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Vertrue Inc – ‘S-3’ on 4/27/99

As of:  Tuesday, 4/27/99   ·   Accession #:  950123-99-3744   ·   File #:  333-77077

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/27/99  Vertrue Inc                       S-3                    3:51K                                    RR Donnelley/FA

Registration Statement for Securities Offered Pursuant to a Transaction   —   Form S-3
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-3         Memberworks Incorporated                              19     73K 
 2: EX-5.1      Opinion of George W.M. Thomas                          1      8K 
 3: EX-23.1     Consent of Pricewaterhousecoopers LLP                  1      5K 


S-3   —   Memberworks Incorporated
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
4Risk Factors
12Use of Proceeds
"Selling Stockholders
"Plan of Distribution
15Item 15. Indemnification of Directors and Officers
16Item 16. Exhibits
17Item 17. Undertakings
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1999. Registration Statement No. 333- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 MEMBERWORKS INCORPORATED (Exact name of Registrant as specified in its charter) DELAWARE 06-1276882 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 9 WEST BROAD STREET STAMFORD, CT 06902 (203) 324-7635 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) GARY A. JOHNSON PRESIDENT AND CHIEF EXECUTIVE OFFICER 9 WEST BROAD STREET STAMFORD, CT 06902 TEL: (203) 324-7635 (Name, address, including zip code and telephone number, including area code, of agent for service) APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE 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. |_| 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, 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. |_| CALCULATION OF REGISTRATION FEE [Enlarge/Download Table] PROPOSED MAXIMUM AMOUNT OF TITLE OF SHARES TO BE REGISTERED AMOUNT TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE Common Stock, par value $0.01 per share. . . . 41,666 Shares $1,570,325 $436.55 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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), SHALL DETERMINE. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is April 27, 1999.
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Subject to completion dated April 27, 1999 41,666 Shares MEMBERWORKS INCORPORATED Common Stock The 41,666 shares of common stock of MemberWorks Incorporated, a Delaware corporation, offered by this prospectus were issued in connection with the merger of a wholly-owned subsidiary of MemberWorks with and into Quota-Phone, Inc., a New York corporation, which was consummated on April 9, 1999. Certain former stockholders of Quota-Phone or their representatives may sell the shares from time to time as described in this prospectus under "Selling Stockholders." As part of the merger, MemberWorks has agreed to register the shares under the Securities Act of 1933, as amended. MemberWorks will not receive any of the proceeds from the sale of the shares by the selling stockholders. See "Use of Proceeds." The selling stockholders 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 SHARES OFFERED BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4. 2
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TABLE OF CONTENTS PAGE Where You Can Find More Information 3 Risk Factors 4 Use of Proceeds 12 Selling Stockholders 12 Plan of Distribution 12 Legal Matters 14 Experts 14 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows us to incorporate by reference the information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings (File No. 0-21527) we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934: a. our annual report on Form 10-K for the fiscal year ended June 30, 1998; b. our quarterly reports on Form 10-Q, for the fiscal quarters ended September 30, 1998 and December 31, 1998; and c. the description of our capital stock contained in our registration statement on Form 8-A, dated October 11, 1996, and any amendments or reports filed for the purpose of updating that description. You may request a copy of these filings, at no cost, by writing or telephoning us at the following address: MemberWorks Incorporated 9 West Broad Street Stamford, CT 06902 203-324-7635 Attention: George W. M. Thomas This prospectus is part of a registration statement we filed with the SEC. You should rely only on the information or representations provided in this prospectus. We have not authorized anyone to provide information other than the information provided in this prospectus. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this document. 3
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RISK FACTORS From time to time, information provided by Memberworks or statements made by its employees may contain forward-looking information. Our actual future results may differ materially from the 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. MEMBERWORKS HAS A HISTORY OF OPERATING LOSSES. THERE CAN BE NO ASSURANCE THAT WE WILL MAINTAIN PROFITABILITY IN THE FUTURE. MemberWorks has historically incurred significant operating losses. As of December 31, 1998, we had an accumulated deficit of approximately $40.5 million. For fiscal years 1998 and 1997, we reported net income of approximately $3.1 million and a net loss of approximately $3.9 million, respectively. Although we have experienced revenue growth in recent periods, these growth rates may not be sustainable and are not indicative of future operating results. There can be no assurance that we will maintain profitability in the future. THE SEC MAY ADOPT CHANGES IN ACCOUNTING RULES GOVERNING HOW REVENUES ARE RECOGNIZED. SOME CHANGES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR REPORTED REVENUES. On September 28, 1998, the SEC issued a press release and stated the "SEC will formulate and augment new and existing accounting rules and interpretations covering revenue recognition, restructuring reserves, materiality, and disclosure" for all publicly traded companies. Until such time as the SEC staff issues those interpretative guidelines, it is unclear what, if any, impact such interpretative guidance will have on our current accounting practices. However, the potential changes in accounting practice being considered by the SEC staff could have a material impact on the manner in which we recognize revenue. Prior to the SEC's announcement, we asked the SEC staff whether their views regarding the timing of revenue recognition for companies such as ours that sell services has changed in the wake of Cendant Corporation's agreement with the SEC to modify its revenue recognition practices. We have requested the SEC staff's comment on, and have provided the SEC staff with information demonstrating the continued appropriateness of, our revenue recognition practices. We have consistently followed these practices in accordance with generally accepted accounting practices and with the concurrence of PricewaterhouseCoopers LLP, our independent accountants. Following this review and several discussions with the SEC staff, the staff has not objected, except as noted below, to our decision to continue, for the time being, to follow our revenue recognition practices. The staff did request that we change, and we have changed, our method of accounting for printing and mailing of membership materials, beginning as of July 1, 1998. We recorded a $3.4 million expense in the first quarter of fiscal 1999, reflecting the cumulative effect of this change in accounting principle. We cannot assure you, however, that any rules adopted by the SEC relating to the recognition of revenues will 4
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not require us to change our accounting for revenue recognition or otherwise adversely affect our results of operations. OUR MARKETING EFFORTS DEPEND ON CUSTOMER LISTS SUPPLIED BY OUR CLIENTS. WE CANNOT ASSURE THAT OUR CLIENTS WILL CONTINUE TO PROVIDE US THESE LISTS. If our customers limit or stop providing us with those lists, our marketing efforts would be hampered. We obtain substantially all of the information necessary to MemberWorks' marketing efforts from customer lists supplied by our clients. Clients provide the lists to us for use in marketing a single, specific program which has been pre-approved by the client. As a result, our 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 we will continue to obtain such approvals. If clients limit the use of the customer lists, our marketing efforts would be hampered. ALMOST HALF OF OUR REVENUE LAST YEAR WAS FROM CUSTOMER LISTS SUPPLIED BY THREE CLIENTS. THE LOSS OF ANY OF THOSE KEY CLIENTS WOULD HAVE A MATERIAL ADVERSE EFFECT ON FUTURE RESULTS. Approximately 49.5% of our revenues for the year ended June 30, 1998 was attributable to members solicited from the customer lists provided by three key clients. There can be no assurance that one or more of our key or other clients will not terminate their relationship with us or that clients will provide additional customer lists to us 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 that client's customers are members and on our ability to further market new or existing programs through that client. OUR PROFITABILITY DEPENDS ON MEMBERSHIP RENEWALS. CANCELLATIONS WOULD IMPAIR OUR PROFITABILITY. We generally incur 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, we experience 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 refund of the membership fee for that period. Accordingly, the profitability of each of our programs depends on recurring and sustained membership renewals. OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER. Our 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 our financial results include: 5
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- the timing and cancellation of customer orders; - our ability to introduce new programs on a timely basis; - the introduction of programs by our competitors; - market acceptance of our and our clients' membership programs generally; - the timing of investments in program development; - personnel changes; - the demand for membership programs generally; - the mix of programs we offer; - 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 programs; and - competitive pressures on selling prices. Many of these factors are beyond our control. Because we determine our expenditure levels in advance of each quarter, our 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 can be no assurance that future acquisitions, such as the acquisition of Quota-Phone, and others, if any, by us will not have an adverse effect upon our results of operations, particularly in quarters immediately following consummation of those transactions, while the operations of the acquired business are being integrated into our operations. WE MAY BE UNABLE TO COMPETE WITH OTHER COMPANIES IN OUR INDUSTRY THAT HAVE FINANCIAL OR OTHER ADVANTAGES. We believe that the principal competitive factors in the membership services industry include the ability to identify, develop and offer innovative service programs, the quality and breadth of service programs offered, price and marketing expertise. Our competitors, including large retailers, travel agencies, insurance companies and financial service institutions, some of which have substantially larger customer bases and greater financial and other resources than we do, offer membership programs which provide services similar to, or which directly compete with, those provided by us. There can be no assurance that: - our competitors will not increase their emphasis on programs similar to those we offer and more directly compete with us, or - our competitors will not provide programs comparable or superior to those we provide at lower membership prices, or - our competitors will not adapt more quickly than us to evolving industry trends or changing market requirements, or 6
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- new competitors will not enter the market, or - other businesses will not themselves introduce competing programs. Any increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations. Additionally, because contracts between clients and program providers are often exclusive with respect to a particular service, potential clients may be prohibited from contracting with us to promote a program if the services we provide are similar to, or merely overlap with, the services provided by an existing program of a competitor. OUR BUSINESS DEPENDS ON NEW PROGRAM INTRODUCTIONS. IF WE FAIL TO INTRODUCE NEW PROGRAMS THAT ARE POPULAR, OUR BUSINESS WOULD SUFFER. Our business is substantially dependent on our ability to develop and successfully introduce new programs which generate consumer interest. Failure to introduce new programs in a timely manner could result in our 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 us 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 us or others, or our failure to introduce new programs which have broad consumer appeal, could have a material adverse effect on our business, financial condition and results of operations. WE DEPEND ON VENDORS AND TELEMARKETERS TO MARKET OUR PROGRAMS. THESE VENDORS AND TELEMARKETERS MAY TERMINATE THEIR RELATIONSHIP WITH US, AND WE CANNOT CONTROL THE LEVEL AND THE QUALITY OF THE SERVICE THEY PROVIDE. ANY SERVICE INTERRUPTION OR QUALITY PROBLEMS WOULD ADVERSELY EFFECT US. We depend on independent vendors to provide most program products and services to members and on telemarketers to market our programs to prospective members. The vendors and telemarketers operate pursuant to agreements with us 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 us, 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 our control. Any service interruptions, delays or quality problems could result in customer dissatisfaction and membership cancellations, which could have a material adverse effect on our business, financial condition and results of operations. 7
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OUR FUTURE SUCCESS DEPENDS ON PROGRAMS WE MARKET THROUGH CREDIT CARD ISSUERS. A DOWNTURN IN THAT INDUSTRY WOULD ADVERSELY EFFECT US. Our future success is dependent in large part on continued demand for our programs from businesses within the industries served by us. In particular, programs marketed through our credit card issuer clients accounted for substantially all of our revenues in fiscal 1998. 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 our business, financial condition and results of operations. WE HAVE GROWN RAPIDLY IN THE LAST FEW YEARS. WE CANNOT ASSURE OUR ABILITY TO MANAGE FUTURE GROWTH. We have recently experienced a period of rapid growth that has placed significant demands on our 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 $120.8 million in fiscal 1998. In addition, the number of employees increased from 76 to approximately 661 during the same period. Our ability to compete effectively and to manage future growth, if any, will depend on our 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 our personnel, systems, procedures and controls will be adequate to support our operations, and the failure to support our operations effectively could have a material adverse effect on our business, financial condition and results of operations. OUR PROGRAMS FACE INCREASING COMPETITION FROM NEW FORMS OF DIRECT MARKETING. 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 our major means of marketing our programs, as a direct marketing tool may decrease as a result of increased consumer resistance to telemarketing in general. INTRODUCING NEW PROGRAMS REQUIRES SIGNIFICANT INVESTMENTS. WE MAY NOT HAVE ENOUGH FINANCIAL RESOURCES TO MEET ALL OF OUR NEEDS. We typically incur 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 8
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membership kits for mailing to potential new program members. We must incur costs to market programs to each potential member, regardless of whether that individual actually becomes a paying member. Our capital base is smaller than that of many of our competitors, and there can be no assurance that our cash resources will be able to sustain our business, particularly if we experience a reduction in revenues for a prolonged period or if we face substantial unexpected capital requirements. To the extent that such cash resources are insufficient to fund our 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 our stockholders would occur. WE EXPECT TO GROW THROUGH ACQUISITIONS. THESE ACQUISITIONS MAY NOT BE PROFITABLE. As part of our growth strategy, we currently intend to expand through the acquisition of other businesses or products. We regularly review potential acquisitions and business alliances, some of which may be material. There can be no assurance that acquired businesses will be profitable. WE RELY ON OUR COMPUTER AND COMMUNICATION SYSTEMS. IF SUCH SYSTEMS FAIL OR ARE UNABLE TO KEEP PACE WITH TECHNOLOGICAL ADVANCES, OUR BUSINESS WOULD SUFFER. Our business is highly dependent on our computer and telecommunications systems and any temporary or permanent loss of either system, for whatever reason, could have a material adverse effect on our business, financial condition and results of operations. In addition, the technologies on which we are dependent to compete effectively and meet our clients' needs are rapidly evolving and in many instances are characterized by short product life cycles or innovation. As a result, we are dependent on ongoing, significant investment in advanced computer and telecommunications technology, including automated call distributors and digital switches, and our ability to anticipate and adapt to technological shifts. There can be no assurance that we will be successful in anticipating or adapting to technological changes or in selecting and developing new and enhanced technology on a timely basis. WE DEPEND ON THE TELEPHONE SERVICES THROUGH WHICH WE MARKET OUR PRODUCTS. AN INTERRUPTION OF, OR AN INCREASE IN THE BILLING RATE FOR, SUCH SERVICES WOULD ADVERSELY AFFECT OUR BUSINESS. We market and service our programs primarily telephonically, and accordingly, our business is highly dependent on telephone services provided by various local and long distance telephone companies. Any significant interruption in telephone services could adversely affect us. Additionally, limitations on the ability of telephone companies to provide us with increased capacity that may be required in the future, if any, could adversely affect our business, financial condition and results of operations. Rate increases imposed by these telephone companies will increase our operating expenses and could have a material adverse effect our on business, financial condition and results of operations. 9
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WE DEPEND ON KEY EXECUTIVE AND MARKETING PERSONNEL. A LOSS OF SUCH PERSONNEL WOULD NEGATIVELY IMPACT OUR OPERATIONS. We are highly dependent on the members of our management and marketing staff, the loss of one or more of whom could have a material adverse effect on us. In addition, we believe that our future access will depend in large part upon our ability to attract and retain highly skilled managerial and marketing personnel, particularly as we expand our activities. We face significant competition for such personnel, and there can be no assurance that we will be successful in hiring or retaining the personnel we require for continued growth, if any. The failure to hire and retain such personnel could have a material adverse effect on our business, financial condition and results of operations. OUR INDUSTRY IS INCREASINGLY SUBJECT TO FEDERAL AND STATE GOVERNMENT REGULATION. SUCH REGULATION COULD HINDER OUR OPERATIONS AND INCREASE OUR OPERATING COSTS. The primary means which we use to market our 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. For example, 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. Additionally, 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 deemed by them to be "unfair or deceptive acts or practices." Further, some states have enacted laws and others are considering enacting laws targeted directly at regulating telemarketing practices, and there can be no assurance that any such laws, if enacted, will not adversely affect or limit our current or future operations. Compliance with these regulations is generally the responsibility of us, and we could be subject to a variety of enforcement or private actions for any failure to comply with such regulations. Our provision of membership programs requires us to comply with certain state regulations, changes in which could materially increase our operating costs associated with complying with such regulations. The risk of noncompliance by us with any rules and regulations enforced by a Federal or state consumer protection authority may subject us or our management to fines or various forms of civil or criminal prosecution, any of which could materially adversely affect our business, financial condition and results of operations. Also, the media often publicizes perceived noncompliance with consumer protection regulations and violations of notions of fair dealing with consumers, and the membership programs industry is susceptible to peremptory charges by the media of regulatory noncompliance and unfair dealing. WE MAY BE UNABLE TO ACHIEVE YEAR 2000 COMPLIANCE. Although management believes our systems will be Year 2000 compliant, we have begun developing contingency plans to address any possible system failures. Because we use multiple vendors to process our billing transactions, our external risk is mitigated as vendors may be used interchangeably. However, there can be no assurance 10
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that these, or other companies on which we rely will be timely converted or that any such failure to convert would not have an adverse effect on our systems and operations. THE MARKET PRICE OF OUR COMMON STOCK COULD FALL AS A RESULT OF THIS MERGER. Sales of substantial amounts of shares of common stock in the public market following this merger could adversely affect the market price of the common stock. As of April 26, 1999 we had 15,716,282 shares of common stock outstanding. OFFICERS AND DIRECTORS CAN CONTROL CORPORATE ACTIONS DUE TO THEIR COMBINED OWNERSHIP OF 36% OF THE OUTSTANDING COMMON STOCK. Our officers and directors and their affiliates beneficially own approximately 36% of our outstanding common stock. These stockholders, acting together, would have the ability to significantly influence the election of directors and also may have the ability to determine the outcome of corporate actions requiring stockholder approval. This concentration of ownership also may have the effect of delaying or preventing a change in control. THE ANTI-TAKEOVER PROVISIONS IN OUR COMPANY CHARTER MAY PREVENT A TRANSACTION THAT IS IN THE BEST INTEREST OF THE STOCKHOLDERS. Our Restated Certificate of Incorporation (the "Charter") requires that any action required or permitted to be taken by MemberWorks' stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing, and requires reasonable advance notice by a stockholder of a proposal or director nomination which such stockholder desires to present at any annual or special meeting of stockholders. Special meetings of stockholders may be called only by the Chairman of the Board, the Chief Executive Officer or, if none, the President of MemberWorks or by the board of directors. The Charter provides for a classified board of directors, and members of the board of directors may be removed only for cause upon the affirmative vote of holders of at least two-thirds of the shares of capital stock of MemberWorks entitled to vote. In addition, shares of preferred stock may be issued in the future without further stockholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as the board of directors may determine. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of any holders of preferred stock that may be issued in the future. We have no present plans to issue any shares of preferred stock. In addition, MemberWorks is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law which prohibits MemberWorks from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. These provisions, and other provisions of the Charter, may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of MemberWorks, including transactions in which stockholders might otherwise receive a premium for their shares over then 11
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current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. WE ARE UNLIKELY TO PAY A DIVIDEND ON THE COMMON STOCK. We do not anticipate paying any cash dividends on the common stock in the foreseeable future. USE OF PROCEEDS We will not receive any proceeds from the sale of shares by the selling stockholders. SELLING STOCKHOLDERS The selling stockholders hold shares that were issued by MemberWorks in our acquisition of Quote-Phone, Inc. If all shares offered by the selling stockholders are sold, the selling stockholders will no longer own any shares. The selling stockholders have not held any positions or offices with, been employed by, or otherwise had a material relationship with MemberWorks within the last three years. The information in the following table provides certain information with respect to the shares beneficially owned by the selling stockholders as of the date of this prospectus. The shares registered under the registration statement of which this prospectus is a part may be offered from time to time by the selling stockholders. However, the selling stockholders are under no obligation to sell all or any portion of those shares, nor are the selling stockholders obligated to sell any shares immediately under this prospectus. We will not receive any proceeds from any sales of shares by the selling stockholders. All information with respect to share ownership has been furnished by the selling stockholders. [Download Table] Number of Name of Selling Shares Beneficially Shares Stockholder Owned Prior to the Offering Being Offered ----------- --------------------------- ------------- Barry Lewisohn 20,833 20,833 Stuart Berger 20,833 20,833 PLAN OF DISTRIBUTION The shares offered by this prospectus may be sold from time to time by the selling stockholders. We will not receive any proceeds from this offering. The selling stockholders may offer the shares from time to time in the open market, on the Nasdaq 12
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National Market, in privately negotiated transactions, or in a combination of such methods, at market prices that prevail at the time of sale or at privately negotiated prices. The selling stockholders may sell these shares through one or more brokers or dealers or directly to purchasers. These broker-dealers may receive compensation in the form of commissions, discounts or concessions from the selling stockholders and/or purchasers of the shares for whom those broker-dealers may act as agent, or to whom they may sell as principal, or both. Compensation as to a particular broker-dealer may exceed customary commissions. The selling stockholders and any broker-dealers who act in connection with the sale of the shares under this prospectus may be deemed to be "underwriters" within the meaning of the Securities Act. Any commissions they receive and proceeds of any sale of shares may be deemed to be underwriting discounts and commissions under the Securities Act. Under Exchange Act rules and regulations, no distribution participant or its affiliated purchasers (as defined in Regulation M adopted under the Exchange Act) may simultaneously engage in market making activities with respect to such shares for a restricted period beginning on the day proxy solicitation or offering materials are first disseminated to security holders and ending upon the completion of the distribution, except under certain limited circumstances. The selling stockholders, their affiliated purchasers and any other person participating in the distribution will be subject to certain provisions of the Exchange Act and related rules and regulations. These provisions prohibit, except under certain limited circumstances, the purchase and sale of any of the shares by the selling stockholders, their affiliated purchasers and any other person participating in the distribution during the restricted period described above. These restrictions may affect the marketability of the shares and the ability of any person or entity to engage in market making activities with respect to the shares. We have agreed to pay all of the expenses incident to the registration, offering and sale of these shares to the public other than commissions or discounts of underwriters, broker-dealers or agents. We have agreed to indemnify the selling stockholders against certain liabilities, including certain liabilities under the Securities Act. From time to time, the selling stockholders may pledge, hypothecate or grant a security interest in some or all of the shares they own. In the event of a foreclosure or event of default in connection with those pledges, the shares may be transferred to the persons to whom the shares were pledged. If such a transfer occurs, the transferees will be deemed to have the rights of the selling stockholders under this plan of distribution. At the same time, the selling stockholders will beneficially own fewer shares. The plan of distribution for the selling stockholders' shares will otherwise remain unchanged. This offering will terminate on the earlier of (a) June 30, 1999 or (b) the date on which all shares offered by this prospectus have been sold by the selling stockholders. 13
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LEGAL MATTERS The validity of the shares offered hereby will be passed upon by George W. M. Thomas, General Counsel of MemberWorks. EXPERTS The consolidated financial statements incorporated in this Registration Statement by reference to the Annual Report on Form 10-K for the year ended June 30, 1998, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 14
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PART II INFORMATION NOT REQUIRED IN PROSPECTUS Nature of Expense [Download Table] SEC Registration Fee ................................... $ 437.00 Legal Fees and Expenses ................................ $ * Miscellaneous .......................................... $ * ---------- TOTAL $ 437.00 * To be filed by Amendment Item 15. Indemnification of Directors and Officers. Except as hereinafter set forth, there is no provision of our Certificate of Incorporation or any contract, arrangement or statute under which any director or officer of Memberworks is insured or indemnified in any manner against any liability that he may incur in his capacity as such. Article Eight 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 Nine 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 II-1
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connection therewith. Expenses shall be advanced to a Director or office 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 indemnity is sought and the Registrant has the right to participate in such action or assume the defense thereof. Article Nine 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. Exhibit Description of Exhibit Page 5.1 Opinion of George W. M. Thomas II-6 23.1 Consent of PricewaterhouseCoopers LLP II-7 24.1 Power of Attorney (included as part of the signature page) II-4 II-2
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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. (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. Memberworks hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of our 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 Memberworks pursuant to the indemnification provisions described herein, or otherwise, Memberworks 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 Memberworks of expenses incurred or paid by a director, officer or controlling person of Memberworks 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, Memberworks 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
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SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Memberworks 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 27th day of April, 1999. MemberWorks Incorporated By: /s/ Gary A. Johnson -------------------------- Gary A. Johnson President and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gary A. Johnson and James B. Duffy, and each of them each with full power to act without the other, his true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for such person and in his name, place and stead, in any and all capacities, to sign any or all further amendments or supplements (including post-effective amendments) to this Form S-3 Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intent and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to be done by virtue thereof. 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 27th day of April, 1999. II-4
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[Download Table] SIGNATURE TITLE --------- ----- /s/ Gary A. Johnson President, Chief Executive Officer ----------------------------- and Director Gary A. Johnson (Principal Executive Officer) /s/ Dennis P. Walker Executive Vice President and ----------------------------- Director Dennis P. Walker /s/ James B. Duffy Senior Vice President and Chief ----------------------------- Financial Officer James B. Duffy (Principal Financial and Accounting Officer) /s/ Stephen J. Clearman Director ----------------------------- Stephen J. Clearman /s/ Alex 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-5

Dates Referenced Herein   and   Documents Incorporated by Reference

Referenced-On Page
This ‘S-3’ Filing    Date First  Last      Other Filings
6/30/991310-K
Filed on:4/27/99128-K
4/26/9911
4/9/9928-K
12/31/983410-Q
9/30/98310-Q,  NT 10-K
9/28/984
7/1/984
6/30/9831410-K,  10-K/A,  NT 10-K
10/11/9638-A12G
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