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As filed with the Securities and Exchange Commission on March 9, 1998
Registration Statement No. 333 -
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MEMBERWORKS INCORPORATED
(Exact name of registrant as specified in its charter)
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DELAWARE 06-1276882
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
680 Washington Blvd.
Suite 1100
Stamford, CT 06901
(203) 324-7635
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GARY A. JOHNSON
President and Chief Executive Officer
680 Washington Blvd.
Suite 1100
Stamford, CT
(203) 324-7635
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
Copy to:
Thomas L. Barrette, Jr., Esq.
HALE AND DORR
60 State Street
Boston, Massachusetts 02109
(617) 526-6000
Approximate date of commencement of proposed sale to public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registrations statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective statement amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Shares Amount to Offering Price Aggregate Offering Registration
to be Registered be Registered Per share (1) Price(1) Fee
<S> <C> <C> <C> <C>
Ordinary shares, $0.01 928,571 shares $28.82 $26,761,416 $7,895.00
par value per share
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) and based upon prices on the Nasdaq National Market on March
3, 1998.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to completion dated March 9, 1998
928,571 Shares
MEMBERWORKS INCORPORATED
Common Stock
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The 928,571 shares (the "Shares") of Common Stock of MemberWorks
Incorporated, a Delaware corporation ("MemberWorks" or the "Company"), offered
by this Prospectus were issued in connection with the merger of a wholly-owned
subsidiary of MemberWorks with and into Coverdell & Company, Inc., a Georgia
corporation ("Coverdell"), which was consummated on ________ __, 1998 (the
"Merger"). The Shares may be sold from time to time by or on behalf of certain
former stockholders of Coverdell (the "Selling Stockholders") who are described
in this Prospectus under "Selling Stockholders." As part of the Merger, the
Company has agreed to register the Shares under the Securities Act of 1933, as
amended (the "Securities Act"). The Company has also agreed to use its best
efforts to cause the registration statement covering the Shares to remain
effective until June 30, 1998, provided the Company is then making available
"current public information" within the meaning of Rule 144(c) under the
Securities Act (and if such information is not then being made available by the
Company, then until the first date thereafter that the Company is making such
information available). The Company will not receive any of the proceeds from
the sale of the Shares by the Selling Stockholders. See "Use of Proceeds."
The Selling Shareholders may from time to time sell the shares covered by
this Prospectus on the Nasdaq National Market in ordinary brokerage
transactions, in negotiated transactions, or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution." The shares are quoted on the Nasdaq National Market under the
symbol "MBRS".
The Company will bear all out-of-pocket expenses incurred in connection
with the registration of the Shares, including, without limitation, all
registration and filing fees imposed by the Securities and Exchange Commission
(the "Commission"), the National Association of Securities Dealers ("NASD") and
blue sky laws, printing expenses, transfer agents' and registrars' fees, and the
reasonable fees and disbursements of the Company's outside counsel and
independent accountants, but excluding underwriting discounts and commissions
and transfer or other taxes and other costs and expenses incident to the
offering and sale of the shares to the public which shall be borne by the
Selling Stockholders.
The shares offered hereby involve a high degree of risk. See "Risk Factors"
beginning on page 8 hereof.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is ____________, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission pursuant to the informational
requirements of the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at 7
World Trade Center, Suite 1300, New York, New York 10048, and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials also may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the Company is required to file electronic versions of these
materials with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) System. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The shares of the Company are traded on the
Nasdaq National Market. Reports and other information concerning the Company may
be inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto, as certain items are omitted in accordance with the rules and
regulations of the Commission. For further information pertaining to the Company
and the Ordinary Shares offered hereby, reference is made to such Registration
Statement and the exhibits and schedules thereto, which may be inspected without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of which may be obtained from the Commission at
prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1997;
(2) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended September 30, 1997 and December 31, 1997; and
(3) The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A and any amendments or reports filed for the
purpose of updating such description.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of the Common Stock registered hereby
shall be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by
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reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the documents incorporated by reference into this Prospectus
(without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). Requests for such copies should
be directed to: the Chief Financial Officer of the Company, 680 Washington
Blvd., Suite 1100, Stamford, Connecticut 06901, (203) 324-7635.
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.
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THE COMPANY
The following summary is qualified by the more detailed information
appearing elsewhere in this prospectus or incorporated herein by reference.
Certain of the information contained in this prospectus or incorporated herein
by reference, including information with respect to the Company's plans and
strategies for its business, are forward-looking statements. For a discussion of
important factors that could cause actual results to differ materially from
these forward-looking statements, see "Risk Factors."
The Company believes, based on its senior management's knowledge of the
industry and its relationships with major credit card issuers in banking, oil
and retail, that it is a leading designer and provider of innovative membership
service programs. The Company designs and manages innovative membership programs
providing substantial benefits to member consumers, those organizations offering
the programs and vendors whose products and services are offered through the
programs. The Company addresses the needs of organizations seeking to leverage
the expertise of an outside provider in offering these programs. In return for
providing the Company with customer lists, the Company's clients receive royalty
payments. Clients also benefit because the programs are designed and managed to
strengthen the relationship between clients and their customers. The Company
offers its programs to increasingly sophisticated consumers seeking economy,
efficiency and convenience in their purchase of products and services. Members
save time by telephonically purchasing goods and services and obtaining useful
information. Members also benefit because the vendors agree to allow discounts
for products and services not generally available to non-members. For
participating vendors, the programs provide the opportunity to reach a large
number of demographically attractive members at minimal incremental marketing
cost. The Company's programs are primarily marketed to credit card holders
through arrangements with its client organizations including banks, retailers,
major oil companies and other credit card issuers.
The Company's nine membership service programs, which combined had
approximately 2.3 million members as of December 31, 1997, offer unique and
valuable services, information and savings opportunities. The service programs
are marketed under the name of the program on behalf of the client and are
designed and developed to capitalize on the client's existing relationship with
its customers or other constituents. In general, membership fees, which may be
payable monthly or annually depending on the program, ranged from approximately
$40 per year to approximately $107 per year during fiscal 1997. The Company can
create customized service programs for clients based on elements of its standard
programs. Currently, the Company markets the following nine programs.
* Health Trends(R) is a unique membership program for the health conscious
individual or family, providing convenient information and substantial
savings on quality health and personal care services and maintenance.
* The Countrywide Dental Program(R) ("CDP") consists of a network of
independent dentists in 47 states who have agreed to accept a reduced fee
schedule for subscribers in the program, CDP is not an insurance plan, but
can be used with any dental insurance program to reduce a member's
insurance co-payments.
* The Countrywide Dental and Health Program(SM) offers a combination of
benefits from the Company's Countrywide Dental Program and HealthTrends
services. This combined service provides members and their families dental
services at special discounted rates in addition to substantial discounts
on eyewear, pharmaceuticals, hearing aids and chiropractic benefits.
* Travel Arrangements(SM) is a comprehensive discount travel program that
offers substantial savings and convenience on a broad range of business,
leisure, and vacation travel services.
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* Connections(SM) is designed to provide savings to members on a broad range
of entertainment and leisure time activities and contains a shopping
service for substantial savings on a wide array of merchandise.
* Leisure Advantage(SM) provides discounts on many types of sports and
athletic merchandise, apparel, and services.
* MoneyMaster(SM) helps members plan for and manage their personal finances,
taxes, insurance, and retirement planning. This service complements and can
integrate some of the benefits currently offered by the Company's financial
institution clients.
* Home PC Link(SM) offers a wide range of assistance to the first time
computer purchaser as well as to existing users seeking information on
upgrading their systems and enhancements.
* Essentials(SM) offers fitness, fashion and beauty services for men and
women, through discounts on clothing, haircuts, health clubs and nutrition
counseling.
In general, members subscribe for renewable one-year memberships in the
Company's programs. When consumers agree to enroll in a program, they generally
receive a trial membership. During this time, the member may use the program's
services without obligation, as outlined in a membership brochure received by
mail along with a membership card and membership identification number. The
brochure outlines in detail the benefits which the service offers and contains
toll free numbers which may be called to access service benefits and
information. In the event that a consumer elects not to participate in the
service, he or she can call a toll free number during the trial period to cancel
the service without charge. Trial memberships are generally for a period of 30
days and there are no conditions with respect to the ability of the consumer to
terminate a trial membership. The Company does not record any revenue with
respect to trial memberships.
If the membership is not canceled during the trial period, the consumer is
charged the annual membership fee. In the event that the member does not cancel
the membership after the initial membership term, he or she generally receives a
renewal kit in the mail in advance of each membership year and is charged for
the succeeding year's membership fee. During the course of an initial annual
membership term or renewal term, a member is free to cancel a membership in the
program, generally for a complete refund of the membership fee for that period.
The Company offers its service programs to consumers through clients, such
as credit card issuers, who have an existing relationship with those consumers.
The client provides the Company with lists of consumers which the Company inputs
into its database management system to model, analyze and identify likely
members. The Company pays the client an annual royalty for initial and renewal
membership fees received by the Company from consumers provided to it by the
client. The royalties paid to clients by the Company average approximately 20%
of initial and renewal membership fees.
The Company has developed a consultative product development process
coordinating the efforts of its sales and marketing group with those of its
client management group in order to anticipate client needs for new product
offerings. The Company's senior management works with both of these groups to
develop and refine new program concepts and then to introduce the new program.
An important factor in the Company's ability to develop innovative programs is
its emphasis on telemarketing, which allows it to obtain and analyze market
trend information quickly. The Company believes this method of product
development has allowed it to respond quickly and effectively to market demand
for new programs.
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The Company believes that it was the first membership company to introduce
aggregated discount services in the areas of health, sports, fashion and beauty,
financial and personal computer programs. The Company also believes that all of
its programs are innovative with respect to the variety and quality of
particular services, discounts and other features which those programs offer. By
bundling and reconfiguring various features of its standard programs, the
Company can customize a program to the particular needs and demands of its
clients.
In addition to marketing its programs directly to consumers through lists
provided by credit card issuers and other businesses and organizations, the
Company has begun to provide membership service programs on a wholesale basis.
Typically, the Company works with a wholesale client to incorporate elements
from one or more of its standard service programs in the design of a custom
program for the client. The client will then provide the membership in the
customized format to its customers as a value-added feature. The client pays the
Company the membership fees for the customers who receive the service program.
Wholesale programs substantially reduce the cost for the Company to acquire new
members, which results in higher profit margins for the Company. Accordingly,
the Company provides membership in the service program for fees which are less
than the Company's standard fees for the program. To date, substantially all of
the Company's revenues have been from individual memberships.
The Company is also actively developing new distribution channels.
MemberLink(SM) is an arrangement where inbound callers to a client, meeting
certain criteria, are offered the Company's membership service programs by a
client's service representative or by a MemberWorks membership service
representative through a call transfer.
On the date of this Prospectus, the Company will have completed its merger
with Coverdell & Company, Inc. ("Coverdell"), pursuant to which Coverdell, a
leading direct marketer of life, accident and health insurance products to
checking account customers of large financial institutions, became a
wholly-owned subsidiary of the Company. Under the terms of the agreement,
Coverdell's stockholders received approximately _____ shares of the Company's
Common Stock and three million dollars in cash in exchange for all outstanding
shares and options of Coverdell. The acquisition of Coverdell will be accounted
for as a purchase under the purchase method of accounting.
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RISK FACTORS
From time to time, information provided by the Company or statements made
by its employees may contain forward-looking information. The Company's actual
future results may differ materially from those projections or suggestions made
in such forward-looking information as a result of various potential risks and
uncertainties, including, but not limited to, the factors discussed below.
HISTORY OF LOSSES
The Company has historically incurred significant operating losses. As of
December 31, 1997, the Company had an accumulated deficit of approximately $42.3
million. For fiscal years 1997 and 1996, the Company incurred net losses of
approximately $3.9 million and $5.2 million, respectively. Although the Company
has experienced revenue growth in recent periods, such growth rates may not be
sustainable and are not indicative of future operating results. There can be no
assurance that the Company will maintain profitability in the future.
DEPENDENCE ON CLIENTS; CLIENT CONCENTRATION
The Company obtains substantially all of the information necessary to the
Company's marketing efforts from customer lists supplied by its clients. Clients
provide the lists to the Company for use in marketing a single, specific program
which has been pre-approved by the client. As a result, the Company's ability to
market a new program to an existing customer base or an existing program to a
new customer base is dependent on first obtaining approval from a client. There
can be no assurance that the Company will continue to obtain such approvals.
Approximately 44.5% of the Company's revenues for the year ended June 30,
1997 was attributable to members solicited from the customer lists provided by
two key clients. There can be no assurance that one or more of the Company's key
or other clients will not terminate its relationship with the Company or that
clients will provide additional customer lists to the Company for use in further
marketing new or existing membership programs. Termination or expiration of a
key client relationship could have a material adverse effect on the future
revenues from existing programs of which such client's customers are members and
on the Company's ability to further market new or existing programs through such
client.
DEPENDENCE ON MEMBERSHIP RENEWALS
The Company generally incurs losses and negative cash flow during the
initial year of an individual membership program, as compared to renewal years,
due primarily to higher marketing costs associated with initial member
procurement. In addition, the Company experiences a higher percentage of
cancellations during the initial membership period as compared to renewal
periods. During an initial annual membership term or renewal term, a member may
cancel his or her membership in the program, generally for a complete refund of
the membership fee for that period. Accordingly, the profitability of each of
the Company's programs depends on recurring and sustained membership renewals.
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FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly from
quarter to quarter in the future. Factors which affect the Company's financial
results include: the timing and cancellation of customer orders; the Company's
ability to introduce new programs on a timely basis; the introduction of
programs by the Company's competitors; market acceptance of the Company's and
its clients' programs; the timing of investments in program development;
personnel changes; the demand for membership programs generally; the mix of
programs offered by the Company; unanticipated service interruptions; increased
costs associated with expansion of operations; the availability of vendors to
support offered programs; the rate of renewal by existing members of programs;
the level of enthusiasm for health and fitness, travel, entertainment and
leisure activities, and other lifestyle elements underlying the Company's
programs; and competitive pressures on selling prices. Many of these factors are
beyond the Company's control. Because the Company determines its expenditure
levels in advance of each quarter, the Company's ability to reduce costs quickly
in response to any revenue shortfall is limited, and thus operating results
would be adversely affected if projected revenues for a given quarter are not
achieved. There also can be no assurance that future acquisitions, such as the
acquisition of Coverdell, and others, if any, by the Company will not have an
adverse effect upon the Company's results of operations, particularly in
quarters immediately following consummation of such transactions, while the
operations of the acquired business are being integrated into the Company's
operations.
INTENSE COMPETITION
Competition in the membership services market for clients, such as credit
card issuers, is intense. Several of the Company's competitors offer membership
programs which provide services similar to, or which directly compete with,
those provided by the Company. Because contracts between clients and program
providers are often exclusive with respect to a particular service, potential
clients may be prohibited from contracting with the Company to promote a program
if the services provided by the Company's program are similar to, or merely
overlap with, the services provided by an existing program of a competitor. Most
of the Company's clients provide, either directly or through third parties,
programs offered by the Company's competitors. Competition for new members is
also intense, particularly as the market becomes saturated with customers who
are already members of competing programs. The Company's principal competitor is
Cendant Corporation ("Cendant"). The Company's other competitors include large
retailers, travel agencies, financial institutions and other organizations which
offer benefit programs to their customers. There can be no assurance that the
Company's competitors will not increase their emphasis on programs similar to
those offered by the Company and more directly compete with the Company, that
new competitors will not enter the market, or that other businesses will not
themselves introduce competing programs. Many of the Company's current and
prospective competitors, including Cendant, have substantially larger customer
bases and greater financial and other resources than the Company. There can be
no assurance that the Company's current or potential competitors will not
provide programs comparable or superior to those provided by the Company at
lower membership prices or adapt more quickly than the Company to evolving
industry trends or changing market requirements.
NEW PROGRAM INTRODUCTIONS
The Company's business is substantially dependent on its ability to develop
and successfully introduce new programs which generate consumer interest.
Failure to introduce new programs in a timely manner could result in the
Company's competitors acquiring additional market share for a program in a
particular area of consumer interest. In addition, the introduction or
announcement of new programs by the Company or by others could render existing
programs uncompetitive or obsolete, or result in a delay or decrease in orders
for existing programs as customers evaluate new programs or select the new
programs as an alternative to existing programs. Therefore, the announcement or
introduction of new programs by the Company or others, or the failure by the
Company to introduce new programs which
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have broad consumer appeal, could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON VENDORS AND TELEMARKETERS
The Company depends on independent vendors to provide most program products
and services to members and on telemarketers to market its programs to
prospective members. The vendors and telemarketers operate pursuant to
agreements with the Company that may be terminated by the vendor or telemarketer
with limited prior notice. There can be no assurance that, in the event a vendor
or telemarketer ceases operations, or terminates, breaches or chooses not to
renew its agreement with the Company, a replacement vendor or telemarketer could
be retained on a timely basis, if at all. In addition, vendors and telemarketers
are independent contractors and the level and quality of services provided is
outside the control of the Company. Any service interruptions, delays or quality
problems could result in customer dissatisfaction and membership cancellations,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON CREDIT CARD INDUSTRY
The Company's future success is dependent in large part on continued demand
for the Company's programs from businesses within the industries served by the
Company. In particular, programs marketed through the Company's credit card
issuer clients accounted for substantially all of the Company's revenues in
fiscal 1997. A significant downturn in the credit card industry or a trend in
that industry to reduce or eliminate its use of membership programs would have a
material adverse effect on the Company's business, financial condition and
results of operations.
MANAGEMENT OF GROWTH
The Company has recently experienced a period of rapid growth that has
placed significant demands on its management and other resources, and continued
growth, if any, could continue to place significant demands on such resources.
Net sales increased from approximately $9.4 million in fiscal 1992 to $79.2
million in fiscal 1997. In addition, the number of employees increased from 76
to approximately 500 during the same period. The Company's ability to compete
effectively and to manage future growth, if any, will depend on its ability to
continue to implement and improve operational, financial and management
information systems on a timely basis and to expand, train, motivate and manage
its work force. There can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's operations,
and the failure to support the Company's operations effectively could have a
material adverse effect on the Company's business, financial condition and
results of operations.
MEMBERSHIP PROGRAM INDUSTRY; NEGATIVE IMPACT OF COMPETING INDUSTRIES
Providers of membership service programs compete for client marketing
budget dollars with other marketing activities and, in particular, other forms
of direct marketing activities, such as direct mail. In recent years, there have
been significant advances in new forms of direct marketing, such as the
development of interactive shopping and data collection through television, the
Internet and other media. Many industry experts predict that electronic
interactive commerce, such as shopping and information exchange via the World
Wide Web, will proliferate significantly in the foreseeable future. To the
extent such proliferation occurs, it could have a material adverse effect on the
demand for membership service programs. Furthermore, as the telemarketing
industry continues to grow, the effectiveness of telemarketing, which is the
Company's major means of marketing its programs, as a direct marketing tool may
decrease as a result of increased consumer resistance to telemarketing in
general.
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FUTURE CAPITAL NEEDS
The Company typically incurs high costs in the year a program is
introduced. Principal elements of these costs relate to hiring personnel,
developing program content, contracting with vendors, drafting, testing and
refining telemarketing scripts and creating membership kits for mailing to
potential new program members. The Company must incur costs to market programs
to each potential member, regardless of whether that individual actually becomes
a paying member. The Company's capital base is smaller than that of many of its
competitors, and there can be no assurance that the Company's cash resources
will be able to sustain its business, particularly if it experiences a reduction
in revenues for a prolonged period or if it faces substantial unexpected capital
requirements. To the extent that such cash resources are insufficient to fund
the Company's activities, additional funds will be required. There can be no
assurance that additional financing will be available on reasonable terms or at
all. If additional capital is raised through the sale of additional equity or
convertible debt securities, dilution to the Company's stockholders would occur.
GOVERNMENT REGULATION; ADVERSE PUBLICITY
The primary means which the Company uses to market its programs is
telemarketing. The telemarketing industry has become subject to an increasing
amount of Federal and state regulation as well as general public scrutiny in the
past several years. The Federal Telephone Consumer Protection Act of 1991 limits
the hours during which telemarketers may call consumers and prohibits the use of
automated telephone dialing equipment to call certain telephone numbers. The
Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, and
Federal Trade Commission("FTC") regulations promulgated thereunder, prohibit
deceptive, unfair or abusive practices in telemarketing sales. Both the FTC and
state attorneys general have authority to prevent telemarketing activities that
constitute "unfair or deceptive acts or practices." Additionally, some states
have enacted laws and others are considering enacting laws targeted directly at
telemarketing practices, and there can be no assurance that any such laws, if
enacted, will not adversely affect or limit the Company's current or future
operations. Compliance with these regulations is generally the responsibility of
the Company, and the Company could be subject to a variety of enforcement or
private actions for any failure to comply with such regulations. The Company's
provision of membership programs requires the Company to comply with certain
state regulations, changes in which could materially increase the Company's
operating costs associated with complying with such regulations. The risk of
noncompliance by the Company with any rules and regulations enforced by a
Federal or state consumer protection authority may subject the Company or its
management to fines or various forms of civil or criminal prosecution, any of
which could materially adversely affect the Company's business, financial
condition and results of operations.
YEAR 2000 ISSUES
The Company has analyzed its computer hardware and software in connection
with dating problems that may arise with dates in the year 2000 or after and has
taken action to resolve issues identified. The Company has determined that
resolving issues related to this problem should not have a material impact on
its financial or operating performance.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares by the
Selling Shareholders.
-11-
<PAGE> 14
SELLING SHAREHOLDERS
The Selling Stockholders hold Shares which were issued by the Company in
the Merger. The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of March __, 1998 and as adjusted to
reflect the sale of the shares offered hereby. Except as specified below, the
Selling Shareholders have not held any positions or offices with, been employed
by, or otherwise had a material relationship with, the Company.
<TABLE>
<CAPTION>
Number and
Percentage of Ordinary Number and
Shares Beneficially Percentage of Ordinary
Name of Selling Owned as of Shares Being Shares Owned after
Shareholder March , 1998 Offered the Offering
- ---------------- --------------- ---------------- ------------
<S> <C> <C> <C>
</TABLE>
PLAN OF DISTRIBUTION
The shares covered hereby may be offered and sold from time to time by the
Selling Shareholders. The Selling Shareholders will act independently of the
Company in making decisions with respect to the timing, manner and size of each
sale, but may act together with other Selling Shareholders. Such sales may be
made in the over-the-counter market or otherwise, at prices related to the then
current market price or in negotiated transactions, including pursuant to an
underwritten offering or one or more of the following methods: (a) purchases by
a broker-dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (b) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (c) block trades in
which the broker-dealer so engaged will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction. In effecting sales, broker-dealers engaged by the Selling
Shareholders may arrange for other broker-dealers to participate. Broker-dealers
will receive commissions or discounts from the Selling Shareholders in amounts
to be negotiated immediately prior to the sale. The Company will indemnify the
Selling Shareholders against certain liabilities, including liabilities under
the Securities Act.
In offering the shares covered hereby, the Selling Shareholders and any
broker-dealers and any other participating broker-dealers who execute sales for
the Selling Shareholders may be deemed to be "underwriters" within the meaning
of the Securities Act in connection with such sales, and any profits realized by
the Selling Shareholders and the compensation of such broker-dealer may be
deemed to be underwriting discounts and commissions.
The Company has advised the Selling Shareholders that during such time as
they may be engaged in a distribution of shares included herein they are
required to comply with Rules 10b-6 and 10b-7 under the Exchange Act and, in
connection therewith, that they may not engage in any stabilization activity in
connection with the Company's securities, are required to furnish to each
broker-dealer through which shares included herein may be offered copies of this
Prospectus, and may not bid for or purchase any
-12-
<PAGE> 15
securities of the Company or attempt to induce any person to purchase any of the
Company's securities except as permitted under the Exchange Act. The Selling
Shareholders have agreed to inform the Company when the distribution of the
shares is completed.
Rule 10b-6 under the Exchange Act prohibits, with certain exceptions,
participants in a distribution from bidding for or purchasing, for an account in
which the participant has a beneficial interest, any of the securities that are
the subject of the distribution. Rule 10b-7 governs bids and purchases made in
order to stabilize the price of a security in connection with a distribution of
the security.
This offering will terminate on the earlier of (a) June 30, 1998 or (b) the
date on which all shares offered hereby have been sold by the Selling
Shareholders.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon by Hale and
Dorr LLP.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended June
30, 1997, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
-13-
<PAGE> 16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<TABLE>
<CAPTION>
Nature of Expense
- -----------------
<S> <C>
SEC Registration Fee......................................... $ 7,895.00
Legal Fees and Expenses...................................... $20,000.00
Miscellaneous................................................ $ 7,105.00
TOTAL $35,000.00
</TABLE>
Item 15. Indemnification of Directors and Officers.
Except as hereinafter set forth, there is no provision of the Company's
Certificate of Incorporation or any contract, arrangement or statute under which
any director or officer of the Company is insured or indemnified in any manner
against any liability that he may incur in his capacity as such.
Article Eighth of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article Ninth of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorney's fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determined that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a Director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which
II-1
<PAGE> 17
indemnity is sought and the Registrant has the right to participate in such
action or assume the defense thereof.
Article Ninth of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
- ------- ----------------------
<S> <C>
4.1* -- Certificate of Incorporation of the Company
4.2* -- By-laws of the Company
4.3* -- Specimen Certificate for Shares of the Company
5.1 -- Opinion of Hale and Dorr LLP
23.1 -- Consent of Price Waterhouse LLP
23.2 -- Consent of Hale and Dorr (included in Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-4)
</TABLE>
- ---------------
* Filed as an exhibit to the Company's Registration Statement on Form S-1 and
incorporated herein by reference (File No. 333-10541)
Item 17. Undertakings.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed in
this Registration Statement or any material change to such information in this
Registration Statement.
II-2
<PAGE> 18
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the indemnification provisions described herein, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Stamford, State of Connecticut on the 9th day of
March, 1998.
MemberWorks Incorporated
By: /s/ Gary A. Johnson
------------------------------
Gary A. Johnson
President and Chief
Executive Officer
SIGNATURES AND POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Gary A.
Johnson, James B. Duffy, Mark G. Borden and Thomas L. Barrette, Jr., each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution in each of them, for him and in his name, place
and stead, and in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement on Form S-3
of MemberWorks Incorporated and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 9th day of March, 1998.
Signature Title
--------- -----
/s/ Gary A. Johnson President, Chief Executive Officer and Director
- ------------------------- (Principal Executive Officer)
Gary A. Johnson
/s/ Dennis P. Walker Executive Vice President and Director
- -------------------------
Dennis P. Walker
/s/ James B. Duffy Senior Vice President and Chief Financial Officer
- ------------------------- (Principal Financial and Accounting Officer)
James B. Duffy
/s/ Stephen J. Clearman Director
- -------------------------
Stephen J. Clearman
/s/ Alec L. Ellison Director
- -------------------------
Alec L. Ellison
/s/ Michael R. O'Brien Director
- -------------------------
Michael R. O'Brien
/s/ Marc S. Tesler Director
- -------------------------
Marc S. Tesler
II-4
<PAGE> 1
Exhibit 5.1
[LETTERHEAD OF HALE AND DORR LLP APPEARS HERE]
March 9, 1998
MemberWorks, Incorporated
680 Washington Blvd.
Suite 1100
Stamford, CT 06901
Ladies and Gentlemen:
We have assisted in the preparation of the Registration Statement on
Form S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the
registration of 928,571 shares of common stock, $0.01 par value per share (the
"Shares"), of MemberWorks, Incorporated, a Delaware corporation (the "Company"),
held by certain selling stockholders of the Company.
We have examined the Certificate of Incorporation and By-Laws of the
Company and all amendments thereto and have examined and relied on the
originals, or copies certified to our satisfaction, of such records of meetings,
written actions in lieu of meetings, or resolutions adopted at meetings, of the
directors of the Company and such other documents and instruments as in our
judgment are necessary or appropriate to enable us to render the opinions
expressed below.
In our examination of the foregoing documents, we have assumed (i) the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, (ii) the conformity to the originals of all documents submitted
to us as certified or photostatic copies, and (iii) the authenticity of the
originals of the latter documents.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly and validly authorized and issued and are fully paid and
non-assessable.
We hereby consent to the use of our name in the Registration Statement
and in the related Prospectus under the caption "Legal Matters" and to the
filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
July 29, 1997, which is referred to in Part IV, Item 14(a)(1) of the 1997 Annual
Report on Form 10-K for the year ended June 30, 1997. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which is referred to in Part IV, Item 14(a)(2) of the 1997 Annual Report on Form
10-K for the year ended June 30, 1997. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
Price Waterhouse LLP
New York, New York
March 6, 1998
