Vertrue Inc – ‘8-K’ for 3/26/04

On:  Friday, 3/26/04, at 12:08pm ET   ·   For:  3/26/04   ·   Accession #:  950123-4-3826   ·   File #:  0-21527

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Current Report   —   Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Current Report                                        13     50K 
 2: EX-99.1     Unaudited Pro Forma Financial Statements              14     73K 
 3: EX-99.2     Audited Consolidated Financial Statements             29    125K 

8-K   —   Current Report
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

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

MARCH 26, 2004
--------------
Date of Report
 (Date of earliest event reported)

MEMBERWORKS INCORPORATED
------------------------
(Exact name of registrant as specified in its charter)

  DELAWARE                          0-21527                     06-1276882
------------------------      ------------------------       -------------------
(State of Incorporation)      (Commission File Number)        (I.R.S. Employer  
                                                             Identification No.)

 680 Washington Blvd
 Stamford, Connecticut 06901
 -----------------------------
(Address of principal executive offices,
 including zip code)

(203) 324-7635
--------------
 (Registrant's telephone number,
including area code)

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MEMBERWORKS INCORPORATED

ITEM 9. REGULATION FD                                                           

     As previously announced, MemberWorks Incorporated has entered into a master
transaction agreement with Lavalife Inc. pursuant to which MemberWorks has      
agreed to purchase all of the assets and outstanding capital stock of Lavalife  
for approximately Cdn$152.5 million in cash. MemberWorks expects the transaction
to be completed on April 1, 2004, subject to the satisfaction of certain closing
conditions. In addition, on March 25, 2004, MemberWorks entered into an amended 
and restated senior secured credit facility that allows borrowings up to $45    
million. MemberWorks intends to finance the Lavalife acquisition with cash on   
hand as well as borrowings under the amended and restated senior secured credit 
facility.                                                                       

    MemberWorks today announced via a press release that it will be offering
$150 million aggregate principal amount of senior notes due 2014, which press   
release was filed today via a Form 8-K. In the offering memorandum related to   
the offering of the senior notes due 2014, the following disclosures were made: 

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THE LAVALIFE ACQUISITION

THE ACQUISITION                                                                 

   On March 3, 2004, MemberWorks entered into a master transaction agreement
with Lavalife pursuant to which MemberWorks agreed to purchase all of the assets
and outstanding capital stock of Lavalife for an estimated purchase price of    
approximately Cdn$152.5 million in cash. We expect the transaction to be        
completed on April 1, 2004, subject to the satisfaction of certain closing      
conditions. We intend to finance the purchase price with cash on hand and       
borrowings under our $45.0 million senior secured credit facility. Following the
consummation of the acquisition, Lavalife will be operated as a wholly owned    
restricted subsidiary of MemberWorks and will guarantee the notes offered       
hereby.                                                                         

As a part of the Lavalife acquisition, members of Lavalife's senior   
management have agreed to enter into employment agreements with MemberWorks,    
including Bruce Croxon, Chairman and Chief Executive Officer, Nicholas Paine,   
Vice President of International Corporate Development, and Ed Lum, Vice         
President of Product Design. In addition, these members of Lavalife's senior    
management have agreed to purchase approximately Cdn$11.9 million in            
MemberWorks' restricted common stock at the closing of the acquisition.         

THE MASTER TRANSACTION AGREEMENT                                                

 The estimated purchase price for the acquisition is, subject to certain
adjustments and excluding fees and expenses, approximately Cdn$152.5 million in 
cash. The purchase price under the master transaction agreement will be adjusted
to take into account, among other things, (1) the extent to which Lavalife's    
working capital at the time of the closing deviates from its adjusted working   
capital (as defined in the master transaction agreement), and (2) the amount by 
which cash at the closing time is less than Cdn$3.0 million. In addition, the   
purchase price reflects certain assumptions of MemberWorks related to its tax   
liabilities to be incurred in connection with the Lavalife acquisition. The     
master transaction agreement contains customary representations, warranties and 
covenants.                                                                      

  Each of the shareholders of Lavalife has agreed to indemnify MemberWorks
for losses arising from, among other things, breaches of representations and    
warranties, breaches of covenants and certain liabilities. MemberWorks has      
agreed to indemnify the shareholders of Lavalife for losses arising from, among 
other things, breaches of representations and warranties and the failure to     
perform any of its covenants. Such indemnification obligations of the           
shareholders of Lavalife and of MemberWorks in relation to representations and  
warranties survive for a period of eighteen months following the closing.       
Certain other indemnification obligations of the shareholders of Lavalife and of
MemberWorks are not triggered unless the liabilities exceed certain minimum     
amounts.                                                                        

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LAVALIFE'S BUSINESS 

OVERVIEW                                                                        

  Through our subsidiary Lavalife, we will be a leading global provider of
web-based and interactive voice response ("IVR") based personals services.      
Founded in 1987, Lavalife markets its web and telephone products in             
approximately 60 markets principally across the United States, Canada and       
Australia. Lavalife's open-minded approach to dating allows members to choose   
how they want to "click" with other singles by offering three unique categories:
dating, relationships and intimate encounters. Lavalife has had over 8 million  
unique users since its inception. During 2003, Lavalife's users on average      
exchanged 1.3 million messages every day.                                       

Lavalife offers both web-based and IVR-based personals services to its
users. These services allow them to interact with each other from anywhere in   
real time by phone, email, text chat or video. To acquire new users and retain  
existing users, Lavalife relies on its innovative products, marketing           
relationships with major media groups, advertising campaigns in large markets,  
widely recognized brand and advanced technology infrastructure. These           
interactive services allow users who want to enhance their social lives to      
search for a date, meet new people and communicate with other users in a real   
time, "Anywhere, "Anytime" and "Anyhow" environment. Lavalife's global revenues 
are estimated to rank 2nd in 2003 for interactive personals services.           
Lavalife.com, the company's interactive web site, had 8.2 million unique        
visitors in January 2004, ranking 5th globally and 1st in Canada, according to  
comScore Media Metrix.                                                          

   Lavalife currently has over 700,000 active web-based and IVR-based users.
Lavalife serves customers in the United States, Canada and other regions,       
principally Australia, which accounted for approximately 69%, 25% and 6%,       
respectively, of its net sales for the fiscal year ended September 30, 2003. We 
believe that Lavalife has developed a unique personals services brand that      
focuses on outgoing singles living in major metropolitan areas.                 

Lavalife employs a transactional business model, in which users buy   
non-refundable credits up front and spend those credits only when they want to  
interact with other users. Lavalife's competitors generally employ a            
subscription model, in which users pay a fixed periodic fee. We believe a       
transactional model is more attractive to new users, who will join due to a     
lower initial cost and the ability to easily control their spending. The        
customer determines when to use the credits to communicate with other users.    
Furthermore, once a user has an account balance, the user has a strong financial
incentive to return to use their remaining credits. To further encourage return 
visits, Lavalife continues to refine its existing service offerings and         
introduce new interactive services, such as video. Lavalife continues to refine 
its product offerings and introduce innovative interactive products including   
video and real time online social networking.                                   

Lavalife's web personals services business started in 1996 as a free  
service and began charging users on a transaction basis in 1998. Currently,     
Lavalife is adding approximately 6,500 new users per day. We believe Lavalife is
well positioned to capitalize on anticipated expansion of online personals      
services market generated by the growth in consumer participation driven by     
social, practical and economic factors.                                         

 We believe Lavalife is currently the only company in the world offering
both web-based and IVR-based services on a global scale. The online dating      
industry is characterized by two significant barriers to entry: critical mass   
and technology. A critical mass of users in each geographic area is required to 
offer value to and attract customers. In addition, highly responsive and        
technologically advanced applications are required to attract and retain        
customers. With an already strong market presence in the major North American   
metropolitan areas and advanced technology, we believe Lavalife is well         
positioned to benefit from these market dynamics.                               

TECHNOLOGY                                                                      

 Lavalife has recently upgraded its integrated global network to support
both its IVR and web operations from two network operations centers. These      
centers, located in Toronto, Canada and Sydney, Australia, allow Lavalife to    
scale both its web and IVR operations, as well as support mobile operations,    
with full remote                                                                

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management capabilities of all services. Lavalife invested approximately Cdn$50 
million in the current system, which was completed in April 2003.               

EMPLOYEES                                                                       

     As of February 29, 2004, Lavalife had 302 full-time equivalent employees in
two locations, Toronto, Ontario and Sydney, Australia. None of Lavalife's       
employees are unionized. Lavalife has had no labor-related work stoppages and   
believes that its labor relations are good.                                     

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

OVERVIEW                                                                        

Lavalife is a leading independent provider of web-based and IVR-based 
personals services. Lavalife offers its services to its approximately 700,000   
active web-based and IVR-based users and had approximately 8.2 million unique   
web visitors during January 2004. These interactive services allow users who    
want to enhance their social lives to search for a date, meet new people and    
communicate with other users. Lavalife serves customers in the United States,   
Canada and other regions, principally Australia, which accounted for            
approximately 69%, 25% and 6%, respectively, of its net sales for the fiscal    
year ended September 30, 2003. To acquire new users and retain existing users,  
Lavalife relies on its innovative products, marketing relationships with major  
media groups, advertising campaigns in large markets, widely recognized brand   
and advanced technology infrastructure.                                         

Lavalife employs a transactional business model, in which users buy   
non-refundable credits up front and spend those credits when they want to       
interact with other users. The customer determines when to use the credits to   
communicate with other users. Lavalife derives its revenues from the sale of    
these credits to its users. Revenue is recognized on the basis of credits       
consumed. Deferred revenue represents credits purchased by customers remaining  
unused at the end of the period and estimated to be used in the future.         

 Lavalife is a Canadian company and is exposed to currency exchange rate
fluctuations because a significant portion of its revenues and expenses are     
denominated in currencies other than the Canadian dollar. For the year ended    
September 30, 2003, 81% of the revenue generated was denominated in U.S.        
dollars, 14% was denominated in Canadian dollars and 5% in Australian dollars.  
For the year ended September 30, 2003, 48% of the costs were denominated in     
Canadian dollars, 47% in U.S. dollars and 5% in Australian dollars.             

THREE MONTH PERIOD ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2002                

     Sales.  Sales decreased Cdn$4.1 million, or 15%, to Cdn$23.1 million during
the three months ended December 31, 2003 from Cdn$27.2 million during the three 
months ended December 31, 2002. The decrease was driven by the decrease in sales
of Cdn$3.5 million, or 13%, due to a decline in value of U.S. dollars relative  
to Canadian dollars, which had a negative impact on the sales generated in U.S. 
dollars. The average foreign exchange rate for U.S. dollars, expressed in       
Canadian dollars, for the three months ended December 31, 2003 decreased 16%    
over the prior year period. Excluding the negative impact of the foreign        
exchange rate movement, sales decreased by Cdn$0.6 million, or 2%, due to       
continued growth in its web based business, which was offset by a decline in the
IVR business experienced during the upgrade of its dating systems technology.   

   Operating income.  Operating income decreased Cdn$1.8 million, or 41%, to
Cdn$2.6 million during the three months ended December 31, 2003 from Cdn$4.4    
million during the three months ended December 31, 2002. The decrease was       
primarily driven by the negative impact of the foreign exchange rate movement   
described above, which reduced operating income by Cdn$1.7 million. Excluding   
the negative impact of the foreign exchange rate movement, operating income     
decreased by Cdn$0.2 million.                                                   

FISCAL YEAR ENDED SEPTEMBER 30, 2003 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
2002                                                                            

Sales.  Sales decreased Cdn$5.6 million, or 5% to Cdn$102.6 million in
fiscal 2003 from Cdn$108.2 million in fiscal 2002. The decrease was driven by a 
decrease in sales of Cdn$5.8 million, or 5%, due to a decline in value of U.S.  
dollars relative to Canadian dollars, which had a negative impact on the sales  
generated in U.S. dollars. The average foreign exchange rate for U.S. dollars   
expressed in Canadian dollars, for the 2003 fiscal year decreased 7% over the   
prior year. Excluding the negative impact of the foreign exchange movement,     
Lavalife's sales would have increased by $0.2 million due to continued growth in
its web-based business, which was offset by a decline in the IVR business       
experienced during the upgrade of its dating systems technology.                

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   Operating income.  Operating income decreased Cdn$2.8 million, or 14%, to
Cdn$17.1 million in fiscal 2003 from Cdn$19.9 million in fiscal 2002. The       
decrease was primarily driven by the negative impact of foreign exchange rate   
movement on sales discussed above, which reduced operating income by Cdn$3.1    
million. Excluding the negative impact of the foreign exchange rate movement,   
operating income increased by Cdn$0.3 million or 0.3% of sales, which was       
primarily due to the recovery of disputed telecommunications charges, partially 
offset by the increase in advertising expenses to promote Lavalife's web-based  
services.                                                                       

LIQUIDITY AND CAPITAL RESOURCES                                                 

  Cash flows from operating activities increased to Cdn$4.4 million during
the three months ended December 31, 2003 from Cdn$1.7 million during the three  
months ended December 31, 2002 primarily due to an increase in changes in       
working capital. Cash flows from operating activities increased to Cdn$16.3     
million in fiscal 2003 from Cdn$14.6 million in fiscal 2002 primarily due to an 
increase in changes in working capital.                                         

   Cash used in investing activities decreased to Cdn$0.2 million during the
three months ended December 31, 2003 from Cdn$0.9 million during the three      
months ended December 31, 2002 primarily driven by a decrease in capital        
expenditures. Capital expenditures during the three months ended December 31,   
2003 decreased to Cdn$0.2 million from Cdn$0.8 million during the three months  
ended December 31, 2002. Cash used in investing activities decreased to Cdn$2.8 
million in fiscal 2003 from Cdn$5.9 million in fiscal 2002 primarily driven by a
decrease in capital expenditures. Capital expenditures in fiscal 2003 decreased 
to Cdn$2.9 million from Cdn$5.7 million fiscal 2002 primarily due to the        
completion of the upgrade of the dating systems technology in the year          
ended September 30, 2003.                                                       

  Cash used in financing activities was Cdn$21.0 thousand during the three
months ended December 31, 2003 versus cash provided by financing activities of  
Cdn$9.6 million during the three months ended December 31, 2002. Financing      
activities during the three months ended December 31, 2002 included the net cash
received from the issuance of capital of Cdn$9.7 million. Cash used in financing
activities decreased to Cdn$8.5 million in fiscal 2003 from Cdn$9.7 million in  
fiscal 2002. Financing activities during fiscal 2003 included a return of       
capital of Cdn$17.0 million and a premium paid on the cancellation of common    
stock and stock options of Cdn$1.0 million offset by net cash received from the 
issuance of capital of Cdn$9.8 million. Financing activities during fiscal 2002 
included the repayment of subordinated debt of Cdn$9.7 million.                 

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RISK FACTORS RELATED TO LAVALIFE'S BUSINESS 

COMPETITORS MAY MOVE TO A TRANSACTIONAL MODEL FOR THEIR SERVICES.               

    Currently, Lavalife is one of a few online dating services that offers its
IVR and web services on a transactional model. This means that customers buy    
credits, but only spend them when communicating with other users. Other         
companies offer a subscription service, in which a customer pays a monthly fee  
for access to the online dating service, whether or not they actually           
communicate with other users. Lavalife believes that a transactional model is   
more attractive to new users, who will join due to a lower initial cost and the 
ability to easily control their spending. At the same time, unused credits lower
the churn of customers as they provide incentive for customers to return. If    
other companies were to offer their services in a transactional model, Lavalife 
could lose market share, which could materially adversely affect Lavalife's     
business, financial condition and results of operations.                        

LAVALIFE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES IN ITS       
INDUSTRY THAT HAVE FINANCIAL OR OTHER ADVANTAGES.                               

The online dating industry is characterized by the need to achieve a  
critical mass of users in each geographic area in order to attract and offer    
services to customers. In order to compete effectively, Lavalife must attract   
new users through marketing, brand recognition, competitive and innovative      
pricing and quality technology.                                                 

Lavalife's competitors, such as Match.com, a subsidiary of            
InterActiveCorp., and Yahoo! Personals, as well as other similar companies,     
offer services similar to Lavalife's. Some of these competitors have larger     
customer bases and greater financial and other resources than Lavalife. To date,
Lavalife has effectively competed with such companies. However, there can be no 
assurance that:                                                                 

   - the competitors will not increase their emphasis on programs similar to
those offered by Lavalife;                                        

     - the competitors will not provide services comparable or superior to those
provided by Lavalife at a lower cost to the user;                 

 - the competitors will not adapt more quickly than Lavalife to evolving
industry trends or changing market requirements; or               

 - additional competitors with greater financial or other resources will
emerge.                                                           

Such increased competition may result in price reductions, reduced    
operating margins or loss of market share, any of which could materially        
adversely affect Lavalife's business, financial condition and results of        
operations.                                                                     

LAVALIFE DEPENDS ON ITS ABILITY TO ATTRACT AND RETAIN ACTIVE MEMBERS.           

   Lavalife's future success depends in large part upon continued demand for
its services. A number of factors could affect the frequency with which         
customers utilize Lavalife's services or whether they use them at all. These    
factors include the popularity of online dating and the availability of         
alternative services. Any significant decline in usage could have a material    
adverse effect on Lavalife's business, financial condition and results of       
operations.                                                                     

    The online dating market is still young and rapidly evolving. The adoption
of online dating requires the acceptance of a new way of meeting other singles  
and exchanging information. Many of Lavalife's potential customers have little  
or no experience using the Internet as a dating tool, and therefore, Lavalife   
also competes with traditional methods of meeting other singles. If online      
dating acceptance declines or if Lavalife is not able to anticipate changes in  
the online dating market, its business, results of operations and financial     
condition could be adversely affected.                                          

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LAVALIFE RELIES HEAVILY ON ITS INFORMATION TECHNOLOGY AND IF ACCESS TO THIS     
TECHNOLOGY IS IMPAIRED OR INTERRUPTED, OR IF LAVALIFE FAILS TO FURTHER DEVELOP  
THIS TECHNOLOGY, LAVALIFE'S BUSINESS COULD BE HARMED.                           

  Lavalife's success depends in large part upon its ability to process and
manage substantial amounts of information. Lavalife must continue developing and
enhancing its information systems to remain competitive. This may require the   
acquisition of equipment and software and the development, either internally or 
through independent consultants, of new proprietary software. Any interruption  
or loss of its information technology capabilities could harm Lavalife's        
business, financial condition, results of operations and cash flows.            

If competitors introduce new products with new technologies, or if new
industry standards emerge, Lavalife's existing technology may become obsolete.  
Lavalife's future success will depend on its ability to do the following:       

- enhance existing products;                                          

- develop and license new products and technologies; and              

- respond to technological advances and emerging industry trends on a 
cost-effective and timely basis.                                  

The market for online dating services is characterized by rapid       
technological developments, new product introductions and evolving industry     
standards. The emerging character of these products and services and their rapid
evolution will require continuous improvement in the performance, features and  
reliability of Lavalife's service, particularly in response to competitive      
offerings. Lavalife may not be successful in responding to these developments in
a timely and cost-effective manner. In addition, the widespread adoption of new 
online technologies or standards could require Lavalife to make substantial     
expenditures to modify or adapt its websites and services. Any substantial      
expenditures could have a material adverse effect on Lavalife's business,       
financial condition and results of operations.                                  

   A critical part of Lavalife's service is its website that produces search
results, provides opportunities for interaction and tracks member activity for  
billing purposes. A failure to adapt its website, transaction processing systems
and network infrastructure to consumer requirements or emerging trends could    
lead users to move to competitor's services and could have a material adverse   
effect on Lavalife's business, financial condition, results of operations and   
cash flows.                                                                     

LAVALIFE RELIES ON COMPUTER AND COMMUNICATION SYSTEMS. COMPUTER VIRUSES OR OTHER
SYSTEM FAILURES MAY CAUSE LAVALIFE'S SYSTEMS TO INCUR DELAYS OR INTERRUPTIONS.  

    Lavalife's business is highly dependent on computer and telecommunications
systems and any temporary or permanent loss of either system could have a       
material adverse effect on Lavalife. In particular, computer viruses may cause  
Lavalife's systems to incur delays or other service interruptions and could     
damage its reputation which, in turn, could significantly harm Lavalife's       
business, financial condition and results of operations. The inadvertent        
transmission of computer viruses could expose Lavalife to a material risk of    
loss or litigation and possible liability. The continuing and uninterrupted     
performance of Lavalife's systems is critical to its success, as members may    
become dissatisfied by any service interruptions. Sustained or repeated system  
failures would reduce the attractiveness of Lavalife's system services and could
result in reduced traffic and revenues.                                         

THE SUCCESS OF LAVALIFE'S BUSINESS DEPENDS ON MAINTAINING THE INTEGRITY OF ITS  
SYSTEMS AND INFRASTRUCTURE.                                                     

 A fundamental requirement for online commerce and communications is the
secure transmission of confidential information, such as credit card numbers or 
other personal information, over public networks. If any compromise of          
Lavalife's security were to occur, it could have a detrimental effect on its    
reputation and adversely affect Lavalife's ability to attract customers. As     
Lavalife's operations continue to grow in both size and scope, Lavalife will    
need to improve and upgrade its systems and infrastructure. This may require    
Lavalife to commit substantial financial, operational and technical resources   
before the volume of business increases, with no assurance that the volume of   
business will increase.                                                         

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A PORTION OF LAVALIFE'S REVENUES AND EXPENSES ARE DENOMINATED IN FOREIGN        
CURRENCIES AND ITS RESULTS MAY BE AFFECTED BY FOREIGN CURRENCY EXCHANGE RATE    
FLUCTUATIONS.                                                                   

Lavalife is exposed to currency exchange rate fluctuations because a  
portion of its sales and expenses are denominated in currencies other than the  
U.S. dollar. In addition, a significant portion of Lavalife's sales are         
denominated in a different currency than their expenses. As a result, Lavalife's
financial performance may be negatively affected by currency fluctuations. For  
example, changes in exchange rates between the U.S. dollar and other currencies,
particularly the Canadian dollar, affect Lavalife's sales and expenses          
denominated in currencies other than the U.S. dollar and may have a negative    
impact on the value of Lavalife's assets located outside the United States. In  
addition, Lavalife may expand its international operations in the future.       
Although Lavalife has historically entered into hedging transactions designed to
mitigate these currency risks, there can be no assurance that we will be        
successful in doing so in the future and that currency fluctuations will not    
have a material adverse effect on Lavalife's business, financial condition and  
results of operations.                                                          

LAVALIFE DEPENDS ON KEY EXECUTIVES.                                             

Lavalife is dependent on certain key members of its management,       
particularly Chairman and Chief Executive Officer, Bruce Croxon, Vice President 
of International Corporate Development Nicholas Paine and Vice President of     
Product Design Ed Lum. In addition, Lavalife's future success will depend in    
part upon its ability to attract and retain highly skilled personnel. The       
failure to hire and retain such personnel could have a material adverse effect  
on its business, financial condition and results of operations.                 

CHANGING LAWS AND REGULATIONS AND LEGAL UNCERTAINTIES REGARDING THE INTERNET MAY
IMPAIR LAVALIFE'S GROWTH AND HARM ITS BUSINESSES.                               

     A number of proposed laws and regulations regarding the Internet that could
impact Lavalife's businesses, including with respect to consumer privacy, have  
been proposed or considered. Lavalife cannot predict whether any of these types 
of laws or regulations will be enacted or amended and what effect, if any, such 
laws or regulations would have on its businesses, financial condition or results
of operations. In addition, the application of various sales, use and other tax 
provisions under state and local law could have a material adverse effect on    
Lavalife's businesses, financial condition and results of operations.           

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SENIOR SECURED CREDIT FACILITY

   On March 25, 2004, we entered into an amended and restated senior secured
credit facility that allows borrowings of up to $45.0 million. The senior       
secured credit facility was provided by a syndicate of banks led by LaSalle Bank
National Association. As of March 25, 2004, there were no borrowings under the  
senior secured credit facility and the availability was reduced by an           
outstanding letter of credit of $5.5 million. Upon consummation of this         
offering, the availability under the senior secured credit facility will be     
further reduced by an amount equal to twelve months' interest on the outstanding
notes. We expect to draw approximately $30.0 million under the senior secured   
credit facility to pay a portion of the Lavalife acquisition price. We intend to
repay such amounts with a portion of the proceeds of the notes offered hereby.  
After giving effect to this offering and the use of proceeds therefrom, we will 
have approximately $27.1 million of availability under the senior secured credit
facility. The senior secured credit facility is a 364-day facility, which is    
renewable for two additional 364-day periods upon our request, unless written   
notice of non-renewal is provided by all of the lenders under the facility no   
less than 60 days prior to expiration.                                          

   At our option, interest on all borrowings under the senior secured credit
facility accrue at either LIBOR or the base commercial lending rate for the     
bank, plus an applicable margin. The applicable margin on the base rate will be 
between 0% and 0.50% based on our leverage ratio as defined in the senior       
secured credit agreement. On March 25, 2004, the effective interest rate was    
estimated to be 4.0%.                                                           

The senior secured credit facility will be guaranteed by all of       
MemberWorks' present and future domestic subsidiaries certain material foreign  
subsidiaries, including Lavalife.                                               

    Our borrowings under the senior secured credit facility and the guarantees
will be secured by a first priority perfected security interest in:             

- all the capital stock of our existing and future direct or indirect 
     domestic subsidiaries (in the case of a foreign subsidiary, such pledge
shall be limited to 65% of the shares of such capital stock); and 

- substantially all of our tangible and intangible property and the   
      tangible and intangible property of each of the guarantors, with certain
exceptions as set forth in the senior secured credit facility.    

  The senior secured credit facility contains customary negative covenants
and financial covenants. During the term of the senior secured credit facility, 
the negative covenants restrict MemberWorks' and its subsidiaries' ability to do
certain things, including but not limited to: incur or guarantee additional     
indebtedness; create, incur, assume or permit to exist liens on property, assets
or revenues; liquidate or dissolve; merge or consolidate with another entity;   
make loans and investments; make capital expenditures or enter into operating   
leases; engage in acquisitions and asset dispositions; declare or pay dividends 
and make distributions or restrict the ability of our subsidiaries to pay       
dividends and make distributions; repurchase our stock; and enter into          
transactions with affiliates. The financial covenants impose minimum EBITDA     
requirements and a maximum debt coverage ratio. Upon the closing of this notes  
offering, we also will be subject to a liquidity covenant under which we will   
not permit the sum of (1) the unused availability under the senior secured      
credit facility and (2) cash and cash equivalents, to be less than $30.0        
million.                                                                        

    The credit agreement also contains customary events of default, including,
but not limited to, cross defaults to MemberWorks' other material debt.         

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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS.      

(a)   Financial Statements of Lavalife Inc.:                                    

   Audited Consolidated Financial Statements for the Years Ended September
30, 2003 and 2002                                               
      Unaudited Condensed Consolidated Financial Statements for the Three Months
Ended December 31, 2003.                                        

(b)   Pro Forma Financial Information:                                          

Unaudited Pro Forma Condensed Combined Balance Sheet as of December 
31, 2003.                                                       
Notes to Unaudited Proforma Condensed Combined Balance Sheet.       
Unaudited Pro Forma Condensed Combined Statement of Earnings for the
six months ended December 31, 2003                              
Unaudited Pro Forma Condensed Combined Statement of Earnings for the
twelve months ended December 31, 2003                           
Unaudited Pro Forma Condensed Combined Statement of Earnings for the
year ended June 30, 2003                                        
Notes to Unaudited Pro Forma Condensed Combined Financial Statements

(c)   The following exhibits are included as part of this report:               

99.1  Unaudited Pro Forma Condensed Combined Balance Sheet as of    
December 31, 2003.                                  
     Notes to Unaudited Proforma Condensed Combined Balance Sheet.
        Unaudited Pro Forma Condensed Combined Statement of Earnings for
the six months ended December 31, 2003              
            Unaudited Pro Forma Condensed Consolidated Statement of Earnings for
the twelve months ended December 31, 2003           
        Unaudited Pro Forma Condensed Combined Statement of Earnings for
the year ended June 30, 2003                        
            Notes to Unaudited Pro Forma Condensed Combined Financial Statements

99.2  Audited Consolidated Financial Statements for the Years Ended 
September 30, 2003 and 2002                         
           Unaudited Condensed Consolidated Financial Statements for the Three
Months Ended December 31, 2003.                     

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the        
registrant has duly caused this report to be signed on its behalf by the        
undersigned hereunto duly authorized.                                           

                MEMBERWORKS INCORPORATED
    (Registrant)

Date: March 26,  2004               By:   /s/ Gary A. Johnson                   
                                          --------------------------------------
                                  Gary A. Johnson, President and
                           Chief Executive Officer

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘8-K’ Filing		Date		First		Last			Other Filings
		4/1/04		2		3			8-K
Filed on / For Period End:		3/26/04		1		13			8-K
		3/25/04		2		11
		3/3/04		3
		2/29/04		5
		12/31/03		6		12			10-Q
		9/30/03		4		12			10-Q,  8-K,  DEF 14A
		6/30/03		12					10-K
		12/31/02		6		7			10-Q,  10-Q/A
		9/30/02		6		12			10-Q,  10-Q/A
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