inc. and Rewards Network Inc.,
    dated August 30, 1999, and the amendment thereto, is
    incorporated herein by reference to Exhibit 10.14 to
    Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 14, 2005.10
.27

Employment Agreement, dated
    September 13, 2005, between Rewards Network Inc. and Ronald
    L. Blake is incorporated herein by reference to
    Exhibit 10.1 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on September 14, 2005.10
.28

Offer Letter, dated September
    August 10, 2000, between Transmedia Network Services Inc.
    and Megan E. Flynn is incorporated herein by reference to
    Exhibit 10.22 to Rewards Network Inc.s Annual Report
    on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.29

Severance, Proprietary Interest
    Protection and Non-Solicitation Agreement, dated as of
    March 18, 2005, between Rewards Network Services Inc. and
    Megan E. Flynn. is incorporated herein by reference to
    Exhibit 10.23 to Rewards Network Inc.s Annual Report
    on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.30

Offer Letter, dated April 14,
    2005, between Rewards Network Services Inc. and Christopher J.
    Locke. is incorporated herein by reference to Exhibit 10.24
    to Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.31

Offer Letter, dated June 14,
    2005, between Rewards Network Establishment Services Inc. and
    Robert S. Wasserman is incorporated herein by reference to
    Exhibit 10.1 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on June 17, 2005.10
.32

Severance, Proprietary Interest
    Protection and Non-Solicitation Agreement, dated as of
    June 14, 2005, between Rewards Network Establishment
    Services Inc. and Robert S. Wasserman is incorporated herein by
    reference to Exhibit 10.2 to Rewards Network Inc.s
    Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on June 17, 2005.10
.33

Offer Letter, dated August 3,
    2006, between Rewards Network Inc. and Roya Behnia is
    incorporated herein by reference to Exhibit 10.6 to Rewards
    Network Inc.s Quarterly Report on
    Form 10-Q
    (File
    No. 001-13806),
    filed on August 8, 2006.10
.34

Severance and Release Agreement,
    dated September 26, 2006, between Bryan R. Adel and Rewards
    Network Inc. is incorporated herein by reference to
    Exhibit 10.1 to Rewards Network Inc.s Current Report
    on
    Form 8-K
    (File
    No. 001-13806),
    filed on September 26, 2006.10
.35

Form of Directors and
    Officers Indemnity Agreement, dated as of May  ,
    2002, between iDine Rewards Network Inc. and the indemnitee
    stated therein is incorporated herein by reference to
    Exhibit 99 to iDine Rewards Network Inc.s
    Registration Statement on
    Form S-3
    (File
    No. 333-89406),
    filed on May 30, 2002.10
.36

Rewards Network Inc. Severance
    Plan. is incorporated herein by reference to Exhibit 10.34 to
    Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.37

Credit Agreement, dated as of
    November 3, 2004, by and among Rewards Network Inc., Bank
    of America, N.A., as Administrative Agent and Letter of Credit
    Issuer, and the other lenders party thereto is incorporated
    herein by reference to Exhibit 10.1 to Rewards Network
    Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on November 4, 2004.10
.38

Amendment No. 1 and Waiver to
    Credit Agreement, dated as of July 19, 2005, by and among
    Rewards Network Inc., Bank of America, N.A., as Administrative
    Agent and Letter of Credit Issuer, the other lenders party
    thereto, and the subsidiaries of Rewards Network Inc. party
    thereto is incorporated herein by reference to Exhibit 10.1
    to Rewards Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 20, 2005.




---



##### Table of Contents



ExhibitNo.

Description10
.39

Amendment No. 2 to Credit
    Agreement, dated as of June 30, 2006, by and among Rewards
    Network Inc., Bank of America, N.A., as Administrative Agent and
    Letter of Credit Issuer, the other lenders party thereto, and
    the subsidiaries of Rewards Network Inc. party thereto is
    incorporated herein by reference to Exhibit 10.1 to Rewards
    Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on July 6, 2006.10
.40

Services Agreement, dated
    March 24, 2004, between First Data Merchant Services
    Corporation and Rewards Network Inc. is incorporated herein by
    reference to Exhibit 10.27 to Rewards Network Inc.s Annual
    Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 14, 2005.10
.41

Agreement, dated as of
    September 19, 2005, by and between Rewards Network Services
    Inc. and American Express Travel Related Services Company, Inc.
    is incorporated herein by reference to Exhibit 10.1 to
    Rewards Network Inc.s Current Report on
    Form 8-K
    (File
    No. 001-13806),
    filed on September 23, 2005.10
.42

Amendment to Agreement, dated as
    of March 13, 2006, by and between Rewards Network Services
    Inc. and American Express Travel Related Services Company, Inc.
    is incorporated herein by reference to Exhibit 10.39 to
    Rewards Network Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.43

Second Amended and Restated
    Agreement, dated as of March 13, 2006, by and between
    Rewards Network Services Inc. and Upromise, Inc. is incorporated
    herein by reference to Exhibit 10.40 to Rewards Network
    Inc.s Annual Report on
    Form 10-K
    (File
    No. 001-13806),
    filed on March 15, 2006.10
.44*

Settlement Agreement, dated
    March 6, 2007 by and among Rewards Network Inc., Rewards
    Network Establishment Services Inc., Rewards Network Services
    Inc., and RTR Funding LLC, on the one hand, and Bistro
    Executive, Inc., dba Tournesol; Patrice Lambert; Westward
    Beach Restaurant Holdings, LLC, formerly dba The Gray
    Whale; Thomas Averna; Minibar, Inc., dba Minibar Lounge;
    and Rebekah Barrow.21
.1*

List of Subsidiaries23
.1*

Consent of KPMG LLP24
.1*

Power of Attorney (contained in
    the signature page to this annual report on
    Form 10-K)31
.1*

Rule 13a-14(a)/15d-14(a)
    Certification of Principal Executive Officer31
.2*

Rule 13a-14(a)/15d-14(a)
    Certification of Principal Financial Officer32
.1*

Section 1350 Certification of
    Chief Executive Officer32
.2*

Section 1350 Certification of
    Chief Financial Officer     *
    
    Filed herewith